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.

Today, Apple unveiled their iTunes Music Store with the tag line “Downloads Done Right”. Not much has been published about this yet, but here’s my take based on what I can see from their web site.

Frankly this service will have about zero impact on anyone currently sharing MP3 files. Here are the major problems —

1. AAC format. I don’t know about your media player, but mine plays MP3s. Furthermore the AAC format requires a rather expensive license.
2. Mac only. No Windows or Linux client available, so most computers are excluded from this.
3. License. Playable on up to three computers is probably not going to cut it for most people, but at least it’s a good start. I’m guessing that either the iPod and iTunes units have DRM built in or the AAC files are encoded so that people who post them will be caught. There’s little information posted yet, but I’ll be keeping an eye on it.
4. Price. Still a big problem. No one is going to pay 99 cents for a song. I suspect that the price limit is around 20-25 cents. Just think — at 99 cents per song, it would cost you at least 15 bucks to fill up a single CD.

I think Jobs is smarter than all of this, however. My guess is that this is just a foot in the door to begin to convince the record companies that they need to lower the prices and rethink business models around this to be successful. It wouldn’t surprise me if within a year the service becomes a monthly $20/month, all you can drink sort of thing. Jobs probably just wants to be there first.

I’ve been waiting for cell phone number portability for a long time. I currently use AT&T as my carrier, but have been disappointed with their service, particularly in downtown Washington DC. Today’s Washington Post reports on the upcoming change that requires cell phone number portability between providers.

Put it on your calendars now — November 24 — the day the cell carriers are required to provide this service. Yes, they say it will cost everyone more money, but in the long run, this is really going to force them to compete. People like me who have stayed with their carrier for a long time will be able to try different carriers without losing their phone numbers. Those carriers who provide the best service will win.

This is not like the local and long distance service. The quality of service provided by the carriers is obvious — dropped calls, lack of cell towers, etc. People will start to move around to find the phones that work best where they work, which is a good thing.

But here’s another interesting tidbit. The same regulation will also force wired carriers to allow their numbers to move to wireless carriers. This means that if I moved out of state, I could transfer my home phone number to a cell phone and then retain that number when I move. I could essentially retain a persistent local calling number for those folks where I used to live. Or I could ease the transition to my new phone number by keeping a cell phone with the old one for six months or so.

I think there’s more to this, however. I predict that this will blur the distinction between local and long distance phone calls as well as area codes. After some transition period, I believe that all calls will become local, just as Verizon, MCI, and probably others offer unlimited long distance service now. If all service transitions to this, then all calls become local and area codes become unimportant. We’ll still have ten digit phone numbers, but they will no longer correspond to a particular geographical area.

How we retain phone numbers will be an interesting side effect of this. Area codes keep people focused on seven-digit strings of numbers, not 10. While everyone in the US has a social security number consisting of nine digits, few of us remember more than a couple of them. In contrast I have dozens of phone numbers stuck in my memory, likely because there is great commonality in the first three digits of those numbers.

I have to wonder whether the FCC really thought about this potential issue. I’m not sure they did, but either way, I think economically this will be a good thing for consumers. Of course, only if our memory holds out …

Just read this on News.COM —

“We are a conflicted industry,” [Disney Chairman Michael] Eisner said. “Hollywood studios spend enormous sums of money encouraging people to see its films and TV shows and then spend more money devising ways to control and limit how people can see its films and TV shows. Disney (is) mindful of the perils of piracy, but we will not let the fear of piracy prevent us from fueling the fundamental impulse to innovate and improve our products and how they are distributed,” Eisner continued.

This comment came as Disney revealed its new set-top box, movie on demand technology that uses “spare bits” within the video broadcast stream to download first run movies. These spare bits are created by adding a digital data stream to the analog broadcast system that can run at up to 4.5 Mbps. I can’t wait to see if they can get this off the ground.