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Your new software vendor? Domino's Pizza

Software vendors may lose out in the new open-source economy that empowers users to write more software.

Life has never been better for enterprises and consumers. From free music to free software, the digital economy is an all-you-can-eat free-for-all.

That is, unless you're a vendor.

Traditional vendors are getting shellacked by the digital economy, spurring some, like Rupert Murdoch and his News Corp., to threaten to stick a finger in the dike and demand that users pay for content. (At Murdoch's Wall Street Journal, users already do pay to access some stories online.)

The problem with this approach is that not everyone is willing to follow suit. Why? Well, not everyone needs to. The BBC responded to Murdoch's plans by declaring it won't charge for content. It doesn't need to. U.K. taxpayers already fund it.

Different strokes for different folks. And different business models, too.

Google makes money by making it easy to discover others' content. So does Apple's iTunes. Google can afford to give away lots of free software (and even free hardware) to nudge people into its advertising model.

That's hugely disruptive.

In software, Microsoft doesn't like competing with free Linux. Microsoft spends a lot of money developing Windows. It must seem unfair to have to compete with the rest of the industry, which increasingly coalesces around Linux (or Android, or MySQL, or...).

But that's life in the open-source economy. Your core competence is always going to be someone else's throwaway complement, and ripe for open-source commoditization.

How would you like your software today? Domino's (Screenshot by Matt Asay)

In fact, it may be getting worse, and not just for Microsoft. The Wall Street Journal reports that Domino's Pizza has rolled out a multimillion dollar, homegrown pizza-ordering/fulfillment system.

Could Domino's have bought an off-the-shelf system from Oracle, SAP, or another vendor and customized it? Probably. But then, this isn't how most IT gets built, anyway.

Most software is written by enterprises to use, not for sale, as Bruce Perens and others point out. So while we credit Microsoft, Oracle, and others as the backbone of the "software industry," the reality is that these companies are really a drop in the software bucket, with companies like Sony, Wal-Mart, and GE the true backbone of a much larger software ecosystem than the vendors comprise.

As open source matures, we're going to see these "software users" develop more software in-house, often building from open-source projects. Gartner calls out intriguing proof of this trend, but it's equally evident in anecdotes like this one, highlighting Virgin America's adoption of open source to reduce costs and improve innovation.

Virgin America is writing few checks to external vendors. That money is paying internal developers instead.

Digitization, then, may not be destroying the software market so much as reshaping it. In this new model, companies like Domino's will need more internal developers as they rely less on outside software vendors.

There will still be a need for companies like SAP, of course, as there are broad industry needs that a company or open-source foundation can satisfy. But for strategic IT projects, we're likely to see more open source plus internal development, and less packaged software purchases.