Software Town

Computerworld - Software prices will eventually fall to zero. The open-source software movement has already started that commoditization. That pronouncement came last week from MIT professor Michael A. Cusumano at a one-day Silicon Valley conference called The New Software Industry.

If that sounds too good to be true to corporate IT shops that are forever squeezed by software costs, well, yeah, it is.

About a week earlier, I had dinner with open-source deep-thinker Eric S. Raymond, author of The Cathedral and the Bazaar. Raymond told me about the essay hes working on now. His conclusion, put simply: Software cant be commoditized.

Are these guys both living in the same universe? Sure. Theyre just living on two different sides of Software Town.

In Cusumanos commercial-software neighborhood, the days of the software package with a stranglehold on its market are gone  and the reason is open source. Microsoft and Oracle may swallow their commercial competitors, but they cant buy out the persistent competition of free open-source software.

The result: Software is becoming a commodity, and prices will collapse. Cusumano thinks the only way software companies can survive is through services  either selling software as a service or offering add-on services along with their software products. So well still get squeezed, but for services instead of for software itself.

Its hard to see how Cusumano could conclude that software prices will have to drop to zero  especially in an economy where clever marketing can sell a bottle of tap water for $1.39.

Still, software is becoming a commodity  isnt it?

Across town in the open-source neighborhood, Raymond says no. Open source isnt commoditizing software, he argues  just modularizing it.

Software isnt like hardware. After 200 years of industrialization, we understand the value of commodity hardware. We want standard nuts that fit on standard bolts, standard tires that fit on standard wheels and standard memory that fits in standard motherboard sockets. Interchangeable parts introduce manufacturing economies of scale, while custom pieces dont add enough value to be worth the trouble.

But software is far easier to adjust than hardware. Small tweaks can suddenly make software far more useful to some customers, but without the expensive retooling that hardware requires. The cost of differentiation is small, the value high. That makes software nearly commoditization-proof.

Instead, Raymond says, open source is forcing software to break up into modules  stand-alone chunks of software that can be plugged together.

Modules dont have to be identical  just act alike. So as long as the interfaces are standard and the functionality matches up, an open-source module can replace one thats proprietary.