Open source is undermining shrink wrap software and fundimentally changing the software industry claims Ray Lane, a managing partner in Kleiner Perkins Caufield & Byers, the Silicon Valley venture capital firm. The software market is in transition from high profit margins of 70% or more to margins more in line with the hardware market at 20%.

While Microsoft have been successfull at selling software at high margins the entire industry is now experiencing a contraction due to the availability of quality open source solutions which can be used with minimal technical experience. Increasingly software companies target ongoing support and maintenance revenue. Software is increasingly online, and paid for on a monthly basis as a service, rather than being purchased.