[Am-info] Microsoft Is Dead. Long Live Microsoft.

[Fred Miller]

Microsoft Is Dead. Long Live Microsoft.

By NICHOLAS G. CARR

 C <http://graphics7.nytimes.com/images/dropcap/c.gif> ARLISLE, Mass. -
Microsoft's decision to return $32 billion to its shareholders may be a wise
business move, but it is also an admission of defeat. With its announcement
this week that it will pay a special one-time dividend of $3 a share, the
company is confessing that despite years of trying, it has not found an
attractive way to invest its cash reserves. After decades of spectacular
growth, the world's most famous software company seems resigned to a more
sedate middle age.

Microsoft may be the biggest name in software, but its problem is not
unique. In recent weeks, many of the largest suppliers of business software,
like Computer Associates, Seibel Systems and Veritas, have announced that
their growth will fall short of investors' expectations.

The software industry's sluggishness is not just a reflection of the
vagaries of the economic cycle. It is a manifestation of a fundamental, if
often overlooked, characteristic of the industry's product: software never
decays. Machinery breaks down, parts wear out, supplies get depleted. But
software code remains unchanged by time or use. In stark contrast to other
industrial products, software has no natural repurchase cycle.

For software companies to grow, therefore, they have to give buyers good
reasons to throw out perfectly serviceable versions of programs and install
new ones in their place. Until recently, that hasn't been a problem. The
rapid growth in the power of microprocessors, combined with ever-shifting
computing standards, forced companies to replace or upgrade their existing
programs at a breakneck pace.

As long as software quickly became obsolete, it didn't matter that it didn't
wear out. Indeed, much of Microsoft's growth over the years has been fueled
by upgrades to its two core products: the Windows operating system and the
Office suite of basic business applications.

But now the software upgrade cycle is slowing. Computers have become so
powerful that companies no longer need to rush to buy new models with the
latest chips. At the same time, the spread of the Internet has solidified
many computing standards. As a result, the need to upgrade software has
greatly diminished. In many cases, software purchases have reached what
economists call the point of diminishing returns. More often than not, the
improvements don't justify the costs.

The change can be seen most clearly in personal computers. The majority of
business users of PC's rely on a well-established and fairly rudimentary set
of programs - e-mail, word processing, Web browsing and spreadsheets - that
use only a small fraction of the computing power built into today's desktops
and laptops. The case for continuing to upgrade these programs is weak and
getting weaker.

But the same trend is playing out in complex and expensive enterprise
applications - the programs that underpin business processes like
accounting, customer service and purchasing. Over the last 10 years, most
big companies spent a great deal of money to install these programs, and
they no longer see compelling reasons to upgrade them.

In fact, they are rebelling against software makers' requirements that they
always run the latest versions of programs. One recent survey of corporate
software buyers showed that nearly 75 percent want to see less frequent
upgrades, and more than 20 percent plan to stop buying upgrades altogether.

The prospects for the consumer market seem brighter in some ways. As more
people come to employ their PC's as entertainment centers, using them to
edit movies, touch up photographs, and play games and music, they need to
buy more powerful processors and install sophisticated new software. But the
consumer market plays by different rules, and it is hard for software makers
to charge much for their products. Apple Computer, tellingly, gives away its
most popular software program, the iTunes jukebox, making up the loss
through sales of hardware and downloaded songs.

Since its founding less than half a century ago, the software industry has
become one of the largest in the United States. More than that, it is the
icon of the modern information economy, a symbol of growth, prosperity and
excitement. But now the industry is changing, and for the first time its
managers, employees and investors are confronting an era of limits, with
heightened challenges and lowered expectations.

Software companies are smart and inventive, and they will continue to come
up with new, if ever more specialized, products. The industry will remain a
large and important one, but it seems fated to resemble more and more a
traditional, mature sector like manufacturing. It is no longer unthinkable
to say that software's glory days lie in the past, not the future.

Nicholas G. Carr is the author of "Does IT Matter? Information Technology
and the Corrosion of Competitive Advantage."


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-- 
"Ballmer is no more designed for the art of persuasion 
than the Abrams tank is for delivering meals on wheels."