Ray Lane sees software cost collapse

Former Oracle president Ray Lane has predicted a software pricing collapse as part of a huge change in the way vendors charge for software.

Speaking at a panel debate at Salesforce.com’s Dreamforce conference in San Francisco, Lane, now a venture capitalist and widely thought to be one of the
most insightful thinkers on business software, said the industry is due a radical realignment that will bring down tariffs for customers as the client/server
model gives way to on-demand.

“The industry has always swung back to customers getting value,” Lane said. “If you ask an Oracle or SAP customer what they are getting for what they are
paying, you either get lied to or they look embarrassed.

“You’ve got a lot of dead men walking in the software industry right now. You have businesses like Symantec that own the category and can spend more on research
and development in that market. If you’re one of the competitors you can’t keep up in that research and development game and it’s just a matter of time until you’re judged to be not competitive. There are thousands of software companies and, sorry, but I just don’t see a future for them [because] 75 percent of profits in this industry go to three companies. The industry has not re-priced itself [in the way that] hardware did [in the 1990s] when margins fell from 75 percent to 25 percent or lower pretty quickly. Software is just starting to do that now.”

Lane said that “forklift upgrades” and sky-high maintenance fees will be replaced by on-demand services led by Salesforce and partners.

“The big fat middle is going to give up to software-as-a-service because of pure economics. [Until now] we haven’t had a problem. [Salesforce’s release of the Apex development environment to customers and the AppExchange marketplace] delivers
new functionality [with] mash-ups of social networking or collaboration or user-generated services or analytics so it’s become much more interesting. You
have a platform where entrepreneurs can build.”