Microsoft Is Dead. Long Live Microsoft.
July 23, 2004
OP-ED CONTRIBUTOR
By NICHOLAS G. CARR
The New York Times
CARLISLE, 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."
nytimes.com
Copyright 2004 The New York Times Company | |
