SmoothSpan Blog

For Executives, Entrepreneurs, and other Digerati who need to know about SaaS and Web 2.0.

Innovation is Dead, Software Margins are Dead, Woe is Us

Posted by Bob Warfield on April 30, 2009

I’m watching with some amusement a back and forth among some blogging colleagues about the demise of software company margins and all the terrible things that will come of that.  It’s the old story where the bloom is off the rose, we’ve lost our youth and innocence, and it just isn’t fun any more.

To that I say, “Hogwash!”

Don’t confuse the natural process of breaking down and cleaning up the carrion of the last generation with the (un)likelihood there will be another generation.  This cycle has been going on forever.  We didn’t get very far along in the Client/Server generation before nobody remembered the mainframe software guy’s names any more.  It hasn’t been that long since we were all reading PC Magazine and Computerworld to find out what was happening in the world (let alone the various newspapers that were falling like flies), but in a little while longer, we won’t remember their names either.  At some point in the SaaS generation, the same will be true for the on-prem gang, and anyone it isn’t true for will have made the transition to SaaS.  Yeah, I know we have a lot of skeptics, but it’ll happen and is happening as we speak. 
There is still tremendous wealth creation going on in software, and there are high margin businesses to be had.  There is still a lot of innovation left to be done.  There’s plenty of capital despite the handwringing over VC returns (which I ought to post about as well).  The Internet reduces friction to the point where innovators can get big extremely quickly and with relatively little capital. 
Liquidity ain’t what it used to be post-SOX, but it just hasn’t been that long since Google and it’s peers were created to declare the game is over.  Or rather, please declare game over, because that provides the necessary closure to get the next game started.
How many times have we heard it?
Motorola owns the cell business.  Oops, Nokia owns it.  Oops, iPhone is killing them.
Computer guys don’t get consumer electronics and will never compete with the likes of Sony.  Just look at that Walkman business!  Oops, here comes the iPod.
Microsoft has locked up the desktop.  Oops, I still use their apps, but that isn’t where I spend the majority of my time on my computer.
And on and on.  Always the declaration that we’re done, but we’re not.  Always the analogies to cars, planes, and probably at some point trains (“I think there is a world market for maybe five computers” would be a quote contemporary with trains in 1943, allegedly by Thomas J. Watson).  But computers are far more versatile machines than those engines of transportation ever were, and we haven’t tapped even 5% of their potential yet.  Even the most brilliant are subject to assuming the computer’s limits are in sight (“640K ought to be enough for anybody,” supposedly said Bill Gates, though he denies it).  Heck my 5% estimate is probably wildly wrong too and we have even further to go.
Sitting at the bottom of an economic downturn that’s about to head up is not the place to declare you have the vision to see the future and that future is limited.  There are no limits because there is no spoon!
Related Articles
Dennis Howlett is enamored with Open Source and SugarCRM.  He says it signals lower margins forever.  I still disagree, but Dennis is always worth the read.
Vinnie Mirchandani writes of “those who forget history…”, another excellent perspective.

8 Responses to “Innovation is Dead, Software Margins are Dead, Woe is Us”

  1. vmirchan said


    sometimes because I am old (ancient?>) I must be the few in the industry who has seen leaders in every category turn over every 5 years

    In Hardware BUNCH has turned to DUST (Dell, Unisys, Sun, Tandem)
    In software BOPS of 90s has turned to MISO, but that is also turning
    In telecom ATT turned to Baby Bells now back to ATT
    In offshore, I coined a term SWITCH for the Indian leaders and S is going away…

    The market is bigger than any one player. It relentlessly churns …with the advantage of my age I happily write about disruption on my blog. Keeps me young 🙂

  2. smoothspan said

    Ah Vinnie, you remember those old acronyms BUNCH and BOPS. I love it.

    Age is wisdom and perspective if you’ve lived your life well.

    Also, it cheers me to remember an old bit I heard while still young: Old age and treachery can always overcome youth and enthusiasm!

  3. vmirchan said

    Bob, you reminded me of a presentation I did a few months ago on Disruption in technology…I posted some of the slides on my blog

  4. […] My kick off argument was against the backdrop of open source but that drew short shrift from Bob Warfield: OSS as a business is an abject lesson that when you offer the component parts of value (e.g. […]

  5. […] Innovation is Dead, Software Margins are Dead, Woe is Us « SmoothSpan Blog"Liquidity ain’t what it used to be post-SOX, but it just hasn’t been that long since Google and it’s peers were created to declare the game is over. Or rather, please declare game over, because that provides the necessary closure to get the next game started." […]

  6. rnugent said

    Add to the list of failed predictive quotes – “Mo one will ever buy routers over the Internet” – Don Listwin, 1995.


  7. […] a subtle acceptance of the status quo where mega vendors rule, where ‘tiny’ is ignored and open source is dismissed because it can’t command the huge numbers. My Irregular colleagues may disagree but I see this as […]

  8. hoc tieng anh online…

    […]Innovation is Dead, Software Margins are Dead, Woe is Us « SmoothSpan Blog[…]…

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