2 - The shift from traditional software deployment to hosted mode

Many companies have become increasingly reliant on sophisticated software such as CRM and WPM, but simultaneously more and more frustrated with long deployment cycles, the complexity involved in upgrading, high expenses and infrastructure demands of traditional softwares (Thinkstrategies Inc., 2005) while businesses, especially Small and Medium sized (SMBs) find themselves in a predicament over managing time, money, staff and technology efficiently while coping with external pressures such as growth, regulation and outside competition. (Saugatuck Technologies, 2006)

Figure 2‑1 Coping with Business Pressures

(Source: Saugatuck Technologies, 2006)

This shows that as companies expanded their businesses, so did the need for automation and computing power to carry out transactions faster and to store huge amounts of data, but installation of business applications meant huge investments in the proprietary software licenses as well as IT hardware resources and IT personnel resources.

During the late nineties, a new trend began to emerge, that of Application Service Provider (ASPs), in which the ASP hosted proprietary software for a customer on its own premises, and the data could be accessed over a network interface. But with the cost of software and infrastructure deployment and service fee being passed over to the customer, it soon turned out to be very inefficient and unprofitable for the customers and this model of software deployment soon collapsed.

According to May (2007), in the case of ASP models, the delivered applications were often awkward adaptations of traditional software with the underlying software not designed from the ground up to travel well across the Internet and hence glitches, delays and extra costs were common.

1. The Software Business Model Today

Business, as we know it today is undergoing a tremendous change, starting from the overblown expectations during the age of the dot.com boom of the nineties to the harsh realisations learnt during the domino effect accompanying the dot.com bust.

Businesses have undergone a radical shift. From spending excessive amounts on recruitment of IT personnel, leasing expensive office and storage space and building expansive infrastructure; towards a more economical model based on cost-cutting, information and resource sharing, better and faster delivery channels by harnessing the web interface etc. Especially in the current, prevalent conditions in the financial markets brought about by the so called credit crunch, companies will be looking to cut operational costs and one area of natural progression could be to reduce investments in their own technological departments and look for viable options like SaaS providers who provide customisable software through open source. This will also help the companies to mitigate risks by transferring risk to such providers. There has been a paradigm shift towards making business solutions available as a service over the internet by harnessing the ever increasing broadband bandwidth capacity. Salesforce, SugarCRM, Google, NetSuite etc. have been successfully providing such services while companies like Microsoft and SAP have recently entered the SaaS marketplace.

Software as a Service (SaaS) is a software application delivery model in which a vendor hosts an application as a service over the internet, to be used by customers. It provides the customers with an alternative to traditional on-premise software. It eliminates the need for customers to pay the usually high software license fee, saves costs of the additional requirements of backup and storage and also eliminates the need for extra IT personnel for the on-premise software and associated hardware maintenance.

SaaS also helps the customers to focus on their core competency and enable access to applications and data anytime, anywhere over the internet. It also allows developers to support many customers with a single version of a product.

"By offering SaaS as an option, large, established companies can move downmarket and capture revenue from the small and medium sized businesses that may not have been previously able to afford the investment necessary to acquire perpetual licenses. In turn, smaller software companies and newer entrants that are exclusively delivering SaaS can more effectively compete with the larger vendors." (Opsource)

Another model which is proving to be disruptive to proprietary software business is the open source business model, which makes use of web as a platform by interweaving the community centred approach of web 2.0 with open source development principles.

"Open source is a model that provides access to a product's underlying technology and any specialised knowledge it took to create it. In the case of open source software, the underlying computer code --called "source code" -- is made available under some form of copyright license that adheres to the Open Source Definition."
(Borsch, 2008)

Open sourcing allows businesses to penetrate deeper into the market, encourages open industry standards for greater integration, allows infinite flexibility in terms of customisation and also provides greater data security and ownership and control. Open sourcing considerably brings down the cost of software deployment.

“Open source has revolutionised the software business in general by dramatically lowering the cost of entry for software providers. Development tools and infrastructure components required to deliver software as a service are now inexpensive or free. This has opened the software market to a much wider audience of developers who can now start companies and deliver their products for far less money than was required just a few years ago. In short, open source is making software cheaper in that it lowers barriers to entry and creates a more competitive market.” (Gillin, 2008)

Even though SaaS and Open Source models are gaining vast prominence in the webcentric business world, both these models have underlying drawbacks. For SaaS products, a constant requirement from customers is the need for greater customisation capabilities and flexibility. Customers have no direct control over their data and data security, which even though guaranteed by the vendors, is an issue with enterprises that cannot compromise with their sensitive data. Also, since SaaS is distributed over the internet, downtime period can affect business significantly, though some SaaS vendors are trying to overcome this problem by allowing their applications to be worked on in an offline mode during downtime to be synchronised with the server later.

While the traditional models of the IT industry based on proprietary software ensured direct income from per-copy price of the software, companies relying on open source as a business strategy cannot depend on open source software for generating income as the source code is freely available and distribution of source code is royalty-free. Hence open source businesses have to depend on alternative sources of income.

A concept, still in its infancy stage is leveraging open source software and practices with SaaS, to provide the benefits of both the models while minimising or eliminating the drawbacks of each.

"Open source software and practices will play an important role in Software as a Service (SaaS). By 2010, 90 percent of SaaS providers will have some open source component in their technology infrastructure stacks (i.e., operating system, application server and database) to reduce software acquisition expenses." (Gartner Inc., 2008)

Many open source tools are used to develop and deliver SaaS applications, hence synergies do exist between the two approaches, but they are also mutually exclusive in many ways, especially OSS has to be downloaded, installed and maintained on the user premises.

The important question to be answered is how the open source model can be harnessed effectively by SaaS vendors to provide businesses with faster deployment time and lower infrastructure costs. And thats what I will try to adress in the subsequent posts