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The Software Industry's Conundrum

The conundrum the software community faces goes beyond technical transitions like the shift from traditional licensing models to subscription-based pricing and on-demand delivery. And addressing the software quality issues raised by the IT execs who spoke isn't going to solve the problems either. It's an issue of identity: What's this industry going to look like five years from now? What role will it play not only in its customers' IT infrastructures, but in the economy in general? What form will future innovation take?

Conference organizer M.R. Rangaswami set the tone right out of the gate by rattling off four big trends that are causing software companies to take a hard look at themselves: industry consolidation, open source software's momentum, the rise of offshore outsourcing, and a shift of power from vendors to customers. "In five years, we'll look back and we're not going to recognize the software industry that existed," Rangaswami said during his opening comments.

One of the light-bulb moments of the conference came when Intuit chairman Scott Cook's took the stage Tuesday afternoon, providing what appeared to be a wake-up call for attendees. Drawing upon the lessons Intuit learned from discovering that its software was solving business problems that it didn't even know existed, Cook borrowed from an Indian proverb, telling an audience of more than 1,000 that in order to walk in their customers shoes, they need to take off their own shoes first.

In other words, truly understanding customer needs requires empathy, something that hasn't exactly been the software industry's strong suit. (In fact, a more accurate description of software vendors' tendencies came when Cook offered a humorous take on the proverb: that walking in your customers shoes was effective because after a while, you're miles away, and you've got their shoes.)

Meeting this need to connect more deeply with customers requires vendors to subject themselves to a sort of out-of-body experience. The industry has been built on some assumptions that have become laughably outdated--that customers don't really understand software and thus rely upon vendor and integrator expertise; that business applications provide such a competitive advantage that they can be priced almost arbitrarily; that if vendors can ride out the down cycles, the good times will return.

The hard truth is that software has become so pervasive, both in the workplace and at home, that customers are quite savvy about what separates a good application from a bad one. That pervasiveness also means that the notion of competitive advantage is disappearing as most software is increasingly viewed as--dare I say it?--a commodity. And we all know what happens to prices when something becomes a commodity. Naturally, if customers are hip to what they really need, and artificially inflated prices no longer will fly, then growth, even in the best economic times, becomes a much trickier proposition.

So where does the future growth come from? The answer is both simple and tricky. It comes from what Cook calls "customer-driven" innovation. (He actually used the word "invention," but let's not pick nits.) It comes from getting to know customers' problems so well that vendors can't help but give them exactly what they need. In fact, InformationWeek is going through something similar--as are most publications. We're finding that the Web--which is still only a decade old, for criminy's sake--is so profoundly impacting readers' relationships with content that it's continually forcing us to reconsider what kind of content we deliver and how we deliver it.

Likewise, the maturation of IT is changing not only how business software is bought, customized and used, but who's doing the buying, customizing and using. (Hint: it's very often someone who's not in IT.) If software vendors want to avoid collectively becoming a taken-for-granted utility down the line, they better respond to those changes, and quickly.

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