Architectural inadequacies in Web-enabled client server
applications makes them unsuitable for delivery through an ASP. But
will new application designs where software is delivered as a
service over the Web fuel demand?
Why the product-centric approach to software development
is bust
Gross inefficiencies of the software market
No one
knows how to write bug-free software, nevertheless:
- "Faulty" software products are widely distributed with market
acceptance that resources will be spent on fixing and patching live
systems - Software customisation is considered normal, which exacerbates
the maintenance of what was a faulty product anyway
Inefficiency is not just endemic in the software industry; it is a
central revenue generator. The income from maintenance charges and
upgrades is a key part of any software vendor's revenues, as is the
income from the vendor's professional services business, which
sells customisation skills.
These inefficiencies challenge the business case for application
service providers (ASPs), and the view from professionals in the
communications sector is that the ASP model will only work when the
software development process changes.
The traditional "Wave 1" approach to ASP
Most
ASPs operating today are working around these issues, either
because they currently have little choice in the type of software
they can source to build their service, or because they come from
the software industry and don't recognise the problem.
This has led to the development of Wave 1 ASPs, which operate on a
business model of delivering existing Web-enabled client-server
software to their customers over
 | | "Inefficiency is not just endemic
in the software industry; it is a central revenue generator" | | | | | |
| | Source: Ovum | | |
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the network. These applications were never designed for ASP
delivery, so they are not designed to run on centrally managed
servers supporting local configuration and provisioning for
multiple organisations.
Wave 1 ASPs typically offer application customisation on a
per-customer basis; this increases the overall costs of the
service, and positions the ASP within the spectrum of conventional
outsourcing capabilities. Both Oracle BOL (now known as Oracle.com)
and USi are examples of Wave 1 ASPs.
Wave 1 server models
Wave 1 ASPs support two
different server models, sometimes separately and sometimes
combined:
- The application is customised for each company, and the ASP
provides a separate server for each company's application. This
model is generally associated with the ASP delivery of ERP systems.
Effectively, this is a one-to-one (application:company) model, with
some economies of scale from sharing datacentre resources, IT staff
and the help desk
- An application is delivered to multiple customers on a
thin-client basis, using Citrix-type technology. While this is a
one-to-many (application:users) model, it is limited by the fact
that it is designed to support multiple users, rather than
companies. The use of Citrix-type technology is associated with the
delivery of desktop applications, such as Microsoft Office, and
legacy applications that have not been Web-enabled.
Software development for service delivery
The
history of the software industry is littered with failed attempts
to create a technical panacea to enable the development of better
software - formal methods, CASE tools, and object-oriented design
and programming. It seems that we are doomed to live with grossly
inefficient software, and that the communications sector may be
right in its gloomy prognosis for ASP.
However, if you view software as an online service to be delivered,
rather than as a product offering to be developed, you enter an
altered state of perception. You accept that we do not know how to
produce bug-free software, and that developers will need to make
frequent changes to the software. But you reach a business epiphany
- it is simply the distribution method that must change in order to
introduce efficiencies into the software market. No software design
"silver bullet" solution is needed to move the industry into the
"new economy".
We call those that have experienced this epiphany, 'Wave 2' ASPs.
They include salesforce.com, NetLedger.com, EmployEase.com and
Portera. Each one has a business model that means it only delivers
its software as a centrally-managed service, and that the software
has been designed from the start for this type of delivery.
The "Wave 2" ASP model of
operation
Developing software purely as an online
service brings the following efficiencies to bear in the ASP
market:
- The elimination of "product" from the market - there are no
CD-ROMs, manuals or product licences to create, distribute and
manage
- The elimination of staff and systems to distribute and maintain
products
- The elimination of help-desk expertise necessary to unravel the
complexity of problems resulting from the matrix of versions, bugs,
patches and customised software versions available. Help-desk
support is radically simplified when all customers are using the
same centrally managed, shared software
- A leaner, meaner software development team that does not have
to produce different versions for Windows NT and 2000, myriad
versions of Unix, and Linux
- Cheaper and faster implementation of improvements, as new
software versions are typically loaded on a weekly or monthly basis
to deal with minor bugs
- The elimination of customisation, which means that systems
integration becomes simpler
- A more efficient feedback loop for getting users' views of
suggested enhancements.
Implications for the software industry
Software vendors
You should be feeling
challenged, because the Wave 2 ASP model will radically re-shape
the software industry. Naturally, traditional modes of software
distribution and user expectations for customisation will not
change overnight, and will be some years in coming. Just long
enough, in fact, for you to get your product development plans up
and running to support the complete redesign of your product for
Wave 2 ASP.
Remember how SAP re-invented itself with R/3? A similar
transformation has to be embarked upon now to survive the
e-services revolution.
Service organisations
Your main short to
medium-term opportunity lies with partnering with Wave 1 ASPs that
need your systems integration and software customisation skills, or
by developing a Wave 1 custom ASP offering for clients. However,
the Wave 2 ASP model enables you to deliver a complete services
solution to vertical sector SMEs in a cost-effective way. This can
be done either by developing internal Wave 2 capability or by
acquisition of Wave 2 ASPs.
Wave 1 ASPs
Markets rarely execute fast
U-turns; for many years there will still be strong revenue-earning
opportunities in operating a Wave 1 ASP business. However, be aware
that you will never be able to achieve the process efficiencies and
economies of scale that the next-generation Wave 2 ASPs will
introduce. Ultimately, ASP pricing will be heavily eroded by Wave 2
providers.
ISPs and carriers
If you are developing an
ASP business, or already operating such a business, and are looking
to serve the SME sector, you should go straight to partnering with
Wave 2 ASPs. They are the only contenders to deliver the type of
service that can justify your ASP operation.