The future of software is a world of uncertainties for vendors, analyst Tom Kucharvy says. The application software industry is changing at a faster rate than any time in its history. Overall industry growth is slowing, there are far more opportunities for missteps and the risks of error are higher than ever.An independent software vendor (ISV) looking to enter, build or maintain a strong position in today's application software market faces a number of fundamental decisions. In addition to market-specific questions, ISVs must assess such broad issues as whether to:Enter a market that many claim is well into a final consolidation phase.Develop an n-tier application that customers can deploy in-house, or develop an Internet-centric, multitenant application to be offered primarily as a service.Develop their own application infrastructures from best-of-breed components, embrace standard infrastructure stacks (preintegrated combinations of .Net-, Java 2 Platform Enterprise Edition-, Linux Apache MySQL PHP [LAMP]-based middleware) or develop atop even higher-level horizontal application platforms (such as SAP, a Windows\/Office combination, the salesforce.com-hosted platform).Continue the time-honored practice of pricing server software per CPU, per server, per user or under other established licensing models; move to usage-based, subscription or other innovative pricing models to accommodate virtualized architectures; or avoid this issue altogether by giving software away and charging for support.Open source the application code; maintain it as proprietary or pursue any of a number of hybrid models.Invest heavily in marketing, or channel the vast majority of investment into engineering and rely on viral marketing to generate adoption.About the only certainties in an ISV's world are that it must develop modularly to fit within the emerging world of standards-based service-oriented architectures (SOA), and its applications must be optimized for Internet-based access and service delivery.Beyond these givens, pretty much everything else is surrounded by uncertainty. Developers must make some fundamental decisions about the future IT industry and environment and the role they want to play in that future. Although most of these decisions must be unique to the particular ISV, all must begin with an assessment of some key industry trends and the risks and rewards that different combinations of choices may entail.To that end, let's assess the Myth\/Reality Index for five critical assumptions that have the potential of reshaping the applications industry, with zero being total myth, and 10 being absolute reality.Assumption 1: The application industry has matured.More myth than reality. Although the market for broad, horizontal, client\/server application software is mature and rapidly consolidating, the markets for other types of software, such as small-to-midsize business (SMB) applications, those developed specifically for delivery as a service and those that make innovative use of open source models will remain robust and highly fragmented. Myth\/Reality Index Rating: 3.Assumption 2: Applications will be built on standard infrastructure stacks.Absolutely. Although most application developers believe their needs are unique, ISV business executives will increasingly mandate that developers begin developing business solutions atop higher-level standard platforms, initially infrastructure stacks. Myth\/Reality Index Rating: 9.Assumption 3: Vertical software is the future.More true than not. A handful of horizontal application platforms will emerge as big, high-volume, de facto standard application platforms.However, there will be thousands of opportunities for smaller volume, vertical applications, especially those that are built atop the dominant horizontal platforms. The primary action and innovation will occur in vertical applications, especially those tailored for SMB. Myth\/Reality Index Rating: 8.Assumption 4: Software as a service is the future.But not the only future. Although software as a service will be the most rapidly growing business model, most application developers will be better served by developing for a multisource delivery model - a single code base that can be deployed in multiple ways, including outsourced\/software as a service; as a preconfigured, internally deployed appliance; as a fully configurable, in-house implementation; or as a hybrid service, with different components coming from different sources. Myth\/Reality Index Rating: 6.Assumption 5: Open source will squeeze out proprietary applications.No way, even though open source software will play a huge role at every level of the software stack. Inevitable trends in open source business models will result in open source being used increasingly as an on ramp, rather than as a competitor to proprietary software - especially at the application layer. But regardless of how successful open source applications are in displacing proprietary software, one thing is certain - proprietary application software business models and margins will never be the same. Myth\/Reality Index Rating: 1.Top trendsThere are no silver bullets. No one type of software, delivery model or business model will trump all others. However, all ISVs must respond to a handful of critical trends. Among the most important are:Market momentum and the primary focus of innovation will shift from enterprise applications to those developed primarily for SMB, and then extended to address the needs of large enterprises.ISVs will increasingly shift from developing custom infrastructure foundations for their applications, to developing their own business logic atop increasingly comprehensive, and ever higher-level application foundation platforms.The application market will segment into two primary categories, a handful of de facto standard horizontal application "platforms," and a huge proliferation of increasingly targeted specialized and vertical applications.Applications developed only for in-house deployment will all but disappear.Open source will primarily become an on-ramp to, rather than a replacement for, proprietary applications.ISVs that stick to obsolete license models will see their models ravaged by competitors who proactively implement customer-friendly, utilization-based pricing models.In short, application ISVs have their work cut out for them. The future isn't as bleak as some would suggest for these vendors - at least not for those willing and able to play by a new set of rules.Kucharvy is president and research director at Summit Strategies in Boston. He can be reached at TKucharvy@summitstrat.com.