Application Service Providers (ASPs) are set to make a comeback. The term used to describe this shift in software pricing and delivery is software as a service. Bill Burnham considers the factors driving this trend:
First off, the main costs required to offer software as a service have declined dramatically. As Ryan McIntyre outlines in his excellent post on data center economics, datacenter/hosting costs have plummeted in the last 10 years with bandwidth costs declining 88%, storage costs declining an amazing 99.7% and CPU costs declining an even more amazing 99.9%! (When you think about this from a business economics standpoint it really is stunning.) With lower costs, the upfront investment required to offer software as a service is actually now quite reasonable.
Outside of lower costs, three other developments have helped make software a service much more attractive. First, developers have created new applications that have been engineered from the ground up to be offered as a hosted service and even many existing applications have been re-engineered to make them more hosting-friendly. Second, the advent of XML and web services has made it easier for companies to integrate hosted applications and data into their own legacy systems. From a technical perspective, this has removed one of the last major drawbacks of hosted software. And finally, 10 years of exposure to the web has made many corporate managers much more comfortable with the idea of hosted-applications. Even many IT managers, who at first resisted hosted applications as a potential threat to their jobs and influence have now warmed up to hosted-apps as a way to quickly meet business unit needs without adding significant costs to their own organization. For many developers, selling a hosted software solution is now an easier and faster process than selling installable code.
Business Week wrote recently: Companies like Salesforce.com, NetSuite, and newly public RightNow Technologies are reinventing the way customers buy software. They’re all making basic corporate software to manage finances or a sales team, run a business or run a call center — not new stuff, and in many cases, with fewer features than existing products. But the innovation is in the business model. These companies deliver software over the Internet – a Web service, if you will — and companies pay as they go with monthly fees. That means less costly integration, no hiring an in-house administrator, and no big up-front contracts. It’s a considerably cheaper and easier approach that gives these software-as-a-service companies an entre into the last wide-open sector of software customers: Small and midsize companies.
Tomorrow: Whats Different (continued)
TECH TALK The Coming Age of ASPs+T