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The major software vendors will have to decide when theyre willing to cannibalize their own business models. Now they make tons of cash through enterprise licensing and generous maintenance fees, but as more and more vendors offer alternative software acquisition models the big proprietary ones will have to completely change their fee structures to accommodate the move away from installed software. Hell, even Microsoft is hosting software these days. Within just a few years, everyone will be hosting their own software and encouraging third-party providers to host and re-sell the very same applications. What a world.
Open source software will penetrate the most inner sanctums of the enterprise because it will meld increasingly easily with proprietary software and the new SOA architectures. In fact, the gap between open and proprietary software will dramatically narrow over time.
No one will expect software to be free, but, like hardware, it will definitely commoditize.
Innovation will come from small entrepreneurs running small companies, just as it always has.
So when someone asks where does software come from? you can tell them from big vendors with creative partners who have finally figured out that their customers would rather pay by the drink at someone elses bar and grille.