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Open Source and Advertising are the Future

In terms of software business models, the current phase in the industry's history is characterized by three general types: subscription licensing, open source, and ad-sponsored software, and the most promising of these models going forward are open source and ad-sponsored.

Don't take my word for it, because these are the words and ideas of Microsoft General Counsel and Vice President Brad Smith. Smith says we are in the third phase of the software industry, first software had no value other than on the hardware it was designed for and IP rights weren't considered (ala OS/360), then software had value independent of the hardware (ala Altair Basic).

According to Smith, the present era of the software industry, or "phase 3" as he calls it, is characterized by the 3 aforementioned business models:

The third phase has developed over the last 6 or 7 years. Three business models for software have developed, with the latter two showing the greatest potential.

  • Licensing. We continue the mass marketing of licenses. Now, it's just done more on on subscription basis so that you get updates as they came out. This allows for continued services in an ever developing world.
  • Open Source. Very distinctive from the first in that developers are working on code in diverse environments. The cost of the development work is not recouped by sales of the software. It's recouped by service, hardware or other software sales. You are using open source to develop distribution channels to sell something else. This is the Novell and Microsoft deal where Microsoft drives licenses to open source community and Novell gets cut.
  • Advertising. Probably the most important business model is ad sponsored software. Software is given away for for free in a web based atmosphere but advertisers are given rights to run ads. This is the google model, acknowledging google is all software.

So, is this an admission by Microsoft that their historical business model of shrink-wrap software is dead, and their present model of subscription-based is inferior to that of their perceived nemesis, Google? Is this a further signal of Microsoft changing tack, as it tries to evolve from a shrinkwrap/subscription license business model to the more nimble, and admittedly superior, open source and advertising models such as their Live services?

After all is said and done, perhaps somewhere out there is a chair deserving of an apology, as it appears now that Ballmer is going to "f%&king imitate Google!" instead.

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