The Cheapening of IT

The prices for computing equipment, over the years, have moved in one direction: down. I believe that the decrease in prices for hardware has an affect on our willingness to pay for software.

In the early 1960s, a memory expansion for the IBM 1401 provided 8K of what we today call RAM, at a price of $258,000. That was only the expansion pack of memory; the entire system cost several times that amount. With an investment of over a million dollars for hardware, an additional investment of several tens of thousands of dollars for software was quite the bargain.

In 1977, a Heathkit 8-bit microcomputer with an 8080 processor, 4K of RAM, and a cassette tape recorder/player (used for long-term storage prior to floppy disks), cost almost $1500. Software for such a computer ran from $20 (for a simple text editor) to $400 (for the Microsoft COBOL compiler).

Today, smart phone or tablet costs range from $200 to $1000. (Significantly less than the Heathkit 8-bit system, once you account for inflation.) Tablet apps can cost as much as $10. Some are more, and some are free.

What affect does this decrease in the hardware cost have on the cost of software?

Here's my theory: as the cost of hardware decreases, the amount that we are willing to pay for software also decreases. I can justify spending $400 for software when the hardware costs several times that amount. But I have a harder time spending $400 on software when the hardware costs less than that. My bias is for hardware, and I am assigning higher intrinsic value to the hardware than the software. (The reasons behind this are varied, from the physical nature of hardware to the relationship with the vendor. I'm pretty sure that one could find a Master's thesis in this line of study.)

But if a cheapening of the hardware leads to a cheapening of the software, how does that change the industry? Assuming that the theory is true, we should see downward pressure on the cost of applications. And I think that we have seen this. The typical phone and tablet app holds a retail price that is significantly less than the price for a typical desktop PC application. "Angry Birds" costs only a fraction of the price of Microsoft Office.

I expect that this cost bias will extend to PC apps that move to tablets. Microsoft Word on the Surface will be priced at under $40 (perhaps as an annual subscription) and possibly less. The initial release of the Surface includes a copy of Word, although it is restricted to non-commercial use.

I also expect that the price of desktop PC apps will fall, keeping close to the prices of tablet apps. Why spend $400 for Word on the PC when one can get it for $40 on the tablet? The reduced price of apps on one platform drives down the price of apps on all platforms.

The cheapening affect may go beyond off-the-shelf PC applications. As the prices of desktop applications fall, we may see pressure to reduce the price of server-based systems, or server components of multiplatform systems. Again, this will be driven not by technology but by psychology: I cannot justify a multi-thousand dollar cost for a server component when the corresponding desktop applications have low costs. The reduced prices of desktop applications drives down the prices of equivalent server applications. Not all server applications, mind you; only the server applications that have desktop equivalents, and only then when those desktop equivalents are reduced in price to match tablet apps.

The general reduction of prices for desktop and server applications may create difficulties for the big consulting shops. These shops charge high prices for the development of custom applications for businesses. Psychology may cause headaches for their sales teams: why should I spend hundreds of thousands of dollars on a custom app (which includes clients for desktop PCs, tablets, and smartphones, of course) when I can see that powerful, competent apps are marketed for less than $10 per user? While there is value is a custom application, and while a large company may need many "downloads" for their many users, the argument for such high prices becomes difficult. Is a custom app really adding that much value?

Look for the large consulting houses to move into new technologies such as cloud and "big data" as ways of keeping their rates high. By selling these new technologies, the consulting houses can offer something that is not readily apparent in the off-the-shelf apps. (At least until their customers figure out that the off-the-shelf apps are also using cloud and "big data" tech.)

All of this leads to downward pressure on the prices of apps, whether they are simple games or complex systems. That pressure, in turn, will put downward pressure on development costs and upward pressure for productivity. Where a project was run with a project manager, three tech leads, ten developers, three testers, two analysts, and a technical writer, future projects may be run with a significantly smaller team. Perhaps the team will consist of one project manager, one tech lead, three developers, and one analyst. I'm afraid the "do more with less" exhortation will be with us for a while.