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The End of Software: Microsoft Posts a Loss for the First Time ever

At RedMonk we have been doing a fair bit of work lately trying to work out where the industry is heading, as the way we use and value code changes. For example – Red Hat is the defacto standard for running enterprise workloads. 10 years ago such a franchise would surely have made them the biggest company in the world from a revenue, and a market valuation perspective. Today Red Hat is a well respected and well run company, but it only hit the billi0n dollar revenue mark this year. Google runs on Linux, and has what must be the biggest Linux server farm in the world, but it doesn’t sell Linux, it sells ads.

I have been saying for a long time that the best packager wins, and wins big. Everyone now seems to be thinking the same way, since Apple blew everyone else, with their horizontal integration models, out of the water.

So the news that Microsoft just posted a quarterly loss for the first time in its history, of nearly half a billion dollars, is striking. After all Microsoft has hitherto been a technology builder, not a packager. It is a Software Company. Ironically, the reason Microsoft took the loss is because of a write down on its Aquantive acquisition, which it made… in order to better compete with Google in the online ad space. But winning in online advertising is always going to be hard if you also fund Facebook.

When I say the End of Software I am perhaps trolling a bit, but End can also mean goal. That’s the real question: what is the goal of software, and should it be a goal in itself? As Stephen has been saying a lot lately- its a means, not an end.  Its important to stress that Microsoft is still a strong company by many measures, but it is also a company facing existential challenges. Paid software can no longer be the goal, when the new kids on the block are all giving it away.

For further reading you should definitely check out:

The Importance of Software at Oracle

Microsoft Surface and the Future of Software

Microsoft is a client.

 

Categories: Uncategorized.

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4 Responses

  1. At the same time, Microsoft also posted record revenues for Q4. If you ignore the aQuantive writedown, the underlying Q4 result seems to indicate that software has never been stronger.

  2. Liked your post. I think what you’re pointing to is the commoditization of the underlying layers. How I characterize what is going on is “migration of margin.” Revenues flow to where differentiated value is available, which will be further up the stack. That value may be ad-supported search, subscription-based online services, etc., but the revenues (and fortunes) will be made at the higher layers now that the lower layers are being commoditized.



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Continuing the Discussion

  1. […] that makes it eas­ier for peo­ple (con­sumers) to adopt Linux. And, if we’re lucky, it’s another crack in Microsoft’s stran­gle­hold on desk­top com­put­ing innovation. « Previous Just Curious How […]

  2. […] is tempting to state, like James Governor at Redmonk, that this is The End of Software: Microsoft Posts a Loss for the First Time ever. Microsoft’s figures have stubbornly refused to prove this though; and a quarter where revenue […]