
The Software Paradox: The Rise and Fall of the Commercial Software Market [pdf] - rdudekul
http://www.oreilly.com/programming/free/files/software-paradox.pdf
======
kyaghmour
Not sure that there's any paradox here. The rise of a freely-accessible
network connecting all humans (i.e. the Internet) has just made it such that
hundreds of years of cleverly and carefully assembled middle-middlemen that
were required to keep the economy going are no longer required. This affects
the software ecosystem that existed right before the Internet but impacts
everything else as well: taxis, hotels, etc.

Moving forward, assume that middle-men are gone, unless required by
legislation or differences in sovereignty (i.e. still effectively
legislation). The net result is that it's cheap to build and procure yourself
practically almost anything, with the surface of things you can't
build/procure yourself increasingly diminishing given the network effect of
large swaths of the human race rushing to the Internet to build ever
increasingly sophisticated modular components with each trying to outflank
each other with a lower price/barrier-to-entry.

If we can 3D print/carve materials we can buy in bulk in a cheap fashion from
freely-available software/data, we are likely looking at a fundamentally
different economy than the one we are in today.

~~~
cronjobber
> assume that middle-men are gone

Wishful thinking. In the real world, middle man competition is being replaced
with middle man monopolies, e.g. Amazon between manufacturers and consumers,
Apple/Google between app creators and users, Google between websites and
readers, Uber between cabbies and travelers.

~~~
raverbashing
Interesting concept

There's a word for single seller (monopoly), single buyer (monopsony) but not
for single middle man (at least not that I'm aware of)

~~~
_dps
I'm not familiar with the associated ancient Greek word for middleman (-poly
and -psony come from ancient Greek), but in modern Greek "μεσαζοντας"
(pronounced meh-sa-zon-das) is "middleman". So that would suggest something
like "monomesazontia".

There is also "μεσίτης" (meh-see-tees) which means broker / facilitator. That
would suggest "monomesitia".

But if you're willing to mix Greek prefixes with English/Germanic roots for
"dealer", then I like the sound of "monomongery" :)

~~~
giaour
"Monomonger" just sounds like such a mean thing to call anybody. What would
the noun form of monomesitia be?

~~~
_dps
A person practicing "monomesitia" would be a "monomesitis". I agree
"monomonger" sounds pretty vulgar, but I found it humorous :)

------
nickpsecurity
The title is a half-truth: commercial software is certainly in the decline
while also being a huge, profitable business. The SaaS and ad-driven vendors
get most of the attention. They might even be most of the startups. Yet,
there's a steady stream of companies building software that's worth paying for
and making money on it. On top of that, there's always the "improve legacy
systems" market where you makes something they can't get away from even
better. Solutions building on Microsoft, Oracle, mainframe, AS/400, VMS, and
so on all come to mind. They stay around, so your enhancement might stay
around too.

The two ensure commercial software won't go away or even be marginal in terms
of where the profit is. SaaS is a race-to-the-bottom due to intense
competitiveness. Ad-driven model can be lucrative but is also high risk.
Building a product with strong lock-in effects is the only method proven to
last decades. From there, you can decide whether you want the risk of the ad
model (Facebook) or the profit of commercial model (Microsoft, Oracle). One
looks more appealing. ;)

~~~
sogrady
[Disclosure: I'm the author] No argument that up-front, perpetually licensed
software is currently a huge, profitable business. Windows and Office alone,
as acknowledged, generate essentially $44B by themselves. There are also
profitable businesses that pursue the traditional perpetual license model -
Palantir being perhaps the most notable example (although from conversations
with employees there, they are increasingly being pushed towards alternative
models).

But the point of the Software Paradox is not that companies are not currently
and cannot in future make money from software, and that there are no
exceptions to the rule, it's that the trajectory broadly is not promising.
Looking across a variety of software categories, from mobile to operating
systems to infrastructure to tooling to consumer, the trendline is downward in
terms of their up-front realizable revenue potential.

None of which should be taken to mean that software is going away. If anything
it's becoming more important, hence the use of paradox. But developers and
companies seeking to monetize software should at least be aware of the market
context which is that it's becoming more difficult to make money from it the
way that it was possible to even a few years ago. Even the lock-in mechanism,
which is correctly cited as a method proven to monetize customers efficiently,
is more easily replicated in services businesses (e.g. cloud) than it is in
traditional on premise software, where open source has become both an
expectation and a means of combatting lock-in.

If one looks at all of the available evidence and decides to proceed with a
traditional software licensing approach in spite of the observable challenges,
it is certainly not impossible for them to a) generate revenue and b) be
profitable. But the degree of difficulty attached to this model has gone up
considerably, and looks to only be getting worse. And this isn't just an
academic theory, it's something I hear almost daily in conversations with
vendors.

~~~
nickpsecurity
Appreciate your clarification. I agree that the overall trajectory is not
promising in the mass market. What are your thoughts on the pay more for
quality or security market for software/systems? Have those analyzing the data
made this distinction to see how much the trend affects that market segment?
Many that I know of still use the old model's of licensing or expensive
appliances although the startups are doing things with new models. I think, if
that niche had same effect, it would reinforce your claim even more. If it
wasn't as impacted, it would give the best spot to invest in and market apps
with profitable, licensing models. What I often called the Toyota Strategy.

"Even the lock-in mechanism, which is correctly cited as a method proven to
monetize customers efficiently, is more easily replicated in services
businesses (e.g. cloud) than it is in traditional on premise software, where
open source has become both an expectation and a means of combatting lock-in."

I'm actually starting to agree with this more and more as I look into how they
design it. Facebook is the perfect example: containing people's whole life
with no easy way to move it. The cloud vendors usually allow unlimited
incoming data and charge for outgoing. Tricks like that combined with low,
entry barrier might make for nice lock-in over long term.

"But the degree of difficulty attached to this model has gone up considerably,
and looks to only be getting worse. And this isn't just an academic theory,
it's something I hear almost daily in conversations with vendors."

Oh, like I said, I buy that. Title just read like another piece on how that
type of software was done altogether. The claims about the trend in the book
and your comment are right on. I guess you could say that's what I really was
griping about. ;)

------
rando289
It's really twisting things in order to fit a wierd corporate narrative on
FOSS.

"Even companies like GE are helping to fund noncommercial software, having
con- tributed $105 million to Pivotal, the home of projects like Cloud
Foundry." Uh... they invested for a 10% stake in a for profit company which
creates commercially focused free software, among other things. The corporate
doublespeak runs deep.

Reminds me generally of orielly's screwy agenda
[http://www.thebaffler.com/salvos/the-meme-
hustler](http://www.thebaffler.com/salvos/the-meme-hustler)

~~~
nickpsecurity
Yeah, that is deceptive. Facebook is a great example of a company funding
FOSS. Redhat is the canonical example. EnterpriseDB is another example. The
defining characteristic is the difference between what they're taking from a
project and what they're contributing. Most companies prefer a 95-100% one-way
relationship in their favor.

------
hosh
The tl;dr: 'The economic value of software is declining even as the strategic
value of software is rising.'

When I applied this framework to Docker, the magic sauce of Docker pops out in
an obvious way. I had asserted in other threads that Docker's thing is
packaging ... but reading this paper, I can see why Docker is moving so fast.

And go figure, it's written by Stephen O'Grady of RedMonk.

~~~
eternalban
> 'The economic value of software is declining even as the strategic value of
> software is rising.'

Sometimes as a geek I feel a certain sympathy for 3rd world nations who happen
to sit on a scare natural resource and are forced to give it away for a song
when asked by merchants in military gear..

~~~
x5n1
Nobody is forcing you to do this shit. You do it of your own free will because
Mr. MBA has got a bunch of Indians working for him for a song.

~~~
eternalban
I've sat in meetings where decision to dismiss an entire floor of programmers
in one of the nyc building of one bank included open and frank assessment of
outsourced work ("4th iteration" "crap" ...) by one of the executives.

("Mr. MBA" is just another worker, like you and me.)

~~~
GnarfGnarf
I'm confused: is the executive dismissing outsourced work as crap, or is he
advocating outsourcing because the entire floor of NYC programmers' work is
crap? Did they make the decision to outsource the work?

~~~
eternalban
He noted that it was crap, but then again the meeting was about bringing in
/more/ so the floor could be cleaned up. I'm sure this equation resolves at a
higher interest level, but it did not make much sense at that table.

------
imrehg
This is the original store page of the book:
[http://shop.oreilly.com/product/0636920033325.do](http://shop.oreilly.com/product/0636920033325.do)

Looks like the linked PDF is with the "Compliments of PayPal", Google Cache[1]
still has that version of the O'Reilly store page while now actually cost
money again. So I guess someone was clever to save the download link while the
promotion lasted? :)

[1]:
[http://webcache.googleusercontent.com/search?q=cache:tTFeN8y...](http://webcache.googleusercontent.com/search?q=cache:tTFeN8yjqSYJ:www.oreilly.com/programming/free/software-
paradox.csp%3Fcmp%3Dtw-prog-books-videos-product-na_software-
paradox.csp+&cd=1&hl=en&ct=clnk&gl=tw)

------
amelius
From the description on the O'Reilly page I get the impression that this book
is perhaps 90% hindsight and 10% helpful advice for entrepreneurs in software.
Is this a correct observation?

~~~
jacquesm
There are lots of good lessons in history as well. Remember that trends in
computing tend to be cyclic (for instance: centralization/decentralization).

~~~
Zigurd
Cycles are an attractive framework for thinking about technology progress, but
is it true? For example, the app->Web->app apparent "cycle" happened exactly
once. And there is a government jackboot on the neck of decentralization. I
don't see repetition or commonality. All such supposed cycles happen on the
backdrop of huge growth rates.

~~~
carterehsmith
first computers -> timesharing, multiuser (dumb terminal) -> client-server
(smart terminal) -> Web 1.0 (dumb terminal) -> Web 2.0+ (smart terminal) ->
cloud (dumb terminal)

------
antaviana
We launched in December 2012 our offline desktop software product for business
and freelancers (niche market with a TAM of about 100,000 users) only as a
subscription, no perpetual licenses available. Previously this project was
freeware (closed source) so our 2.x version remained freeware and our 3.0 was
only available as a subscription sold in chunks of 1 year-subscriptions as
opposed to monthly).

In retrospect, we are very happy to have chosen the subscription model because
it resembles a lot the freeware model: for maintenance you just focus on the
latest version/build issues because 100% of your customer base is entitled to
have it, you don't compete with yourself across paid versions and don't need
marketing effort to explain customers why they should upgrade every year. Your
sales effort is also lower because your price point is lower.

------
Rafert
Changing the file extension to epub or mobi works as well, btw.

~~~
chkuendig
[http://www.oreilly.com/programming/free/files/software-
parad...](http://www.oreilly.com/programming/free/files/software-paradox.mobi)

[http://www.oreilly.com/programming/free/files/software-
parad...](http://www.oreilly.com/programming/free/files/software-paradox.epub)

thanks :)

------
amelius
It certainly looks like there is no money to be made anymore in compilers, or
software development tools in general. That market seems to have been eaten by
free open source software.

I wonder if there is any advice for software tool builders? Has the money
really dried up?

~~~
nickpsecurity
There's several private companies that make money selling compilers: Green
Hills and PGI comes to mind immediately. Open compilers are good enough that
commercial ones have to be better in general or on specific platforms to
justify price. Plus, they usually integrate into other tools that do things
FOSS cant or doesnt do well.

One area that's an untapped market is compilers that automatically and
efficiently protect legacy code. I've seen academic and FOSS methods that do
well. A thoroughly tested, supported, integrated with IDE option would
probably sell well. A cross-platform even better.

------
mark_l_watson
Commercial software may be getting a smaller piece of the pie, the pie is
getting larger quickly.

I basically agree with Donald Knuth: open source (I would prefer it be libre)
software will continue to be more important with passing decades. I expect
that if the human species survives long term that in a few hundred years the
world(s) will be run at partially by very old and very stable open source
software.

I have had access to computers since about 1960 (thanks Dad!) and the
improvements have been exponential. That said, in the distant future when
computer science is a mature science, for many tasks rock solid software will
likely be more important than the decade's latest bells and whistles.

------
curiousjorge
It's true that free software is eating into everyone's margins, especially
unsustainable business models that run entirely by burning cash and
continually raising more and more money in hopes a giant will come and swoop
it off it's feet.

However, I think there's a problem with attempting to take the assumptions
from macro view and drilling it to individual companies and startups. Plenty
of awful software with awful websites sell like hot cakes. The age of these
companies are ancient, started in mid 90s to mostly early 2000s. The people
buying their software don't know what open source is, rather if they see
something as free, these are the type of people that think there's something
wrong with it. By the articles explanation, they shouldn't exist or they
should be fending off attacks from left and right but in reality, the software
part of business is actually very small. The fact is, it's a business and the
people that make up the customer base. So while it is true that some
industries may face fierce competition from "free software" it varies from a
spectrum where one end is little to no innovative destruction mostly because
of the customers to the other end which this article talks mostly about where
ALL software companies are threat. There are still industries where the
establishment form coalition and invent complicated "industry standards" to
prevent anymore innovation happening. These are business strategies aimed to
raise the cost of entry among other tactics that's harmful for the industry
but great for the stakeholders.

Having said that, the article isn't without merits, there are some very
important truths in there. Like almost all advices, take it with a grain of
salt.

~~~
nickpsecurity
WinRAR was a good example. There were free utilities to compress files. Yet,
theirs had better interface, features, and performance. The file splitting
feature was particularly compelling when dialup, floppies, and CD-R's were
common. So, people kept buying them. They've declined quite a bit and we have
excellent alternatives such as 7-Zip today. Yet, the product is still selling
because they do a job well for a reasonable price.

~~~
x5n1
That's the thing about reading articles like these, they are massive
generalizations that apply to big league players. There are still plenty of
opportunities to be had for many other players.

~~~
nickpsecurity
That's my take. Funny that it attracts agreement on HN despite counterexamples
showing up here regularly. Last one was AeroFS: a private, safer Dropbox for a
monthly fee. At the moment, that one use case can (and probably does) have
dozens of successful vendors whose sales teams were first to get to customer.
Once deployed, they're usually hesitant to switch and have related
requirements. That's both increased odds of long-term revenue plus opportunity
for profitable, custom work.

That's just one out of a zillion scenarios where potential customer is
unlikely to use FOSS or "The Cloud." There's also several attributes outside
cost and some business models that almost nobody is pushing hard in software
industry like we saw in other industries. Especially retail, which adapted
like crazy all over. Anyone spotting these and jumping on them in the right
way might make a killing.

