Over the Hill?

Posted in Technology Market Trends at 2:05 am by Tony Baer

Over the past year, Microsoft’s introduction of dividends was supposed to signify that software companies are becoming more “normal.” By now, it’s become almost cliché to draw analogies between information technology and providers of infrastructure that drove the first industrial revolution — like railroads, telephones, and electric utilities, because software was supposed to drive the industrial revolution’s successor. And it’s all supposed to imply that software companies are entering middle age, operating in maintenance mode.

There’s little doubt that the software industry has aged. While not all software giants pay dividends — for instance, CA does but Oracle doesn’t — for most of these companies, revenue streams from existing customers dwarf new sales. Occasional radar blips, like the fact that SAP’s latest quarterlies show license sales growing faster than maintenance, don’t change the big picture.

However, flattened growth isn’t synonymous with the end of innovation because, in software, the barriers to innovation are far lower. For instance, innovating 19th century infrastructure technologies like railroads or electric power would require radical scientific discoveries, not to mention unimaginable trillions of dollars of investment (think: maglev trains or fusion power). By contrast, thanks to the emergence of standards such as the Internet, and more recently, XML and web services, it will be far easier to overlay innovation in IT without ripping out existing technology. And by comparison to conventional sectors, the costs will be trivial.

The impacts are likely to be far reaching but subtle. With web services and services-oriented architectures making it possible for business logic to flow as freely as data, competitive pressures will force companies to expose high-impact processes as services, adding the next stage to a cycle that began with the inauguration of web commerce. Combined with other technologies, such as business intelligence, companies can open new lines of business and tap new revenue streams by analyzing routine processes, such as credit card payment activity for merchants.

Just as web sites have become a requirement for conducting business, so will innovations such as exposing business services. And that leaves plenty of demand for new technologies that ensure quality of service, reliability, and security for this new generation of electronic business offerings.

Don’t be fooled. Although software firms are becoming more “normal” companies, technology innovation continues to “matter.”