“The only certainty is that the Internet will have a big impact” on whatever that winning model is. “The winning model of the future is a hybrid,” he says. Instead, you will have a blend of business models.” Kartik Hosanagar, an operations and information management professor at Wharton, agrees that a hybrid business model - consisting of parts of traditional licensing, on-demand, ad supported and even open source - will emerge in the software industry. Kendall Whitehouse, a senior director of information technology at Wharton, notes that “there probably isn’t one model that will win out. Meanwhile, it’s not immediately clear what the software model of the future will be. But it’s a long process, because they justifiably don’t want to cannibalize a revenue stream that remains phenomenally lucrative.” “Ten years from now, Microsoft must be weaned from … license revenue. Wharton legal studies and business ethics professor Kevin Werbach says Microsoft is right to be concerned. But it’s not the companies, it’s the phenomena” that present the greatest challenge to Microsoft, said Ballmer.

“Right now, the emblem of the first one is Linux and the emblem of the second one is Google. At a Wharton Leadership Lecture this past December, Ballmer noted that the two biggest competitive threats to Microsoft are open source software and advertising supported applications. Also on the increase: “on-demand” software where customers rent software applications when they need them and pay only for what they use.Īll of these models pose unique threats to Microsoft, although that is hardly news to CEO Steve Ballmer, who clearly sees the challenges ahead. Ad supported software includes web-based applications that are free as well, but they generate revenue through advertisements. “Open source” software relies on voluntary programmers to build applications that can be distributed freely. While a number of different pricing schemes for software licensing exist, customers typically pay a flat fee for perpetual use.īut new models of software pricing and distribution are becoming increasingly popular. Traditionally, Microsoft and most other software companies deliver software primarily by licensing “shrink-wrapped” products sold through retail channels or arrangements with hardware vendors.

Indeed, many wonder if the software business model that has made Microsoft so dominant for the last 20 years may begin to fade in the decade to come as new software business models - from open source to advertising supported - gain increasing traction. Experts at Wharton say the January 30 launch of the consumer versions of Microsoft’s flagship software may be among the last of its kind - a product sold for a flat fee in a shrink-wrapped box. Microsoft’s Vista operating system should give the company a revenue stream that will run for years, but that doesn’t mean the company can rest on its laurels.

What is business in a box software