Srinivas Reddy’s Weblog

My Tech Rants

Software as a Service(SaaS)

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The ‘Strategic shift’ announced by Microsoft (http://news.bbc.co.uk/2/hi/business/4399018.stm) to transit from a ‘software’ company to a ‘service + software’ company marks a paradigm shift in the Industry. In a way it acknowledges the death of packaged (desktop) software. Historically Microsoft has done a great job of learning from its rivals (be it Apple, Netscape,……….). Its in a way deja vu with the rival being Google this time. It would be a interesting battle ahead.

Its natural question to ask why SaaS and why now? I wil try to dig deeper into this. Software can be broadly classified into Infrastructure software (Operating Systems + Application servers – Databases,appservers, webserver, Directory servers,…) and Application Software – be it packaged software (as MS Office, ERP,..) or custom applications (developed inhouse or by consulting firms such as Indian IT services firms) . The advent of opensource software and pervasive networks (read internet) is disrupting the conventional IT landscape and different IT vendors are taking different routes to survive and grow. Some firms are currently promoting Applistructure (mix of infrastructure + applications) while others are promoting OnDemand Software (the IT vendors host the infrastructure and applications). While this is mostly true for the enterprise world, for the consumer market (and to a extent small businesses) online services have been the real disruptive force. Firms such as Google, Yahoo, Ebay, Amazon, Salesforce.com,…………. are pioneering work in what is called as Software as a Service(SaaS) market. The online services need no (or very little & free) software installation on the client machines. The online services themselves are offered for free (or very little fee). This effectively means all new software being developed is given to users for free and offered as a service. This surely raises the question how do this firms then make money? Companies such as Google have shown what the new business models of the software firms will be like. They will not make money selling software but by selling services around it (Ads in the case of Google). This trend has reached such a stage that Microsoft has finally acknowledged that if you cant beat them join them strategy by announcing to offer free software online to be supported by services (read ads). We can only expect the revenue models to get more complex in the future. The rush of various software vendors (be it IBM, Oracle, Sun,…) to embrace open source is anything but philanthrophic!!. Its all about the battle for the eyeballs and owning the screen real estate is everything!!. The crazy valuation of Google (its among the most valued companies in the world) is not really that crazy.

What are the key issues for developers to understand in this new software landscape? The software being used by firms offering SaaS is mostly open source. For the simple reason its free and they can easliy adapt it to their needs. The huge support of Google to opensource projects is no coincidence. Having skills in opensource software is a must for the future software developers. A common trend in firms offering SaaS is to offer open API’s with SDK’s to build on ( be it Goolge, Amazon,…). It must be easy for consumers to build additional services to leverage the vendor services and thus monitize their services. The biggest reason for failure of .NET is that applications (services) built on top of it have not been able to find sustainable revenue models (unlike apps built using google/amazon/.. api’s). In a way platform is taking a whole new meaning with SaaS model, its not enough if you can develop great services – you should be able to give it away for free but still be able to make money!!. Its important for developers to be able to understand strategic importance of API’s and SDK’s offered by SaaS vendors and create new innovate applicaitons (read services) from it. In a way the big Indian software services are not (still) directly affected by this trend, but there future growth surely depends on how they can plug into such service based ecosystems. Offcourse there are great opportunies for Indian software firms to be ‘real service’ firms.

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Written by srinivasreddy

November 4, 2005 at 6:27 am

Posted in Technology

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