The Software Paradox

Chapter 2. The Evidence?

The weight of evidence for an extraordinary claim must be proportioned to its strangeness.

— Marquis de Laplace

Given the returns that the commercial software industry has generated historically and is still generating today, the typical reaction to the hypothesis that realizable commercial values of software as a standalone entity are in decline is skepticism. Which is entirely appropriate, given the extraordinary nature of the claim.

In 2013, Microsoft’s Windows and Office (Business) divisions collectively generated $44 billion in revenue, up 4% from 2012, which was in turn up 3% from 2011. In one year, then, Microsoft generated more from two software products than VMware, Yahoo!, Salesforce, Adobe, Twitter, Nokia, Netflix, or Intuit are worth as companies. How then does one construct the argument that it’s becoming more difficult to sell software, at Microsoft or more broadly?

With Microsoft, it’s surprisingly simple. It is true that Microsoft continues to excel at generating software revenue. Even if we allow that this is largely an artifact of that rarest of achievements—a true monopoly—the company’s ability to maintain its dominance over decades despite fierce competition and an industry that is always in change around it proves one thing: Microsoft can make money with software. The question with Microsoft, therefore, isn’t whether they can make money, it’s whether they can make money as efficiently as they have in the past. Because if one looks beneath ...