VeeshanVault

Do you guys agree with the point of this article? If not, what is the author missing out on?


http://www.nytimes.com/2004/07/23/opinion/23carr.html

OP-ED CONTRIBUTOR
Microsoft Is Dead. Long Live Microsoft.
By NICHOLAS G. CARR

Published: July 23, 2004


ARLISLE, 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."

I agree with the article. I notice it with companies I have had contracts with they are barely able to upgrade from Win95 to Win2k. Licensing gets very expensive especially if you have a large number of employees. Most companies are not willing to buy the upgrade if the current program they are using is doing the job just fine.

I think there is some truth to the article, but I also think things like: wireless, handheld computers, IPV6, automotive 'technology packages', computer and network security solutions, and fully-networked homes are going to push the software industry in new directions.

The biggest problem right now is that there's not really a killer app driving the software industry.

Having said all that, I think this is more a question for an economist than an Information Technology Professional.

I think the article is rather short-sighted. I got the basic feeling that the author is saying all the software that is worth writing has already been written. This reminds me of when the telegraph giant Western Union didn't want to invest in the telephone because they viewed it as a novelty.

I don't think Microsoft thinks this way though. I'm sure they are coming up with new software ideas and I don't see any evidence of their demise being imminent. In fact, CNN is reporting today that they are hiring 7,000 new employees worldwide. The author has a valid point in saying that most applications reach a point where upgrades are unnecessary (we've seen this recently with MS's announcement that they are not developing enhancements to their e-mail client Outlook), but I don't think the software industry has even scratched the surface of what can and will be done with computers in the future.

Ummm not to use my brain or anything but with that payout they still have far more money to spend on software development then they could ever possibly need, it's a good move

As a software architect, I can say with some confidence that we aren't coming to the end of software development in any meaningful way. What is happening is that the large companies have saturated the market with standard tools that used to require custom development work to build into enterprise solutions.

We are at a point similar to the Victorian age people. We feel as though we have almost learned everything that there is to know. It will take something revolutionary to get us out of the rut, and whatever that something is, it will inevitably happen.

We have only begun to scratch the surface of the information age. New hardware technologies are going to demand new software solutions to problems that we have even considered yet.

Both Xunil and Noel are right. The article is shortsighted and is thinking of software in very narrow terms.


p.s. There appears to be a TON of investment capital ready to invest in the software industry for the right ideas (read: has a business model). Investment analysts are telling them that we are in the quiet before the next big storm as another wave of innovation enters the scene.

As long as science moves forward, the computer and by extension software will always be changing and expanding their roles. I think this is more of a symptom of the economy being sluggish and so many technical jobs being exported to cheaper countries. Once our government decides to move ahead and actually develop more complex energy sources, stop allowing religious kooks to supress medical advancement, and expands the role of electronic communication/guidance systems in our day to day standard of living, then things will start moving forward again. The computer is simply too vital a tool to our future to stagnate.

If the industry, itself, is guilty of anything its that the technology turned over far too fast for most commerce to keep pace with, ie computers going from cutting edge to obsolete in under 6 months was ridiculous. When the new system of IP addressing starts to be implemented, you will see another boom in the software and IT industries. I think this is just a calm before the storm. Continued outsourcing (aside from killing an entire sector of american jobs) will dilute our lead in this area, however, if allowed to persist at current levels.

noel wrote:I think there is some truth to the article, but I also think things like: wireless, handheld computers, IPV6, automotive 'technology packages', computer and network security solutions, and fully-networked homes are going to push the software industry in new directions.

The biggest problem right now is that there's not really a killer app driving the software industry.

Having said all that, I think this is more a question for an economist than an Information Technology Professional.

Well, although not the exact question as phrased, economist Tyler Cowen over at http://www.marginalrevolution.com (great blog btw) did comment on the dividend.

http://www.marginalrevolution.com/margi ... soft_.html

Microsoft just announced a forthcoming dividend of more than $32 billion, the largest ever, here is one brief account, read more here. That comes to $3 a share. Additional dividends and stock buybacks may run over a four-year period, amounting to over $100 billion in cash transfer. You will recall that is the amount that Bush pledged to fight the war in Iraq.

1. Would these dividends have happened without the Bush tax cuts? Maybe not.

2. Does Microsoft fear that Kerry will win and raise taxes on dividends? Probably.

3. Will this help the economy? For perhaps the first time since J.P. Morgan, we see an American company with enough free cash to perform "fiscal policy." However most people now believe that fiscal policy does not do much to stabilize an economy or boost its fortunes.

4. Will the funds now be reinvested in more profitable companies? Maybe yes, maybe no, see number two. Note also that the first funds will arrive just in time for holiday shopping.

5. What will Bill Gates do with all that money? He has already pledged it to his foundation.

6. Will Microsoft ever be a dynamic, growth-oriented company again? Probably not. Why pay a dividend when you have wonderful ways to invest the money? But if there is a way to make the place buzz again, cash starvation (relatively speaking, of course) is a good first step.

software does decay. just not in the same way other things do.

If Microsoft want to stimulate growth they have to cut prices on their products. I'm not talking about the £80 for WinXP Home either.

Nick Carr is the Bill O'Reilly of IT, sensationalist and not bothered if the content doesn't even match the headline; he's the same guy that wrote "IT doesn't matter" in Harvard Business Review a couple years ago. If you dig up that article you'll see he regards IT as vital, but tries to bullshit his way into something that remotely backs up having such a sensationalist headline.

In short, wanker, couldn't even be bothered to read past the first paragraph.

If all goes as planned (well...maybe, eh?) with their '2005' line (supposedly fuly 64-bit) I would expect a HUGE leap in the software industry. From what I have read about the SQL Server 2005 product(Yukon, in beta), it should be impressive.

Of course, I am behind on keeping up with the latest news, but it would seem like something big if they can pull it off. This is of course that they have learned a few things from past mistakes in their major releases...

OK, OK I give it about a 50/50 shot.


<---over-worked DBA, suffering in this heat, with no AC.

There will always be new ways to use faster computers. Looking at graphics alone, we are still a long way from a computer that could utilize a true real-time ray tracing algorithm with multiple reflections to render graphics. Automation and customization will be the next step.

The reason that Microsoft has not been able to spend their fat cash stockpile is the same reason most VC funds are literally flooded with money right now. . .there is nowhere to invest. With the almost complete shutdown of viable startup companies, there have not been many good targets for investments along the lines of what Microsoft would like to do. Their move to pay higher dividends will build loyalty among stockholders (of which I am one) and is the right decision rather then letting all of that ridiculous amount of money just remain stagnant.

No, Microsoft isn't dead now. It will take their insistence and pushing of TCG to really fuck them over.

I thought a lot of that was thier litigation reserve that didn't get tapped (AKA here's the pot for all the people who sue us) and with most lawsuits resolved the stockholders said "Hey, quit sitting on all that cash and pay us the dividends we as shareholders are entitled to."