Friday, October 22, 2010

On Software as a Service

True, the traditional view of software commercialization may go the way of the slide rule and the typewriter, but there will always be a need for the services that software provides. However, the ability to access software services depends heavily upon the enabling of shared infrastructure from companies providing hosting, data storage and networking and telecommunication services. This infrastructure should continue to move towards standardization to facilitate the kind of “plug-and-play” flexibility the market demands. The ongoing standardization of emerging “middleware” technologies supporting distribution and access of services via service interfaces will have an impact comparable to that of the world-wide-web.

Software as a Service (SaaS) is exploding nowadays. Google’s application suite is an instance of SaaS providing generic horizontal services. Function specific products such as GoTo Meeting and WebEx for meetings along with Sales Force Automation, a more focused horizontal SaaS tool have been gaining significant market share over traditional competitors. This explosion also includes vertical industry applications. Thousands of hotels use TravelClick for reservations; the health care industry has hundreds of SaaS applications for patient management, ambulance services, etc. Plus remember, ultimately, Facebook and Twitter are nothing more than social media SaaS environments.

Despite all of this, SaaS is not a panacea—at least not yet. The model has to mature and as a result, the range of options, costs and enrollment mechanisms is still too varied and complex. Most significantly, SaaS systems need to find the right balance between functionality and flexibility; plus the model presents a list of new security considerations. Are you comfortable having your company’s most sensitive data out there, somewhere in a cloud?

Take heart though, standardization breeds commoditization, and a result of standardization is that in the future there will be a consolidation of service models and expected features. This consolidation is also being facilitated by the emergence of the “Cloud Computing” model that essentially makes the infrastructure services supporting SaaS invisible to the user. Large vendors are already introducing sophisticated virtualization, security, and management tools that will enable SaaS providers to offer an expanded range of configuration and portioning models to their clients.

But SaaS does not necessarily need to be wholly based on a centralized service delivery. The paradigm also applies to distributed services such as those provided to smart-phones. Already the paradigm for the booming smart-phone market is that of downloadable “Apps” with modules providing functions. Some Apps run entirely standalone, but others provide a front-end that can access powerful backend systems. Google is making available a suite of shopping Apps that instantaneously leverage the powerful Google server environment displaying reviews, alternative prices and so on. The popular Shazam is a complex application that tracks and recognizes tunes being played, and there are a myriad of widgets for all kinds of things. The user, particularly the younger user, no longer views these Apps as software. The kid downloading a ring tone is not buying software or data but a experience. The fact is that many of the Apps providers are now moving away from straight purchase models and toward service subscription or ad revenue models.

Now, so far I have discussed that the SaaS paradigm appears to be a consumer of services. The question is how will your company fit the upcoming Infosphere economy and how will this impact your very own IT strategy. What kind of SaaS is your company planning to offer, if any? When you envision the IT system of the future, you need to ascertain how you are going to play in this brave new world, as a provider of software services, a user or both. This includes defining the manner in which you will make your IT services accessible to users. When doing this, you will be glad you followed a comprehensive SOA strategy as the baseline for the IT transformation.

In a way, SOA is a necessary (tough not sufficient) element for the habilitation of SaaS. SOA systems intrinsically create services that can be selectively commercialized under SaaS. The SOA services become SaaS services. In other words, the concept of Software as a Service will evolve into the more prosaic “Service as a Service.” This statement seems obvious, but it has deeper implications . . . a complex SOA system may well consist of an interplay of components. For example, Provider #1 of service S1 may access a second service, S2, from provider #2r #2, who may depend on service, S3, from Provider #3, and so on. The user needs only sees the integrated service provided by provider #1 and can be oblivious of the value chain behind the original service request. In essence, SOA enables the replication of the way traditional value chains operate, except now we are using digital means. Just like real markets, SOA systems can become incredibly complex. Their support has to be structured in such a way to allow quick resolution of issues presented by complex, intertwined value chains. There has to be clear accountability lines.

Having said this, I am doubtful that mission-critical IT systems should ever rely entirely on external SaaS services. I firmly believe that technology; some technology anyway, will always be a weapon to attain commercial advantage and to enhance one’s competitiveness. Don’t buy into the idea that all software will become so commoditized that it will be something you can always provision externally—a simple utility provided by SaaS. General purpose business software such as ERP systems? Use them as a commodity. These systems do what they do. Being able to process payroll or accounts receivable internally is not going to give your company a competitive advantage (I am sure though there are exceptions to this!) But there will always be that little extra function, that cost cutting algorithm or automated innovative process, that will not be available externally, either because it represents a core intellectual property asset of the company or because the cost or risk of placing it in a external environment is not acceptable.

The question then is “What services should you endeavor to create rather than purchase?” The answer to this question depends on an analysis of what are you trying to get out the service: Data? Content? Wisdom? More on this next…

Friday, October 8, 2010

The Emerging Business Models in Information Technology

Until recently, the traditional IT revenue model landscape was a rather trivial one. You had your vendors—the companies that developed software or hardware products for use by other companies— and then you had your clients who consumed those products through straightforward purchasing or licensing along with yearly recurrent maintenance payments. On the side you had consulting companies that served as honest brokers that helped to define high level strategies. Add to this the providers of ancillary services, and you end up with most of the IT world of yesteryear.

This simple scenario is no more.

Emerging IT technologies and solutions are now being offered under a cornucopia of models; many of which are only now beginning to be understood. Beyond the “pay-if-you-can” models spawned by the availability of Freeware, Shareware and Open Systems, the future will see the delivery of software under a variety of revenue models, including Software as a Service, Software as a Function, and ultimately the probable disappearance of software as a standalone product. Software-under-the-Hood represents a mindset shift wherein consumers are no longer buying software but rather the things that software can do. Companies providing these services will use a variety of revenue models: free plus maintenance, one-off purchasing, subscription, advertisement, charge per utilization, on demand among others.

Google, for instance, makes the bulk of its revenue from advertisement; not from selling search software. Likewise, eBay’s revenue model is based on its auction facilitation and commissions. Facebook’s revenue model has flipped the world from what was originally the customer (i.e. Facebook friends) into the actual product sold to advertisers (i.e. you, my friend, are the product!). The generalization of SOA and the emergence of more sophisticated technologies will facilitate the drive to offer services rather than software. After all, subscribing to WebEx may give you the chance to download a client-side software module, but what you are ultimately paying for is the ability to schedule meetings on demand.

Mix this recipe: pour a liter of globalized Internet seasoned with Cloud Computing; add a cup of SOA facilitated Software as a Service and a couple of spoonfuls of Business Process Outsourcing, heat with the mobility technologies and spice with the growing success of social networking as the new killer-app. What you’ll gave is a dish representing the transformative emergence of new players providing yet unheard of business services. Already, it is difficult to categorize Facebook or Google under traditional definitions. In the future, the roles played by Microsoft or IBM will still exist, but even traditional software companies realize the need to reinvent their product and business model if they are to better compete under a continually changing landscape. The future will also see the disappearance of some of the typical roles in the value-chain (witness the demise of brick-and-mortar electronic companies such as Circuit City or CompuUSA), and more importantly, the emergence of newer models, redefined to be better fit the changes in information economy. This type of change can only be ignored at the risk of the company’s survival. If you doubt this, recall Wang Laboratories and its Word Processing flagship product as it faced the PC revolution, Polaroid as it confronted the digital photography revolution or Blockbuster in the process of being busted by Netflix (pun intended!).

Just as earlier software models were based on the “a computer on every desk” idea, or the importance of search, or some other insightful tenet, the next Bill Gates, Larry Page or Mark Zuckerberg will most likely be a child of what has been referred to as “The Infosphere[1]”. The Infosphere is the paradigm that all informational elements will be accessible from the electromagnetic digital media around us. You can think of the Infosphere as 3G or WiFi coverage on steroids: ubiquitous, always available, and transparent. It will be the natural result of the pervasive advent of cloud computing and the continued decoupling from specific access devices[2].

Recall some of my earlier observations about how technology usually “evolves” from hype to invisibility as it becomes pervasive. Unlike Wired Magazine’s recent claim that the Web is dead (at least from the perspective of the Web Browser as a universal client) I believe that the Web is very much alive. It’s just that it is evolving into invisibility.

While the Web Browser is now embedded in the hidden fabric of technology, the delivery of new applications and content for new mobile devices on a demand basis, anytime, anywhere, is also becoming an assumed capability. There is an umbilical cord being formed between most of the world and the emerging Infosphere.

Already the rapid adoption of technologies such as Apple’s iPhone and other Smartphones can be seen as earlier examples of this Infosphere. Mobile devices are today’s equivalents to the PC’s of yore, computers that you can carry with you at all times—prosthesis for the brain. Using these devices to interact with the Infosphere from anywhere, at any time, is not a longer a technology question but a commercial one. If only phone carriers did the smart thing and lowered those outrageous data roaming charges!

Here we return from the digression of the topic. The key now is for someone to figure out the right revenue models to apply in the future Infosphere. Data roaming has got to go, ads on Smartphones might be fine but I doubt the revenues they generate will help pay for the totality of the mobile services. Subscription or membership fees to social communities may emerge, who knows… In the end, much will depend on what will become the killer apps and services in the next few years. Figuring that out is the key.

How to do this? Remember the suggestion I made about how best to predict the future of technology? The secret is to find the synergy. That is, to visualize the usually unforeseen ways parallel advances will combine to form a new game changing event.

Find the synergy, especially as it relates to the impact the future may have either on your business or your IT strategy, and you will be on the road to defining your follow-up transformation strategy. If you agree that we are in the midst of an accelerated transition to an Infosphere paradigm, then it makes sense to try to imagine what the likely future business opportunities of such transition will be.

More on this next time . .

[1] Even though the term “Infosphere” has been around for a while (according to Wikipedia, since the sixties), it should be noted that IBM has recently created an Infosphere brand for one of their Information Management software products.

[2] A more esoteric term “Noosphere” has been used to describe a future global sphere of shared human thought—a sort of collective consciousness of human beings. I suppose some nice essays could be written on how the evolution and use of the Infosphere could be the technological enabler for a future Noosphere!