Hard facts for software

Money doesn't grow on trees, and neither does germanium.

Germanium, No. 32 in the periodic table of the elements, has become a crucial ingredient for straining the silicon lattice in microprocessors and maybe increasing the performance of communications chips. Indium, which was so rare in 1924 that the world's supply of the isolated element was about a gram, is being incorporated more into chips as well.

The modern semiconductor cookbook, in fact, requires that designers work with nearly half of the known elements, including many of the radioactive ones.

Software is created by mathematical visionaries with an acute understanding of human needs, while hardware is churned out by monkeys in a petting zoo outside Taipei.

In the 1980s, chipmakers used about 15 elements only.

These chemistry tidbits serve to throw cold water on the theory that hardware is becoming a commodity and that software and services will capture the all the value in the information technology market.

It's an age-old theory; one the software crowd usually raises. Software is created by mathematical visionaries with an acute understanding of human needs, while hardware is churned out by monkeys in a petting zoo outside Taipei. Microsoft Chairman Bill Gates resuscitated the debate over whether this theory holds at the Gartner Symposium/ITxpo in San Diego earlier this week.

"Ten years out, in terms of actual hardware costs, you can almost think of hardware as being free--I'm not saying it will be absolutely free--but in terms of the power of the servers, the power of the network will not be a limiting factor," he reportedly said. "Many of the holy grails of computing that have been worked on over the last 30 years will be solved within this 10-year period, with speech being in every device and having a device that's like a tablet that you just carry around."

In reality, hardware isn't cheap. Someone has to dig a deep hole in the ground in a difficult and often malarial spot on the globe, set off explosions and crush a lot of boulders to get materials, before someone else can even think about building a PC.

Then there is the matter of building a semiconductor fabrication facility. Fabs now cost about $3 billion to construct, and the price of a fab doubles every four years, according to Rock's Law. Because of the capital requirements, only a handful of companies actually own fabs.

Additionally, liquid crystal display plants, hard-drive facilities and even PC assembly areas require people, real estate and materials. Intense competition, standards and the magic of Moore's Law will always conspire to keep the cost of hardware down, but it will always make up a significant portion of the IT budget. Somebody has to pay for the bulldozer.

Comparatively, software takes very little working capital. The Netscape browser, which helped launch the Internet revolution, was the brainchild of a couple of graduate students at the University of Illinois, while ="5177233">Google started out in life powered by just two students, a couple of servers and some intricate algorithms.

Viewed in that light, Gates' speech is more like a disguised plea for help.

The software business, in essence, has become the computing world's four-minute mile: a seemingly impossible task, until someone else does it.

Many of the holy grails of computing will be worked out in the next 10 years, but the low barriers to development are going to make it difficult to keep the price of applications from moving toward zero.

The software business, in essence, has become the computing world's four-minute mile: a seemingly impossible task, until someone else does it.

This conflict for developers picked up momentum from the free-software movement that came out of the browser wars and the ="5178068">media player wars. People simply have become accustomed to not paying for stuff. Think about it: Will buyers pay extra for voice-activated applications, or will they simply expect that sort of functionality to be added in for free?

Price pressure is also hitting more mainstream products. Microsoft has announced plans to release budget software for certain nations. Similarly, rampant piracy is partly to blame for the ongoing price war among legitimate music download sites.

An even more daunting challenge for the software industry lies in the growing acceptance of alternatives. For several decades, consumers and businesses stuck to brand name operating systems, applications and databases, partly out of fears about incompatibility or quality. Linux, SpamAssassin and other open-source products changed all that. Call it Costco chic if you like, but the-open source movement has made the generic acceptable.

Sun Microsystems was the first large company to feel a substantial impact from this trend. For years, analysts predicted that Microsoft software would marginalize the server manufacturer. Instead, Sun was undermined by a proliferation of servers based on chips from Intel and Advanced Micro Devices and running Linux. The hardware was cheap, but the software was even cheaper.

In the end, Sun didn't get whacked by developer flight, a lack of applications or performance problems with its OS. The buying public just didn't see as much value in its value-add anymore.

And that is the software industry's worst fear: that it's no better than the hardware guys.