Industry In Flux

Predicting the future is always dicey, especially when it comes to the future of software. Just ask Bill Gates, who greatly underestimated the impact of the Internet in the first edition of his 1995 book, The Road Ahead.

As we now know, the Web changed everything in just a few years. New software companies appeared, and some old ones that couldn't adjust to the new paradigm died. Many of those new companies disappeared during the dot-com bust, yet they played a part in shaping a software industry that looks quite different than it did 10 years ago.

In the next few years, software, the way it's developed and supported, and the vendors that deliver it are in for more changes, driven by emerging business needs, new customer demands, and market forces. "There's an argument that almost every company is in the software business in one way or another," says Charles Fitzgerald, Microsoft's platform strategy general manager. People may not think of eBay or American Express as being in the software business, he says, but they are. "If you participate in the information economy, you will be a software company. If you're in a customer-facing business, software is the way you're going to differentiate yourself."

But will the industry that provides much of that software look the same three, five, or even 10 years down the road? Probably not. It's an industry that goes through periodic waves of consolidation and expansion, and the consensus is that it will be in consolidation mode for the next few years. Oracle CEO Larry Ellison has famously predicted that, within a few years, the software market will be dominated by a few companies, including Microsoft, SAP, and--of course--Oracle.

Some software buyers agree. "The number of software vendors will definitely get smaller and smaller," says Mani Shabrang, head of technology deployment and research and development in Dow Chemical Co.'s business-intelligence center. But as vendors of mature software categories such as enterprise resource planning consolidate, he says, vendors of new types of software will spring up. Shabrang foresees a new generation of tools for visualizing data and intelligent software that doesn't just mine text but recognizes the tone and meaning of written prose.

Others believe there will be just as many, if not more, software vendors in the future as there are today. But new companies will develop higher-level applications, leaving the markets for infrastructure software, middleware, and even core applications such as ERP to a few major players, says Danny Sabbah, chief technology officer of IBM's software group.

"Roughly every two or three years, new software categories appear," says Gerald Cohen, CEO of business-intelligence software vendor Information Builders Inc. "As long as there's a venture-capital industry, there will be new categories of software."

There's no consensus on what the next killer application will be, but emerging service-oriented architecture technology is likely to provide the foundation for a new generation of software applications. (See "Apps To Die For") In contrast to today's model of vendors developing ever-larger applications that can take months to install, the software of the future will be made up of components, many of them developed in-house by the businesses that need them.

One direction software may take is to move from integrating business processes within a company to integrating these processes between companies, Sabbah says. For instance, such applications might link ordering, invoicing, and inventory-management tasks up and down a supply chain within an industry.

What the predominant operating system underlying new applications will be is another question. The battle between Microsoft's Windows and Linux distributions will be fought for many years and will likely intensify when Microsoft debuts its next-generation Longhorn client and server in 2006 and 2007, respectively. Halting Windows' momentum will be tough, given the enormous resources Microsoft puts into its operating system. (See "A Windows World?")

While componentized apps will make up much of the software landscape of the future, larger and more-complex systems aren't going away. The 50 million lines of code that now make up Windows could double in the Longhorn release. How will the process of developing software be managed, especially as geographically disbursed programmers and offshore developers do an increasing amount of development work? And what challenges await users of the complex applications they create?

It's clear that advanced automation and collaboration capabilities will be critical elements of tomorrow's software-development tools. (See "Get That Team Spirit") "But complexity is an inherent part of our business," IBM's Sabbah says. "The real challenge of our industry is to build software that is [easy to use] and simple to deploy but not simplistic."

Other challenges loom, too, from better securing applications to enhancing the systems that interface with emerging technologies such as radio-frequency identification and voice over IP.

Equally important will be continued changes in vendor-buyer relations and how software functionality gets delivered. Witness the growth of companies such as Salesforce.com Inc. that provide software on a hosted basis. And there's growing demand for "performance-based" pricing, which could shift even more power to software buyers. (See "Share The Load")

Such potential changes don't trouble Jim Goodnight, co-founder and CEO of business-intelligence and data-analysis software vendor SAS Institute Inc. He's focusing on what new opportunities lie in the near future. He points out, for example, that SAS has a growing business in anti-money-laundering software and other applications customers need to comply with the USA Patriot Act--all unforeseen before the Sept. 11, 2001, terrorist attacks.

"The IT industry needs to keep a fairly short horizon. Our horizon is about two years," Goodnight says. "We make it a practice not to have these big five-year plans. If you do, you're going to get about halfway through, and the world is going to change."

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Illustration by Brian Stauffer