In a wide-ranging talk about the fate of the software industry, Ray Lane, former Oracle president and COO and now a venture capitalist, stressed that the industry is maturing to become a service-oriented business.
Lane spoke at the Open Source Business Conference in San Francisco. His talk touched on topics such as open source, which he said would have broad impacts on the commercial software industry, and the hiring of overseas engineers, who he said are now better and more plentiful than what the United States has to offer.
"The industry is at a watershed again," said Lane, who now serves as a general partner at Kleiner Perkins Caulfield and Byers. While the software industry has become one of the largest in the world, it still delivers complex solutions that are not integrated, leaving users to make them work. With the industry maturing, companies need to focus on providing software as more of a service, said Lane. He cited online CRM company salesforce.com as an example of a company providing a service instead of selling applications.
"Software is a service. We have to recognize it and a service company is a different DNA than a software company," said Lane.
Using an automobile industry analogy, Lane said that today, someone interested in getting into the automobile business would more likely get into service business that improves the car experience rather than get into the car-building or car parts businesses.
He also said open source software would have a destructive effect on growth of the commercial software industry, although he did not mean destructive in a pejorative way. Open source software will keep the software industry the same size over the course of this decade, he said.
"Open source software value is enormous when you look at the commercial software industry growth," Lane said. For the first time, the software industry will grow slower than the overall economy, he said.
The open source movement presents benefits in areas such as lower total cost of ownership and faster bug responses. But it does have challenges to overcome, including support, lack of a road map, and not being known for innovation, Lane said.
Open software is affecting companies such as Microsoft, he said. "Microsoft is only three times (the size of) Linux now and rapidly shrinking," said Lane.
The software industry, he said, is used to "the next big thing" and is still waiting for it. He listed developments such as the PC, client-server computing, and operating systems as examples of previous "next big thing" developments.
"It's idiomatic about our industry as to why the question is even asked. We expect the next big thing to come along to get us out of implementing the old thing," Lane said.
"If you really want to wait for the next big thing, I think the wait's probably a decade," said Lane.
"Going into the rest of the decade, the new enterprise basically has to pay attention to spot demand" and grow and shrink very fast. Companies need to avoid fixed assets including labor costs, Lane said.
The industry is approaching a phase of maintenance and deployment, he said. While the so-called "new economy" was supposed to provide an advantage in the United States through aggressive use of IT, discussions instead arose as to whether IT even matters, Lane said.
"What we're experiencing now is normalcy" in the industry, Lane said.
The new economy was followed by meltdowns in financial markets, scandals, bankruptcy, wars, and terrorism, but it did somehow survive, Lane said. "There's a lot of things that basically took this nirvana, the new economy, and there's no way it could survive. Well, it did," Lane said.
The new economy produced the use of the Internet and knowledge workers able to work anywhere in the world because of English adoption, Lane said.
India and China have educational systems that enable them to provide engineers in a way that the Untied States currently cannot, he said. "India and China are now front-page news," Lane said. Silicon Valley will not hold onto its technical advantage forever, he said.
"I don't believe we can be protectionist about this," or the United States will become like France with masses on the government payroll, Lane said.