Software-as-a-Service to Go Mainstream?

That is the question Sadagopan addresses in his article on Sandhill.com:

In the traditional IT budget of customers, close to 75% of their budgets go towards managing installed systems- the residual money available in IT budgets are proving to be inadequate for customers to buy new software. On the customer side, the TCO of business systems is heavily weighted toward on-going support as the license cost is dwarfed by the support cost. The software manufacturer’s cost structure generally have a cost structure where research consumes close to 20% - most of this go towards supporting existing components leaving little to invest for attempting new innovations - with the result the pace of innovation slows significantly. The R&D costs, sales costs and maintenance/ support costs come down for the manufacturer in the hosted model. Across the business chain – every aspect of business of traditional software vendors need to be revamped to embrace on demand model. The application architecture, schema, the business model including dealing with channel partners and switching costs for existing customers are major impediments...It will take more time to see what percentage of customers will find these software service offerings attractive, change their buying habits and move to annuity contracts. It is also too early to make a conclusive call on whether the software vendors are going be more comfortable with annuity revenue stream not to speak about the hit professional service firms may be forced to take – In all, not a very attractive path lay to embrace software-as-a-service model.

Jeff Nolan writes:

...Nobody can fully agree on what the idea of software-as-a-service really is. Some see it as a delivery method, others see it as a pricing strategy, and there’s even confusion with the popular “on demand” meme that we can blame IBM for inflicting.

Let’s agree on one thing: just like client/server meant different things to different vendors in the mid 1990’s, software-as-a-service has many definitions that the market will sort out in time and that there is no right or no wrong definitions at this time.

Let’s agree on a second thing: software-as-a-service is as much a change in the perception enterprise customers have about what software is as it is a technology or business model disruption for vendors.

Most of the talk about software-as-a-service centers on the idea that it is a delivery method; vendors will host applications and clients will subscribe to them. This really isn’t anything new, I’m sure you can recall the heady days of the ASP company which in itself was just a new set of terms for the outsourced IT movement that began many years before.

The software-as-a-service movement is as much about the perception of what software is in the eyes of the typical enterprise customer, and the nature of the relationship they wish to have with their vendors. For software startups, the key to being successful in this model is one of economics, embracing a development methodology that brings them to market quicker and offsets the significant costs of creating a new market, as well as a sales model that decreases the significant cost of sales associated with selling large enterprise deals.

InfoWorld has a special report: "Everywhere you turn, another company pops up offering SaaS (software as a service). Inspired by the success of Salesforce.com, SaaS vendors are hoping customers large and small will get the message: Browser-based, pay-as-you-go applications mean fewer servers for your IT department to maintain and less capital to shake loose from the CFO for software licenses and hardware...there’s so much SaaS running around already that we couldn’t help but wonder: Could you run a business entirely on hosted offerings?..In our survey of hosted software offerings, we’ve divided the SaaS universe into four parts: back-office applications (ERP, purchasing, HR, and so on), messaging, integration, and CRM."

Mobile Email vs Texting

Paul Golding writes:

I don't think that it's right to compare email to text and declare text the winner. These apps aren't competing and we are missing some important differentiators.

The problem with email on mobiles is that without push, it's very disadvantaged, especially compared to text. The reason that push remains problematic is not so much due to technology and IPR issues, but because of commercial ones.

To receive emails, someone has to pay for it. Thus far, it's the user, but without an affordable flat-rate (or otherwise predictable) tariff, this is problematic, which is why push email (i.e Blackberries) remains an enterprise-user luxury.

The greatest advantage that email has over text is that so many information streams are available via email, such as news bulletins, newsletters, fan mail, system alerts, Ebay messages, Amazon messages, etc. The list is endless and practically any IT system can send information via email. The number and variety of email "notifications" (i.e. messages from IT systems) far outstrips text "notifications".

The importance of this is that were this email feature easily extendable to mobiles (i.e. in an affordable push scenario), then this would be a major step towards a better mobile-information future.

Software via Appliances

Jeff Nolan writes: "...I am skeptical that the appliance meme has legs... it just doesn't make sense to take a multipurpose compute server and turn into into a single purpose appliance. Appliance vendors claim that reduce maintenance workload is a big benefit, but how can they say that when the IT group is saddled with maintaining an increasing number of boxes by going the appliance route. Blades are a different animal altogether."

Basically, there are three ways to deliver software: packaged software, as an appliance or as a service. Of late, the appliance route is getting quite some traction.

APIs are the new HTML

Seth Goldstein writes:

As of 2005, the Internet has replaced the desktop PC as the primary platform for APIs. Unlike Microsoft and the desktop, however, nobody controls the web as a platform; although certain companies do oversee enormous pools of user data and have the opportunity to direct such traffic as they see fit. The talk of Google and Yahoo! (and now IAC) as web platforms center around their ability to recycle users through complex interconnecting networks of search, email, dating, travel, shopping, local services and more. This is the web version of the gated AOL community circa 1996. Ironically, AOL is now desperately racing to open their proprietary (Rainman) environment to a public web site (AOL.com) before Yahoo! fully eclipses its relevancy.

Virtually all of the major Web 2.0 platforms (GOOG, YHOO, IACI, AMZN, EBAY) recognize how critical it is to engage their users in the act of media production, and therefore are (in different ways) releasing APIs that stream their consumers' meta data. Such data is not simply theirs for redistributing, but rather needs to be the byproduct of some other functionality such as Amazon wishlists, Flickr tags, or EBay auction trends. Along these lines, the value of a Web Service API is tied to its ability to convert granular feeds of individual data into useful social media contexts. It is not particularly helpful to think of APIs as simply conduits of data, since the way in which API’s package data are frequently as valuable as the data itself. In order to access Flickr’s API, for example, you need to choose whether to organize the data by groups, contacts or favorites. Central then to the evaluation of an API is to what extent it performs high level operations on low level data, and how interesting the ensuing abstractions are to a broad community of users.

Yahoo's Hybrid News Site

WSJ writes that "in six of the past 14 months, Yahoo's news site has drawn more unique visitors than any rival, displacing longtime news leader CNN.com, according to research firm Nielsen/NetRatings."

Yahoo's news strategy dates back to the mid-1990s, when it cut deals with the likes of Reuters PLC to display headlines alongside its human-compiled directory of the Web. Yahoo created its "full coverage" service, where editors bring together stories from multiple sources on the same topic, following the August 1995 death of Jerry Garcia, leader of the band the Grateful Dead. Frustrated that he couldn't find a single place with multiple news stories, Yahoo co-founder David Filo initiated the editor-selected coverage.

Yahoo won't say how many editors it has today, but the small news operation across the street from Yahoo's Sunnyvale, Calif., headquarters currently has room for roughly 15 to 20 editorial staffers. Mr. Budde says their ranks have been growing with the redesign and plans for more packaging of stories.

The editors monitor stories arriving from news organizations, choose headlines for Yahoo's home page, and pull together links to stories on big topics. On election night in November, Yahoo editors made their own calls as to which presidential candidate had won each state before coloring in the electoral map on their site.

Yahoo credits traffic from other parts of its site with pushing it into the No. 1 online-news slot. New York research firm Hitwise Inc. estimates that more than 85% of Yahoo news visitors arrive there from another part of Yahoo -- an advantage over most of its traditional media rivals.

TECH TALK: When Things Go Wrong: The New Business

The ASP (application service provider) business in Netcore will be the focus of almost all the new development. The focus here is to automate businesses through software provided on the Internet. What we did for NRIs with India-centric content a decade ago, we have to do for SMEs in emerging markets with software in the coming years.

Earlier, the emphasis was on building the LAN-Grid first and the basic computing applications on the LAN (via Emergic Freedom). This was a mistake. Instead of looking at devices and applications that companies are already likely to have, we will focus initially on services that they are not likely to be using initially – and which can be delivered from the Internet to a PC with a browser and a mobile phone. This is dependent on bandwidth being available, which I think is a reasonable assumption as we look to the future.

The focus going ahead will be focus on building Internet-based “software engines powering business growth” for SMEs. These services will be offered as Emergic.net on an ASP (Application Service Provider) basis, also called SaaS (software-as-a-service). The focus will be on small- and medium-sized enterprises in emerging markets, starting with India. All of these services will be integrated with the mobile phone. In fact, access of information on mobile phones will be one of the key enablers for centralising data and applications. We have to make mobile phones equal partners (to computers) in business processes.

We leapfrogged the wireline revolution in India and went wireless -- India now has more mobile phones than land lines. In computing, we are hoping that users leapfrog the individual PC-centric model and go directly to the thin client-mobile phone model. In software, thanks to open-source and broadband, we will leapfrog the packaged software era and go straight to the software-as-a-service (SaaS) era. ASPs will come back - in the world's emerging markets, delivering apps and data to thin clients and mobiles. ASPs (and SaaS) are the only way to combat both piracy and non-consumption.

What the likes of Google and Yahoo did for consumers and companies like Saleforce.com and NetSuite are doing for SMEs in the developed markets, a new generation of companies have to do for SMEs in the emerging markets. They are the engines of growth for these economies. Software will power these companies. Thus far, because they couldn't afford software, piracy or non-consumption was the only option. Both are bad options. Now, there will be an alternative -- thanks to open-source and broadband (the same telecom technologies that got built out in the last 10 years). Software engines built on open-source and delivered via the Internet in an increasingly broadband-enabled world will make SMEs more competitive in the global marketplace.

Anand Jain had written in a comment: “I thought corporations (both mid/mega sized) would be lining up en masse to have their infrastructure implemented the open source way. Isnt it the promise of the open source to make the building blocks available for cheap/free? I am not sure about your business model, but seems that companies are happy to pay to the borg in Redmond, rather than go the open source way. Or is it competition in the OSS space?”

Open-source will in fact be a key to building out the ASP model. It is just that companies still find piracy an easier option. OpenOffice is still not as good as MS-Office. So, starting with the desktop applications was a mistake in retrospect. Now, we will start with the thin clients (which are being built by Novatium, a company I have co-founded with Prof. Ashok Jhunjhunwala and Ray Stata, and the services, which we will focus on in Netcore.

As we take the solutions to market, I will be paying close attention to what Yesh Sriram suggested: “The deal out here is really simple. Cover the market. Give what customer wants. Usually simple stuff. Watch your expense/sales.”

Keeping control on costs is another suggestion made by Krishna Iyer. “If numbers dont match, take hard decisions and stem the weed. Stop what you are working on currently completely AND re-analyse the market, see what the need is of the hour. Recheck core competencies and see if you can cater to the current need. Even Amazon was running in red for many years before investors shook them up like crazy. Your biz books should never be lost sight of in pursuit of enterprise goals.. its like stock market. we have dont have endless pockets lined with money so we have to stop loss sometimes but continue playing the investment game.”

It is always a tricky game. What is the right level of investment that is needed for the business? When does one pull the plug on a failed project? These are decisions entrepreneurs have to make all the time. In my case, I do know that the next year will call for investments in building out these “software engines” but if we do not see early traction, we will have to think hard about future investments. In that case, it is back to the drawing board!

Tomorrow: Looking Ahead

Related Entries:  [All]
TECH TALK: When Things Go Wrong: Looking Ahead [April 22, 2005]
TECH TALK: When Things Go Wrong: The Present Situation [April 20, 2005]
TECH TALK: When Things Go Wrong: Dealing with Failure (Part 2) [April 19, 2005]
TECH TALK: When Things Go Wrong: Dealing with Failure [April 18, 2005]
TECH TALK: When Things Go Wrong: Why Failure Happens (Part 2) [April 15, 2005]