April 4, 2006 12:30 PM PDT

Lane: Software shake-up favors new thinking

SANTA CLARA, Calif.--Enterprise software makers should embrace "software as a service" and a new payment model to survive, said former Oracle executive Ray Lane.

Lane, now a venture capitalist at Kleiner Perkins Caufield & Byers, said at the Software 2006 conference here on Tuesday that the software industry's current economic structure and business model is not sustainable.

Over the years, the profit pool for the software industry has declined, leaving three dominant players to reap roughly 80 percent of the profits, Lane noted. Microsoft, with roughly 50 percent, has the largest share, he said.

Investors, as a result, are looking to fund companies that can either be a dominant player or an innovator in their respective slices of the market.

"We're seeing a lot of Fortune 200 companies that are coming to Silicon Valley looking to find innovative companies," Lane said, who noted that more software start-ups are being acquired than are launching initial public offerings.

Innovation is now on a 6-year cycle, compared with the 3-year cycle experienced during the market's boom in the late 1990s and early 2000, he said. Lane offered suggestions to companies trying to find success in the new, more challenging environment.

As companies try to adopt offering software as a service, the model will challenge every part of their business, he said. Technologies that make software installation easier and faster are an area to focus on, suggested Lane, who saw one of his Kleiner Perkins portfolio companies, Virsa Systems, sold to SAP using this strategy.

In the future, the Web-enabled enterprise will become even more prevalent. "Over the last seven to eight years, the Web has gotten easier to use. So if you project out five years from now, it will be even easier and more secure," Lane said.

He added that there will be more collaboration via the Web--using wikis, for example--and contextual search to find everything from corporate information to personal calendars. Virtualization, convergence and on-demand technologies will also be part of the Web-enabled enterprise.

"And the cell phone is the new platform. It's where it all will connect," he predicted.

One interesting way that enterprise software vendors could approach their market is to go to the consumer. Wikipedia, instant messaging and Google desktop were some of the examples Lane cited as consumer applications that have found a home in corporate America.

"Consumer applications are becoming enterprise applications," Lane said.

Software companies, which are accustomed to customers paying upfront for technology, will have to retool their payment model to fit new services models, which call for customers to pay as they use the software, Lane said.

"It's difficult to go from a product mindset, where you are selling just the software, to a service mindset, where you need to provide a service 24/7," Lane said.

And despite a desire to go head-to-head with a dominant player, companies should look for the path of least resistance.

"Go for open space," Lane advised. "There is still a lot of manual procedures and costs that can be taken out of the enterprise, and innovation can happen there."

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3 comments

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here's one i just started using-foldera
I just received my access to a web-based work organization tool called foldera. i've been waiting a while for it. i run alot of projects for alot of clients and have been looking for something that would help organize all of my communications and was platform independent. so far, it looks like foldera is exactly what i've been looking for. i tried sharepoint, outlook, and other new web-based tools, but foldera lets me organize around one tool from a project standpoint. i even set up projects for my personal life like vacations, home improvements with contractors and other things. as i use it more, i find more uses for it. it's in beta now, but i hear they are opening it up even wider soon. they also have a mobile aspect that they are talking about. i'll keep looking at the web2.0 tools that come out, but foldera is a keeper for me and my clients.
Posted by remington999 (1 comment )
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No so fast there Ray
> "And the cell phone is the new platform. It's
> where it all will connect," he predicted.

That remains to be seen. Old habits die hard. While mobility is the key concept moving forward, one could make the argument that WiFi everywhere will be how we connect rather than through cell phones.
Posted by R. U. Sirius (745 comments )
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Not so fast there Ru
I don't know about you, but I don't go everywhere with a laptop strapped to my back. However, I do have a smartphone on my hip that I already use to access Google, email and SMS. My cell phone is becoming like the American Express card; don't leave home without it. That mentality is permeating society. I see more and more people each day with cell phones, not laptops. Now, laptops do have a place and function, but the point you're missing is that Ray didn't marginalize the laptop, he simply pointed out that the cell phone will be the access platform of the future.
Posted by challman (27 comments )
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