Online Services Will Grow – Software Use Will Decline

When Microsoft Chairman and Founder Bill Gates rallies his company in a new direction it is VITAL that we all take notice. Remember when the command line interface of DOS was popular, well Microsoft Windows came to being. Remember when Netscape started and ruled the web for all of 5 minutes? Microsoft brought us Internet Explorer and easy ways to make web pages. Well now Microsoft is quickly trying to shift its focus to online services.
While PC based software will continued to be used by millions of businesses, more and more businesses in HUGE numbers are using hosted applications for more of their core business functions. Why?
1. It’s better on cash flow to pay a “low” monthly fee than huge investments of money up front
2. It’s easier to have 10 or 100 users start using a hosted service, just log on to the ‘net, than installing software on 10 or 100 computers
3. The data is available from any Internet accessible computer – anywhere in the world. Data is not tied to one computer.
Microsoft knows these (and probably more) reasons and is trying to turn itself around to meet this challenge. You need to be aware of this shift. If you SELL software and if you USE software.
LA Times writes Gates warned his lieutenants that every part of the company would have to embrace the new market realities: “This coming ‘services wave’ will be very disruptive.”
The pressure is on. Microsoft’s sales grew 8% last year, a precipitous slide from the 49% annual growth rates of a decade ago. Wall Street has greeted its vast profit – $3.65 billion last quarter alone – with a yawn. The company’s stock has stagnated for three years.
By contrast, rivals such as Google Inc. pull in billions of dollars for ads on free Web-search pages. Inc.’s leased sales-and-marketing software brought it revenue and profit growth above 65% last quarter. Apple Computer Inc. recently announced it had sold the billionth download for the iPod, which has become the company’s biggest revenue source.
“Microsoft hates the services business,” said Jeffrey Tarter, executive director of the Assn. of Support Professionals. “If they can’t solve the services problem they’ll gradually begin to see themselves drifting into a backwater.”
But to embrace the next big thing, Microsoft risks further slowing the most prolific cash machine in software history and forcing product managers to take huge risks that could alienate customers.