If you look at the numbers, tech spending continued its resurgence this year well into October. Record revenues and earnings were reported by several big players in the space.
At first glance, it would appear that the mobile device sector is driving this spending surge. Apple reported record revenues and earnings for both its third and fourth fiscal quarters this year, with the iPhone 4 and iPad releases giving the company a big boost.
Telephone service providers such as Verizon and AT&T also reported increased earnings and revenues, and telephone hardware maker Motorola reported mobile device sales of US$2 billion for its fiscal third quarter, with 9.1 million handsets sold, including 3.8 million smartphones.
But a closer examination reveals that mobile computing is not quite yet the threat to the desktop that forecasters expect. Microsoft, in its fiscal first quarter earnings report for the period ended Sept. 30, declared net income of $5.4 billion on revenues of $16.2 billion. The big drivers there were the Office 2010 suite of productivity software applications—including the still-growing SharePoint Server 2010—and the Xbox gaming system.
And Apple reported that it sold 3.89 million Macintosh computers (desktops and laptops), which is a quarterly record for the company.
If there was one down note, it was that sales for Microsoft of Windows 7 were not as robust as hoped, although CEO Steve Ballmer said revenue from Windows 7 should parallel growth in desktop machine sales.
For all the wonder of tablets and smartphones, the desktop is not going away anytime soon. Too much data entry continues to go on to make a mobile device practical for this task, and organizations are running too many applications to put them all on a tablet.
One trend not yet reflected in corporate revenue reports, though, is cloud computing. When the shift takes hold, Microsoft’s sales of its server software—as well as IBM’s and Oracle’s—could take a large hit, as the license models that have driven these huge revenue streams change.
In his farewell report to Microsoft, chief software architect Ray Ozzie said the company needs to be ahead of the curve on this one and change the way it views software creation and delivery.
That’s all fine and good, but how do they protect those revenue streams? Software license providers insist that software publishers stand to increase their revenues with a license model that lets organizations access software by the day or hour, instead of paying huge on-site license costs for software the organization might use once or twice per year.
To date, ISVs have not done a good job of tracking the software usage of their customers. There has been no need. The customer takes a perpetual license or a seat license, pays the annual fee for updates and support, and goes to work. If the company pays for 25 seats but only 10 are heavily used, the ISV doesn’t particularly care. It’s been paid.
Organizations are looking to the cloud as a way to reduce the amount they spend on software and to use those dollars more efficiently. So it remains to be seen if those ISVs will be able to maintain their revenues when the type of cloud-based software access becomes widespread, and organizations begin to pay for software only when they use it.
Will Microsoft continue to generate the kind of revenue it draws from licensing the Office suite—even if not everyone uses Excel or PowerPoint—when it brings those services to the cloud? Sure, the cloud services will be scaled down, but if many small businesses can get by with just the services, that’s got to cut into the numbers.
We’ll just have to wait and see as cloud adoption grows. In the meantime, organizations should get what they can from the current spending wave before things change dramatically again.
David Rubinstein is editor-in-chief of SD Times.