When software companies compete, they often lose
- by admin
The U.S. software industry is undergoing a remarkable transformation, from one that was dominated by software giant Sun Microsystems in the early 2000s to one that is increasingly dominated by cloud services providers like Amazon and Microsoft.
A lot of the competition is from companies that have little or no presence in the industry, such as Microsoft, which has spent billions of dollars on research and development but has never taken on a big software company like Oracle, or Amazon, which is spending billions of money on software development but doesn’t have the skills of big rivals.
“We’re seeing that a lot of these companies, once they start building products and then they’re on the platform, they have to develop their own solutions to get to scale, and that means they have very limited expertise in building the products that they need,” said Mark Wilson, a software industry analyst at Gartner.
“They’re not able to make their own apps and they can’t make their products work on platforms like Windows, Apple, or Linux.”
Software companies such as Sun Micro and Oracle have also faced a tough time in the marketplace, with both companies struggling to get the most out of their platforms and in a number of cases, losing money.
But they have been able to gain a foothold with big software companies like Amazon, where they have a much larger presence, and with Google, which they have built a strong business around.
The big software vendors have also been able build an enormous amount of revenue through their cloud services, particularly Google Cloud Platform, which provides a set of cloud services including Amazon Web Services, Google Cloud Data Center, Google Compute Engine, and Google Cloud Storage.
They have also gained a foothold in the cloud with Google Cloud Access, which offers enterprise-grade data center services.
“They are able to sell services, they are able at the scale that they do to their customers, and they have great revenue,” Wilson said.
The shift in the business model, however, has also been a big challenge for big software providers like Microsoft and Oracle, who have had to work to become more efficient.
In recent years, Microsoft has focused on building products that are more user-friendly and have lower operating costs, while Oracle has focused more on the business of selling cloud services and on building software that runs on those services.
Microsoft and Google, by contrast, have focused more heavily on making products that offer the most value for their customers.
Microsoft has struggled to attract customers to its cloud services.
According to a survey of about 1,000 software developers conducted in March by Software Insights, Microsoft’s cloud services business fell from 23% in 2012 to 14% in 2014.
Oracle’s cloud service business fell by nearly 15%.
“Microsoft and Oracle are in a really bad position, and I think they’ve got to make a real concerted effort to fix that,” said Kevin Flynn, senior director of research and consulting at IDC, a research firm that tracks the business and market trends of the software and technology industries.
“They’ve got two problems: the amount of churn, and the amount that they’re selling.
There’s no way to be a good cloud company without churn.
And they have an awful lot of churn.”
The challenge for Microsoft and Amazon is that they have both made huge investments in new products and services that offer higher value, and those investments are now taking longer to pay off.
Microsoft is also seeing a significant number of customers who don’t want to spend money on new hardware, and Amazon, too, is struggling to find customers who want to pay more for software that has already been installed on their systems.
Oracle has also had to do more than focus on its cloud offerings.
It’s had to develop new products that focus on the needs of the business, said Aaron Stein, a senior research analyst at IHS Technology, a technology and services company.
“The real question is, are these going to be able to take on Microsoft and the big players?”
The Microsoft and Apple-Google transition will continue, even if it is not easy.
Microsoft will continue to innovate in the area of its cloud platform, and Oracle will continue its focus on building a more flexible cloud platform that will give customers more control over their data and applications, Wilson said, adding that Microsoft has already made significant progress in that area.
“Microsoft is going to continue to push innovation,” Wilson added.
“And I think Oracle will take advantage of that and continue to evolve the way it does business.
Oracle will have to innovate as well.”
Follow Russ Contrera on Twitter: @russcontrera
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