There Is Something In The Air Tonight, Hold On.

Apple’s new Macbook Air might well be the next step in the evolution of consumer and productivity software. Not revolution but certainly evolution. And I said software not hardware. The Air has been described as the spawn of the Mac and iPad. It certainly has elements of both such as solid state storage and a touch screen. Most importantly, it runs the same Apps from the Apple App store that the iPad does. The big step is the new Lion operating system, a hybrid of Mac OS X and iOS.

Software began to change when telecommunications providers started selling small bits of software for your phone. The idea of small, rich,  clients with a big back-end has finally caught up to the wider software market. And this is not just an Apple thing. Google’s Chromium OS is slated to come out in the next few months and will have many similar characteristics. Even now there a lot of PC platform Apps, or at least software that fits the model. There is the bazillion widgets/gadgets made for the Microsoft Sidebar, Google Gadgets, and Yahoo’s Widgets¹ engines. These are trifles compared to the Evernote and Sobee applications which fit an App model more closely in that they run on the native client platform and do something useful yet are lightweight and web synced. Windows Live Writer, which I’m using to write this blog, is more App than traditional software.

Apps are different than traditional software or web-based software (SaaS) in a number of ways. They are generally small, rely on an extensive back-end system (if they do anything useful), and are tailored for a specific client platform. Apps are lightweight applications the way web-enabled are yet have a rich user experience normally associated with more heavyweight PC applications. The Apps for the iPhone, Android, Palm, and other smartphone platforms took the phone application to a higher level of functionality, creating software that was much more sophisticated. Much of it is still little more than a toy for your phone but that’s changing. The iPad cranked up the volume even more with full featured and full screen apps.

What Apple has done is take the phone/pad App mentality and moved it to a personal computer (PC) platform. There are some interesting ramifications to this:

1. Apps are smaller, originally designed to run on very low resourced devices. This puts more responsibility on the back-end to get things done. The positive aspect is that you can build PC type devices that are less expensive, faster, and have longer battery life.
2. They are sold through the Apple App store. There is a back to the future situation. In the very far past of the computer industry (before my time) you only bought software from the hardware vendor. When my Dad² wanted software for his IBM System 3, he bought it from IBM. Even if it was sold by a third party, IBM was involved in the purchase somehow. Microsoft and Intel screwed that up for the industry. With an open platform, anyone could make and sell software and you didn’t having to give a pound of flesh to the platform vendor. Apps return us (at least briefly) to the old model that was quite lucrative for platform vendors. Each mobile phone provider has it’s own store and likes it that way. It can’t stay that way but I’m sure the client platform providers³ will try.
3. Apps are cheap. Partly because they are subsidized by subscriptions and ads and partly because they don’t do anything, Apps sell like webware – for little or no money. This also must change but I think they will stay relatively less expensive than traditional client applications.
4. Most of the processing shifts to the bank-end infrastructure, cloud⁴ or internal, while user experience stays on the client platform. This sets it apart from webware and traditional client-based software.
5. Apps won’t muscle enterprise applications off the corporate desktop. They will, however, become an adjunct to enterprise applications. Not everyone needs all the functionality of massive applications that SAP or Oracle puts out. An employee needs a limited view of their PeopleSoft applications and a salesmen on the road needs more limited CRM functionality. Both might prefer a lightweight App that works on his notebook and mobile phone platforms.

Apps represents challenges to software vendors dependent on the old PC model. There is no way they will be able to avoid license or distribution fees to one or more platform vendors. Don’t think so? Just ask anyone who develops iPhone apps. The fees might be in the form of traditional licenses for required software or in having to use special tools that you need to buy from the platform vendor (such as a Mac). Once the App honeymoon is over, charges for listing in the App stores will become a way of life. At the moment platform vendors want to spread their platform around by having lots of software support. Since they control the distribution, eventually they will want to start charging substantial fees for listing Apps.

For Apps to be better than simple toys, software vendors will have to offer sophisticated back-end services. When your App is a word processor, you won’t be able to jam that onto the equivalent of an iPad with a keyboard. It will be much more like Google Docs or Zoho Writer. To be in the software industry will require that you have a data center of some sort. This is bad news for someone who just wants to write code but good news for cloud services providers. They will be the data center for the smaller App makers. Those GPS Apps that are the favorites of smartphone users require a lot of behind the scenes support. So will anything of any worth.

In the end, Apps mean shrinking software margins. One of the great things about software as a business is the margins. Unlike electronics and other hard goods, the cost of goods sold for software is incredibly low because there are no material costs. As an industry, we’ve even done away with much of the packaging. As even lower cost software becomes more prevalent and license and distribution fees to platform vendors go up, margins will get tighter.

Development costs are also likely to rise. No one platform vendor controls enough of the market in the same way that Wintel dominates the PC market. To be competitive you will have no choice but to write Apps and pay fees to multiple vendors. At least until one comes to clearly outpace the others. Apps also means that traditional partners and resellers might be caught out in the cold. You don’t buy Apps at Best Buy or from Ingram Micro. The retail and distribution part of this business is probably doomed. Just ask retailers who predominantly sell or sold music. Time to adapt or die⁵.

The one bright area will be infrastructure software. That will probably grow more than it would have normally. The distribution and license model for that segment of the software business won’t change either. Oracle knows this and is making sure it controls enough of the back-end framework to capitalize on the new reality. However, a lot of infrastructure will be “rented” through cloud computing services. Small ISVs are not going to build data centers but data centers will be built by someone. Frameworks for App computing will become big business too. Hopefully something akin to Java will emerge, allowing for multiplatform App development. This will be important to App developers as a means of reducing development costs.

Apps, until recently, were little more than an amuse bouche on your phone. With Apple’s announcement of the latest Macbook Air and Google’s Chromium in the wings (not to mention Android and Windows pad devices), that is about to change. The traditional model for software will change much more than it did with webware. If you’re an ISV, hold on. It’s going to be a hell of a ride.

Disclaimer: I use Evernote, Sobee (sometimes), Zoho Apps (especially their excellent CRM system), Microsoft Live Writer, and Google Docs. Now, they’re free to anyone but still, I thought I’d mention it because I mentioned them. On the other hand, I don’t use anything from Apple not even iTunes. It’s just the way it is.

Footnotes:

1. Yahoo Widgets used be be Konfabulator. I liked the old name better. It was sort of steampunk. Now it’s just a generic name.
2. Yes my Dad was a computer geek before he retired and my son is in school becoming a computer geek. We are thinking of starting a guild.
3. I noticed I used the terms “client platform provider” and “client platform” a bunch of times with out defining it. In this case, a client platform is whatever device the software runs on (PC, Mac, Smartphone, pad device, shoe phone), The provider is who you get it from such as Microsoft, Apple, or Verizon. There is some overlap there I admit. Really, it’s who you will be forced to buy Apps from or through.
4. Let’s not get into any “what is a cloud” arguments in the comments. When I say cloud here I mean an outside provider of virtualized computing resources. If it makes you happy to say IaaS be my guest.
5. “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.” – Charles Darwin. Charlie really knew what he was talking about.