Software companies continue to try and develop new features and functions that compel a company or person to buy it.  Microsoft is a classic example of this as the company attempts to enhance its core products every 3 – 4 years (or more in some cases) incorporating features that drives people to buy its software.  The problem is most people don’t need any more features than Office 2003 and XP - these versions offer more functionality than what 95% of the population needs.  Most people want stable, reliable, and fast software products that do what they want it to do – no more.  This opens the door for many free or inexpensive office alternatives.  Why spend $400 - $500 for Office 2007 when Open Office, Google Apps, Zoho, etc are free or virtually free?  As these products become easier to use, offer more functionality, and easily integrate with Microsoft’s Office files, more and more businesses will switch to these more cost effective solutions. 

Nicholas Carr has written extensively about IT and its effectiveness.  He claims IT no longer provides competitive advantage and is simply the cost of doing business.  He likens IT to electricity – it’s a utility that every business needs and software is maturing to the point where many businesses have a hard time differentiating like software products.  There is a maturity cycle software follows – early adopters through laggards.  By the time laggards adopt applications it is a proven, stable, and provides the functionality most companies need to run their business.  At that point, it is very difficult for software companies to grow of even maintain revenue for these products.

Mature software categories are ripe for delivery as a service.  On-demand/Software as a Service applications don’t have all the overhead of their on-premise counter parts and therefore can be delivered at a fraction of the cost.  Since most companies are comfortable with these applications, they are open to solutions that are significantly less expensive – sounds a lot like a commodity.  No one wants their products commoditized, but the reality is most businesses have a hard time distinguishing one company’s product from another.