Software Shrinkage

Let’s call it software shrinkage:

  • Number of public software companies at the start
    of 2005: 236
  • Number of public software companies at the end of 2005: 213

[via Bill Burnham]


  1. Spectator says:

    Open source can take some credit for destroying value in the software industry. Can expect more devaluation of software over the next few years.
    Open source bigots with their socialist ideals will not be happy however, until there’s complete destruction. Curiously, much of open source is now being written in the socialist EU countries, with their limited working hours, etc..

  2. According to capitalism, if a company can’t compete and succeed, it *should* die, no? If the government were involved that would be one thing, but in most cases, it’s not.
    It’s an open, free, and level playing field that they all operate under. You seem to be saying that open source and properietary systems should be treated differently. It’s silly to complain about “socialist ideals” at the same time you’re expressing them.
    (In the few cases government does directly support open source on a significant scale, it’s mostly because the proprietary companies refuse to open their systems enough as required for use in a government by the people; it’s anti-democratic to require me to purchase Microsoft products in order to electronically file a form with the government, for example.)

  3. but from a buyer’s perspective, the trend is mosly positive cheaper open source, SaaS, offshore development, third party maintenance…all this is healthy over all. And cheaper or lower revenues do not have to mean lower valuations. well run Indian services vendors (another mainfestation of software – they touch more code a year than most software vendors)have valuations of 10X revenues.

  4. Sure, there might have been a dip in public companies. But how many private software companies are out there? Might that number have gone up in the web-2.0/AJAX hype era?

  5. the entire IT universe is already in commodity mode, investors just don’t know it yet.
    expensive/closed software is now the corner case solution, not the default. software systems are ecosystems, this is why open source tools are gaining while closed proprietary tools are declining. no one wants their tool chain dictated to them. no one wants a “one vendor” shop, but the traditional software firms by their nature could not play the ecosystem game.
    but thats just the code. hardware, services, development, r&d, hosting, networking, its all deep in commodity mode.

  6. Scott White says:

    Spectator, you’re sadly mistaken. In fact, the opposite is true. The fastest growing high-tech companies in existence today are the ones that are not stuck using third-party proprietary platforms and protocols but instead are using open standards and open source technologies to run their businesses. It’s a point of fact that Google, Yahoo, Amazon, and practically all of the other leading software service companies wouldn’t have the high margins and high growth rates they do if it weren’t for open source. In fact, it’s thanks to open source that, in many instances, the total cost of starting a new software-based business is orders of magnitude cheaper than it was just decades ago.

  7. by the way, this discussion presumes that the primary effective body for creating software is a corporation. we have plenty of evidence that this simply isn’t true anymore. if you count open groups such as, osdl, etc, you will see that the number of meaningful organizations (profit and open) is probably changing very little.

  8. Spectator says:

    The last thing I’d suggest is interference in the free market. Just pointing out how open source can devalue the very people who support it.
    Lord knows the unscrupulous Microsoft monopoly, and software companies addiction to high margins/maintenance revenues, have justified this open source movement. But let’s not kid ourselves, this is a scorched earth policy.
    Value has shifted to services. Companies like Google benefit from open source all right, but none of their high value software is being made available to the community. And I’m told they “optimize” their Javascript, making it hard to learn from. A Google Monopoly may well be in our future.
    It’s been a good ride, but it’s over for the software business. Not to worry, we will all adapt, offer services, etc. And software will still have high value. Except the more valuable software will be even less accessible and not sold as software.

  9. OSS has found success not because it is inherently superior technically but primarily because it is less expensive in a marginal cost sense. But the economics are deceptive because the fact is that in the domains OSS has found success 30+ years of R&D costs are already sunk and thus OSS in these domains does not have to be priced in a way that covers the high up front fixed costs and high risk associated with innovative product development.
    This is why you can point to 100’s of innovative *uses* of OSS, but it is very difficult to point to an OSS project that is innovative in and of itself.