I currently do a lot of work in the field of web-based enterprise software, also called "Software as a Service" (SaaS). This sector that once was a tiny niche of the software industry is growing rapidly. Pioneers such as Salesforce.com have grown to become small giants, and the big players like Microsoft, SAP and Oracle are all entering the market. Even Google is very active with Google Apps. Web-based applications are increasingly becoming an important part of the Internet ecosystem.
While observing this market, I often asked myself if there are any historical parallels to this wave of innovation. Sure, history doesn't repeat itself, but often there are comparable development paths. In innovation research, it's a well-known fact that there are observable patterns: disruptive technologies, adoption curves, the emergence of dominant designs etc. Although these patterns don't help to precisely predict the development of a given market, they still provide some useful insights about possible future directions.
The big wave of innovation in IT before the Internet arrived was of course the rise of the personal computer, starting in 1974. Therefore, I have tried to draw a diagram of the most important phases and key events of this older wave. The "market penetration" axis is purely qualitative and only for illustration purposes.
After a purely experimental phase in the late seventies, the PC experienced a first breakthrough with the Apple II and the first killer application, the VisiCalc spreadsheet. In 1981, IBM brought its PC to the market, and that was the first product that appealed to mainstream corporate IT buyers.
After a crisis in the mid-eighties, Microsoft released Windows 3.x which turned out to be the generation of software that really opened personal computing to the mass market. In figures: In 1990, there were 100 million PCs in use worldwide, today it's over a billion. For 2015, some experts predict over 2 billion PCs.
It's interesting to see however what happened after that: Client/server technolgy established itself as the still dominant platform for enterprise computing: A "fat client" on the (typically Windows-based) PC accesses functionality that runs on a centralized server somewhere in the corporate network. And it was only this specific combination that led to the huge growth of the PC-related software industry, as the following chart shows:
The upper curve shows revenues of the largest PC-related companies (both hardware and software), while the lower curve shows only hardware firms. Quite obviously, the software industry was a neglectable quantity for many years until it started to grow very rapidly in the early nineties. And we're talking here about today's behemoths Microsoft, Oracle, SAP and Adobe. Only after the introduction of Windows 3.x and client/server these companies started to grow to the level of importance (and, one might add, enormous profits) that they enjoy today.
Will we see a comparable development in the Internet era? If we try to map some of the milestones of the Web revolution in a similar manner as above, there are some interesting similarities:
After the experiments of the early nineties, the first breakthrough came in 1995 with Netscape Navigator, the first software that made the web accessible to everybody. When Microsoft, the dominant software vendor, released its first usable browser in 1997, the web really became mainstream. After the dot com crisis, the increasing availability of broadband access and web 2.0 applications finally opened the mass market, as measured by usage time and user involvement. Before broadband, there that was mostly e-mail and some online shopping, after broadband there was MySpace, blogging, online music, Youtube and so on.
The question now is of course if Software as a Service and the closely related "Enterprise 2.0" wave will really turn out to be the dominant new platform for enterprise applications. There are many things in favor of this theory: web-based software is typically much more cost-efficient and flexible, in the same way as the PC was much more cost-efficient than the good old IBM mainframe. SaaS applications are currently used mainly by smaller companies and departments of large corporations, but not yet enterprise-wide at large companies. Client/server applications went through a similar adoption path.
Sure, not all things in the SaaS world are perfect. Web-based applications are still experiencing a lot of growing pains, and the technology can sometimes seem quite immature. But the same was true in the PC era. Most peoply can hardly remember how much work it was just to keep your Windows 3.1 system running every day. But this unruly technology still became dominant.
It's possible that we are currently experiencing a historical turn in the history of the software industry. More and more software will be available on the Internet for immediate access. The web is becoming more than a medium for information access, publication and participation, it is also turning into the dominant application platform. The fact that Microsoft is now openly trying to fight Salesforce.com is a clear sign for this change.
Who will be the winners of this new wave? That's very difficult to predict. But there's one thing we can learn from the history of technology: The winners of the previous revolution very rarely also dominate the next generation of technology.