"Life must be understood backward. But...it must be lived forward." Kierkegaard

Credit Bill Gates and Microsoft with being the first to realize that there was a mass market for software "on every desk and in every home." Software Economics 1.0 said 1) software had high fixed costs of development, 2) software had essentially zero marginal costs of delivery, and thus 3) the first to mass scale would rule all, and throw off incredible free cash flow in doing so.

Software 1.0 was sold by license, delivered on media, where new license sales are good, ongoing support revenue is ok (a necessary evil), and addition services (given that they deliver lower margins than license sales) are bad.

This model drove Microsoft (and to a lesser extent Oracle, SAP and other giants, who were more willing to flirt with independent P/L services businesses, for themselves or their partners). Microsoft still operates essentially this way (waiting for that Vista upgrade license revenue stream) today.

Still, software had no sooner left the garage than two giant holes began to appear in the model. Firstly, upgrading software is painful, and the incentives for the buyer to take and install software shrink as the software grows to meet the business need. Given that Windows XP is pretty good, will businesses really want to absorb the deployment/support costs to adopt Vista?

The second problem with the Software 1.0 model is that fixed costs become so dominant that only the leading players can stay in the game. Prior to all the acquisitions (PeopleSoft/JD Edwards, Siebel, etc.), Oracle needed to maintain a staff of 5,000+ application programmers, not to chase down SAP, but merely to stay credible the applications software business.

Leave it to the Children of the Corn to find a new way...