I’m often asked for my assessment of the software industry since the crash and most people are surprised at my answer. That surprises me. My assessment of this industry, as an “insider”, has been that the industry will not recover for 5 to 7 years and will certainly not be the same as it was during the boom. It looks like I’m not the only one with that assessment.

Larry Ellison, CEO of Oracle, was quoted in a Reuter’s article saying that the industry is maturing and Silicon Valley will not be what it was before. Ellison, always an outspoken guy, has never backed down from challenging the optimists. A few years ago he was quoted as saying that there will be no new computer architectures for the next thousand years. That might have been a bit of hyperbole, but in the case of the software industry, I believe that he is right. Here is why I agree with him.

First, I think that the big savings in the enterprise have already been obtained. Companies have spent big chunks of money to get a huge increase in the efficiency of their organizations and are not willing to spend more money to get a smaller increment (at least not in this economic downturn). This is an obvious argument; I’ve heard it frequently and agree.

Second, the propensity to innovate in software has declined. The software boom was primarily centered around a couple of technologies — web technology and enterprise application integration (EAI). These technologies have matured almost to the point that there is little innovation in these areas. Companies that were value pricing are now suffering from competitive pricing pressures. The only companies that seem to be winning here are the software integration and consulting companies. Technologies such as peer to peer and wireless are slow in coming on line. Security has been around for a long time and is fairly mature, thus little innovation is occurring there either.

Third, consumers are just now catching up. What we used to have in the enterprise is now showing up in the home, only in smaller scale, commodity units. We’re seeing routers and firewalls appear in the home, but these boxes are merely cut down versions of what the industry has been selling for years to enterprises.

My best guess is that the next 5 to 7 years will not be marked by software innovation, but rather hardware innovation. I’m not sure that there will be any remarkable new hardware, per se, but rather there will be a minaturization of existing software technologies into hardware devices. We’re seen quite a bit of this now in the “appliance” industry, but I think it’s going to become even more prevalent. I recall watching Star Trek episodes where what we would consider software functions altered by making hardware changes. It won’t surprise me to see new computers with CF cards (or similar) that contain complete enterprise applications and are swapped in and out easily, both for updates and, perhaps, when they need to run. When you consider that you can easily pack a gigabyte of data onto one of these units, including read/write storage, it becomes a much more interesting future.