Software pricing to plummet – is Linus Right?

1999-09-24

Linus Torvalds went on record at the end of last week saying that, within 3 years, software prices will have plummeted. So – is he right? The answer, it would seem, lies in the value which that software represents.

Value, so goes the adage, equates to benefits minus costs. Traditionally the main use of computing power has been seen as to reduce costs. More recently, the advent of the Web has enabled businesses to dramatically increase benefits. By itself, IT is pure cost, so it must be pitched against the resulting cost savings or the increased business that it enables.

Given this, the charges for software, hardware and services already varies significantly. In the City of London, for example, the consultancy fees for a newly-launched, software package were anywhere between £2,000 and £5,000 per day. Why? Because the package, once installed, could save a hundred times that amount: every day that the package sat in its box was money down the drain. The premium on IT-related goods is often well worth paying, or at least it has been to date. The question begs to be answered – how long will these good times roll for the IT industry?

We are still near the beginning of the electronic age. Every year, brand new technologies come with a single guarantee: that they will change the way we work. Telephones, radio and television, computers, fax machines, graphical terminals, email, the World Wide Web, mobile communications, each has played its part. We recognise the advantages of each new generation of products, we purchase and participate, we move up to the next rung of the technological ladder. Despite all the advances, though, how far have we come? Linux, for example, is based on operating system principles and a language which were industry standard in 1969. As for software, Object Oriented languages have been around for at least that long. Package software still has some life in it: the ERP (back office) market is now largely sewn up, so suppliers are turning their attention to the front office with CRM. Couple this with supply chain management and business intelligence, throw in platform support, and the question begs – what business problems remain to be solved? Once this stage is reached, the advantages will be gleaned from the relative qualities of each implementation.

There are still some major advances to be had from IT. Over the horizon is pervasive wireless networking, followed by terabyte solid-state memory. Software to manage the vast amounts of information flowing through the ether will keep a premium for as long as the quantity of information remains unmanageable. There will always be a business benefit in doing things better than the competition – just look at eBay’s recent failure to cope with the volume of transactions, or Hotmail’s security problems. For the medium term, IT in general, and software in particular, will hold its price where it can directly guarantee business advantage.

At the same time, the infrastructure tide is rising and things below the water level tend to have a fraction of the worth of the applications they support. For example, it is not a coincidence that most open source packages, such as compilers, operating systems and web servers, deal with infrastructure issues. It is also unsurprising that Microsoft should give away Internet Explorer 5, or that CA should bundle its Unicenter network management framework. The tide will continue to rise: the products included in this category will include databases, document management facilities and workflow engines. Today we are seeing office suites and programming environments become freeware: already a user can equip an office with a full range of IT facilities without having to spend a penny on software. Products are given away for all kinds of reasons, both commercial and emotional: for StarOffice, for example, it is probably both. Once a product has been given away, it cannot be reclaimed; if the product is already adequate, it undercuts all similar products now and in the future.

Fair to say, then, that the cost of certain kinds of software will plummet. However, do not be taken in: this is a ploy by the vendors: even likeable Linus has a vested interest. Vendors don’t do anything without a reason, for example, they hope to damage their competition or attract you to other elements of their product line. Make the most of the opportunities as they present themselves, then, but remember TANSTAAFL: there ain’t no such thing as a free license.

(First published 24 September 1999)