David Hornik of August Capital wrote a fascinating blog "The Softwareless Software Company" which contends that the software business is moving to services, or software delivered as a service. Jeremy Wagstaff, a Wall Street Journal writer has a similar story "It's not the "death" of Microsoft, it's the "death" of Software". In both cases they mean "software" in the traditional packaged software sense. I agree. The transition to software as a service has already started.
Jeremy Wagstaff sees the trend but argues it will be a while before web based apps can compare to traditional client based software. He says;
The problem: Most web applications are broken, and if we were paying for them, or Microsoft were making them, we’d be howling. Google Docs’ word processor, for example, quickly breaks down on bigger documents (weird artefacts appear in the text, keyboard shortcuts stop doing what they’re supposed to.) Its spreadsheet program mangles spreadsheets. The functionality in both is extremely limited for anything more than the most basic tasks.
All this takes us to a weird place: We somehow demand less and less from our software, so that we can declare a sort of victory. (for Web 2.0)
Salesforce.com is the usual example. Google is another. Most of their employees are software engineers...but they don't sell software. They both provide software solutions delivered as web based services. Microsoft Live is a move in the same direction. Check out Xbox Live to see the integration of Live Services with packaged games. But read on, it gets much more interesting and complicated.
Listen to what David Hornik says about Microsoft's moves and the ultimate key to the success of software delivered as a service.
Perhaps the best evidence that we are entering this era of Softwareless Software Companies is Microsoft's "Live" push. At a recent VC Summit, numerous Microsoft execs, including Steve Balmer himself, talked about Microsoft's focus on rolling out service offerings under the moniker of "Live." They are now offering LiveDesktop, LiveSearch, OfficeLive, LiveExpo, LiveMeeting, etc. And in support of their massive push into the services space, Microsoft has just opened a new datacenter that will ultimately span just shy of half a million square feet (I hope to write more specifics about this some time soon).
In the era of the Softwareless Software Company, in which value is measured by utility, simplicity and reliability, the greatest asset may ultimately be the near infinitely scaling data center. It will certainly be important that the new computer company deliver great utility through its software-delivered service. But the most significant differentiator may ultimately prove to be the capacity to scale with massive demand. And those companies best situated to deliver that scale will be the winners. Thus, it is no surprise that just up and down the river from Microsoft's new datacenter in Quincy Washington, both Yahoo and Google are contemplating building their own gargantuan datacenters. The Softwareless Software Company may have come full circle from the Computerless Computer Company and be more about hardware and infrastructure than about software after all.
Microsoft has been delivering software as a service for a long time. Windows Live Hotmail has 260 million consumer users. By comparison, Microsoft Outlook has over 500 million business users. Both are valuable businesses for different market segments. Mr. Hornik alluded to five different Live Services above. Expect to see more Live Services announced in the future, perhaps later this month at MIX 07.
David Hornik makes another interesting point that huge data centers may be the key to successfully delivering software as a service. A year ago I wrote about Microsoft and Google building huge $500M data centers calling it "A Battle of the Titans". There are very few companies in the world that have the vision, capability, and financial resources to build the data centers, infrastructure, and bandwidth necessary. Microsoft is one of those companies.
Paul Graham recently wrote a provocative and off base blog "Microsoft is Dead". I responded with "Since when does growing $4 Billion a year = Dead?" Paul lives in the Web 2.0 world building web based applications for consumers. From his perspective anyone who isn't building web based consumer apps is, well...Dead. Paul failed to see three things.
- Microsoft is already delivering software as a service with Live Search, Xbox Live, Office Live, Windows Live, Live Meeting, and lots of others.
- Building the software services is important, but the real important determinant of success is the ability to deliver the services in a scalable, secure, reliable, and cost effective way. This requires big data centers and experience managing web scale services.
- Microsoft's enterprise customers want their web based services to seamlessly integrate with their server based applications and client PC based productivity tools. Sorry, stand alone web apps don't cut it for business customers. This is where Microsoft is spending tons of time and resources, and will ultimately be the key to success for software delivered as a service.
The transition from packaged software to software as a service has already started. For consumers it happened a long time ago. For business it has started as well, but it will take longer because the problems are more complex and expensive. The existing systems must seamlessly integrate with the new services. This is precisely what we call the Client/Server/Services continuum. It is why we have been working on Live Services, and why we have been busy building huge data centers. The pieces are in place and the picture will become clear for all the world to see very soon.
Microsoft is not dead...or irrelevant. Sorry Paul, I couldn't resist. :-)