'It'll be ugly when half the software industry goes away' - pundit

If by 'ugly,' you mean great

If you're going to "software as a service," you better have good services to back up the shift. So far, that hasn't really played out.

You all know the horror stories about an IBM consulting team visiting your data center for a one-off engagement only to end up pitching tents and setting up mini-fridges for what turns into a multi-year stay. Three years and $10m later, they tell you that DB2 might have been the better choice than Oracle after all. Time for another software roll out.

IBM's own software researcher Paul Maglio thinks very serious work needs to be done on the services front for the good of vendors and, quite frankly, for the good of freedom, justice and the American way.

"We have to focus on services and services innovation," he said.

IBM, for example, has "grown its services business like crazy," but the services unit has lower gross margins than the even the ultra-competitive corporate hardware business.

"The profit in the services business does not grow proportionally," Maglio said.

Rivals such as Oracle, HP and Microsoft face the same issue, and that's at least partially their fault.

Maglio argued that the US has failed to spend real money looking at innovation in the services field.

"We have no Gordon Moore of services.

"There is no guiding star. There is nothing telling me to invest in people in this situation and to invest in technology in this situation."

IBM has tasked Maglio and others with trying to improve the communications between the vendor and customer in the hopes that something more concrete can come out of services engagements. Such research should go well beyond the same-old, same-old case studies. Maglio wants to develop a rich methodology for understanding how to make Big Blue consultants useful in a broad set of situations.

How to get decently rich from software

While IBM tweaks the services angle, a host of companies continue to focus on the actual software piece of software as a service.

If, as the pundits say, large, platform-style software companies are dead, then what's left?

Well, the consensus seemed to be that small, very focused software companies will thrive in the next few years.

For example, Winblad pointed to one of her babies - Mule Source. The start-up makes little more than an open source Enterprise Services Bus that goes up against code from Tibco and BEA.

"They are growing very rapidly," Winblad said, as you might expect.

Similarly, Chou flagged Flock IT - a poultry management package.

Such specialization will only increase as the costs to start a new software company and distribute the code drop thanks to better bandwidth and cheaper hardware.

"You must realize that specialization is going to be a huge influencer," Chou said.

In the hardware game, companies must still spend billions of dollars on research and development to find the next big thing. That's just not true in the software realm.

"In the world of software, that is totally reversed," Chou said. "The research lab is the research lab of the internet."

We'll close with Winblad's thoughts on the software game, since she seemed to have by far the best grasp of the topic at hand.

The VC championed data center management and analytics software as two of the more interesting future markets.

There's plenty of room for another VMware, according to Winblad, because the virtualization game is so young. "It is still very new technology to the customer base," she said. "Even VMware and Microsoft with VirtualServer are very small compared to the total market."

She adds that companies such as Omniture seem on the right track with their data analysis software.

And with that, here's hoping a cruel editor doesn't force your reporter to listen to "software as a service" torture again anytime soon. ®