RedMonk co-founder and analyst Stephen O'Grady recently gave a talk at Open Source Business Conference. He's posted his notes and slides here. In the talk, he emphasized his idea that there are four generations of software companies, and that selling software is becoming harder and harder. O'Grady sees the way forward for open source companies is leveraging data.

According to O'Grady, the four generations are:

  • First Generation (IBM) "The money is in the hardware, not the software"
  • Second Generation (MSFT) "Actually, the money is in the software"
  • Third Generation (GOOG) "The money is not in the software, but it is differentiating"
  • Fourth Generation (Facebook/Twitter) "Software is not even differentiating, the value is the data"

O'Grady has some interesting insights into how this progression has worked. Here is his slidedeck from the presentation:

Open Source + Big Data = Big Money
View more presentations from sogrady

Making money from software is all well and good, but I can't help but worry about the privacy implications of a technology industry based entirely around selling or using data. Personal data isn't the only kind of valuable data, of course, but I can't help but wonder what a "data economy" will look like.

The other problem is in actually extracting value from this data. Facebook has yet to turn its mountains of big data into a truly useful advertising platform, and it's not for lack of trying.

What do you think about the future of software companies?

See also: What Will This Bubble's Legacy Be? Open Source Big Data and Analytics Tools