In a world where Microsoft is worth more than IBM, it's hard to imagine that less than 10 years ago a substantial part of the financial and venture capital community were skeptical of the fundamental viability of the software business--in fact it was fashionable to ask whether software was really a ``business'' at all, in the conventional sense.
Certainly, in 1983 and 1984, one could point to Microsoft, Lotus, and Ashton-Tate as profitable, rapidly growing companies, but rare was the company which broadened an initial, seemingly random success into a consistently successful product line. Further, a software company seemed threatened from all sides--from piracy, from next-to-zero-price competition, and from an unsettled distribution environment. Rarely was software even mentioned in reviews of trade shows, and people like me who argued that software drove hardware successes--that the Apple 2 was successful because of Visi-Calc and the IBM PC because of Lotus 1-2-3 were considered more than a little daft.
And yet today, in a world where software companies post profit margins unheard of in most legitimate businesses, the old doubt about the viability of the software business remains, but in another guise. In 1983 they asked, ``Can you really make money, long term, selling software?''. In 1993, they ask, ``Can anybody other than Microsoft make money, long term, selling software?''.
This is not a facetious question; when company after company which were once pillars of the industry: Ashton-Tate, Software Publishing, Borland, one after another collapses, is gobbled up, or is on the ropes against deadly price-cutting competition, one cannot help but ask whether any software company can truly consider its position secure as long as there is a well funded competitor willing to sell at close to the marginal cost of goods in order to gain market share.
I believe we are in the midst of a fundamental shift in the way software is distributed--a transformation in the relationship between software vendors and their customers fully as significant as the emergence of computer retailing, spurred by the nascent desktop computer. Companies which anticipate this transition, who encourage it and prepare to benefit from it, may find themselves in as unassailable a market position as any company in this century--the ``natural monopolies'' of the next.
Editor: John Walker