In the not too distant future, there will be two price points for software: customized software that you have paid someone to build just for you, and free. Everything not customized will be free.
Right now, we're at the transition point. Software is lagging newspapers, but people are starting to notice and have various reactions. Jeff Atwood celebrated more software at lower prices, but recognized that some disparage this as a "race to the bottom". Another columnist noted that the next Office will have a free online version, and blamed Microsoft's desire to push Silverlight.
I disagree that moving to very low cost software is a bad trend. All digital media -- newspapers, magazines, music, phone calls -- is moving to free. Free is the future. Why should software be any different?
Frankly, Microsoft faces a real threat to Office. One day, within three years or less, a free, on-line spreadsheet and document app suite will challenge them*. Gmail is the first breach in the Office product line. If you could get apps that supported Word and Excel formats seamlessly, cost you nothing, and did a few other things like enabled on-line collaboration and integration with IM, gmail, etc., how quickly would sales of Office fall to zero? Microsoft has to make versions of Office free, because someone else will. Silverlight is just along for the ride.
The question remains: how do you make money on free software? No simple answers have emerged. Giants such as Twitter, Wikipedia, Facebook haven't quite got it figured out, though they're working furiously on it. Even Apple doesn't make much money on the apps; the apps drive sales of the phone.
It's safe to say that the survivors will have figured out how to compete at the free level.
*Edited on Sept 8: Just to clarify, of course we have Google docs and some others today, but I'm talking about a competitor taking significant market share like Firefox takes from IE.
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