Charging for software as a service.

January 10, 2001 4:09 AM

Charging for software as a service. As soon as the software vendors get this ironed out the hardware vendors are going to want in too. Soon you'll be paying monthly service fees based on how much you use your computer. (More ranting inside) ->
posted by monkeyboy (19 comments total)

This is bad, bad, bad, bad, bad, bad! What I can't figure out is how anyone sees software the same as say, water or power? It's not, software is a product, the same as hardware, or a music cd or a movie. Remember Divx(from Circuit city), you paid more money each time you wanted to watch the movie. Did cunsumers like it? Nope. Will consumers like this? Nope. Would you like to pay a monthly service fee for all your music cds?
posted by monkeyboy at 4:12 AM on January 10, 2001

It is a simple consequence of more and more companies sticking to their core competences.
Some companies are good at *owning* stuff, other companies are not so good at it. The latter lease the stuff they need from the former.

It's a cultural change from buying stuff to buying access to stuff, and it is all over the place. Franchise, leasing, service fees. And don't think you'll be able to buy hardware, music cds and movies for long. You'll buy or rent a refillable widget, usable for a period of time or a number of uses.

Jeremy Rifkin has written Age of Access about this, and I hope he's wrong.
I don't think he is, though.

posted by palnatoke at 4:52 AM on January 10, 2001

This will hopefully create huge side markets of "purchasable" software. Also a huge renaissance in retro-computing: non-service software, and unencrypted drives.
posted by mecran01 at 7:38 AM on January 10, 2001

The software company I work for has been doing this for the last couple years, with great success. We sell to power companies. We give them a site liscense, and they pay monthly based on how large a utility they are. For their money, they get constantly upgraded software and complete support. Since we switched to this model last year, our customers are happier, now customers are lining up faster than we can install them, and we're turning a profit for the first time in our three year history.

Monkeyboy, software is not like hardware, a music CD, or a movie. Those three things are "dead" -- they don't change or grow. There's never more songs added to the CD you bought, or extra scenes added to your movie. Hardware must be replaced or physically added to to get better performance or new features.

Large software applications, done right by a responsible software company, is never dead. Things can always be better, faster, or more complete. Software subscription (again, with a responsible company) is a wonderful thing.

Another nice example is Stardock, who sell a collection of games and a wonderful windows GUI-replacer by subscription. I've paid my yearly fee, and I love what Stardock's been giving me in return.
posted by ewagoner at 7:43 AM on January 10, 2001

Don't worry too much, there's always open-source and the Linux-associated hardware manufacturers (VA Linux and Penguin) that presumably wouldn't follow such a trend (their customers would never let them).
posted by daveadams at 7:45 AM on January 10, 2001

I think that this will succeed, but that it won't squeeze out the traditional form of software sales. Rather, the two will come to coexist.

Ultimately companies are about giving customers what they want (as opposed to what they need, or what the company needs) because that's what customers are willing to pay for. There are too many customers who want to own their software for the vendors to ignore.
posted by Steven Den Beste at 8:18 AM on January 10, 2001

I think mecran01 has it right. Renting software or hardware will open new markets for companies to sell to consumers who prefer ownership. I'll be using rented software at my workplace, and freeware or owned software at home.

We sort of rent software today. When a new version of your word processor is released, you rush out and upgrade because your "old" software won't be fully compatible (perhaps it was even engineered that way). Nevermind that the old software met all of your needs.

The true rental model maximizes profits. The bulk of PC users are novice users who do not upgrade because they don't know how, aren't aware an upgrade exists, or they cannot afford it. If the companies get these knuckleheads on the rental plan from the get-go, they'll bleed the hapless fools dry.

If you're still stuck with Office, check out the free StarOffice alternative.


posted by fleener at 10:59 AM on January 10, 2001

Actually, monkeyboy, even today software isn't like most other products (though you were right that it's like music and movies). Here's why: when you buy, say, Office 2000, you do not now own Office 2000. You own CDs, a manual, and a licence to use the software. Yes, that big screen of text that you always click past is what you *really* bought. Just like, when I buy The Matrix on DVD, I don't now own The Matrix. I own the right to play the movie for personal use. And all those CDs I own? I don't own the music on them, as evidenced by the recent Napster lawsuits. I own the right to play that music for non-commercial use.

As has been pointed out, software by subscription has some advantages. For example, how many companies current own licences for, say, 5 different versions of MS Word, because they've been forced to upgrade? With the subscription model, when the new version comes out, you can just switch your subscription over to that. And there's a lot of software in the world that already works like this -- however what you'll notice about every single one of them is they're designed for businesses, not personal use.

I don't think making the average Joe pay for MS Word over again ever year is a good idea at all. He's never had to before, and good luck explaining to him why he has to now.

Oh, and fleener -- Star Office is good, but not great. It takes just over 30 seconds to load on my system here at work (Excel, by comparison, takes 10), and it's got a *lot* of bloat (what's with the desktop and start menu? I already have one, thank you.). Not to mention I don't like the idea of having all it's components in one program -- I think the current developers would be wise to split it into seperate executables -- one for the word processor, one for the spreadsheet, etc. That should reduce load time by a lot. Also, importing/exporting to/from Office works, yes, but it's not perfect. Try opening any reasonably complex Excel spreadsheet in SO and you'll see what I mean.
posted by CrayDrygu at 11:29 AM on January 10, 2001

This model is already in wide use, right in front of our faces. What do web professionals charge for? The finished product, the web page? Sometimes, but more commonly, they will charge for the service of designing and coding the site, and then, depending on the contract, for maintenance and updating. In this way the web professional maintains a continuous income stream and the client maintains a continuous relationship with someone who can maintain the web site as the clients' needs evolve or as crises emerge.

While not appropriate for all circumstances, I can certainly see while it might be a benefit to the parties involved.
posted by mikewas at 12:35 PM on January 10, 2001

It's not, software is a product, the same as hardware, or a music cd or a movie.

Ummm... No, I'd say software is a service.

Ever hear this old joke?: A guy brings in a car to a garage. Tells the mechanic that the car keeps stalling out. The mechanic opens up the hood, reaches in, and replaces one particular nut on the engine. The mechanic then turns to the owner and says, "$75, please." Guy looks at him dumbfounded -- "$75! Are you out of your mind? For one single nut? I could've done that!" So the mechanic goes into the office, and writes up an invoice: "Price of nut: $.75 Ten years training and experience to know which particular $.75 nut out of 3500 moving parts will solve the problem: $74.25"

Software is a lot like that. Any particular piece of software is replicable, as black-box clones of individual products show. What you're really buying is the labor and skill of the programmer, so that you don't have to program everything on your own.

So, yeah... software is a service.

posted by aurelian at 1:13 PM on January 10, 2001

aurelian, software is no more a service than any other product is a service. This is the difference between "goods" and "services." I can buy a cake at a store and that is a good (a product). To have a cake made for me to my custom specifications by the store, or a caterer, is a service. The term "service" implies an act of assistance or benefit to another. Saying software is a service is using a very broad definition of the word. Software is a mass produced good. The fact that many skilled people and lots of money went into producing the product means you charge more for the product, not that it is therefore a service.
posted by fleener at 1:55 PM on January 10, 2001

aurelian's garage joke doesn't really apply, because car repair is a modification of a product that has been purchased.

Software is a product. Maintenance of, modification to, upgrades to software is a service.
posted by Neb at 2:40 PM on January 10, 2001

I think there are a lot of people on this thread who are still stuck in the 1990s, when all your software was still on your PC.

Welcome to the 21st Century: most of your software is on the net, probably running inside your browser. 80% of my computer time is spent online in some way (I'm talking recreational use here, not sysadminning). Metafilter is a software provided as a service, not a product. Blogger is a service. And by gum, pretty soon Office is going to be a service (read up on .NET).

I don't think this is bad OR good per se. It may be bad in certain ways (the dumb Best Buy consumer buying a long-term software rental agreement an example), but it's certainly good in other ways. With the web we have access to niche services that couldn't exist any other way (weblogs, anyone?). The software we use is increasingly online in one or more ways. We are increasingly expectant of high-level service via online updates and instant bug fixes. Some people can't imagine not running the latest and greatest. Does that mean everyone is locked into the high-rent model? Not necessarily.

You need to stop thinking of software as something that comes in a box. It's not a physical object. It's more like music or a magazine. Sure, you can play only 8-track-tapes and keep re-reading that Sep. 1975 Reader's Digest if you like, or you're really, really broke ... but most people expect more. The web provides a means to get it to consumers with more speed, variety, and options than ever before.
posted by dhartung at 8:44 PM on January 10, 2001

Pricing models are going to have to be worked out for it that make sense. So far the software industry's track record on that isn't too good. Phone companies have has a lot of experience at that sort of problem and look what a friggin swamp *that* is. You can see in this thread that it's hard to reason out. When the marginal cost of an instance is effectively zero, what's the right price to charge?
posted by rodii at 8:51 PM on January 10, 2001

Welcome to the 21st Century: most of your software is on the net, probably running inside your browser.

That's more like, welcome to the 1960s. They were called mainframes. They lost.

Your browser is still on your PC. Most java apps still download to your PC, and then run (badly). Most networks are still too damn slow to run meaningful apps, and as Boardwatch has pointed out repeatedly, the number one cause of slow Internet performance is not lack of bandwidth, but saturated servers.

This is part of why Napster works -- it uses all capacity out there to distribute the load, but that still requires the capacity to be installed out in the big blue yonder in the first place.

Who really wants to be completely non-productive when Microsoft (or Sun, or Apple, or whomever) gets hacked? And have we already forgotten about Blogger's server capacity problems?

Give me the 1990s over the 1960s any day.

posted by aurelian at 11:41 PM on January 10, 2001

Mainframes themselves may have lost, due to the low cost and the practicality of putting the processing power on everyone's desktop, but the idea of running programs remotely and displaying them locally is still used a lot in the business world. For example, where I work (Gov't, not business, but let's not pick nits) our financial software runs on a UNIX server in the basement. Everyone has a terminal emulator (telnet) program that they use to access it.

There's a lot of benefits to doing things this way, too. A database like this one takes less processing power and more disk I/O ability, which servers are designed to handle better, and it keeps all the data in a single place. Updates and patches to the software only need to be applied once, and everyone's up to date, because they're all running the same copy of the same program.
posted by CrayDrygu at 8:28 AM on January 11, 2001

aurelian, you're using such a service -- probably daily, aren't you? Amazing! And yet you put up with it!

The reason is that the application -- communicating with other users around the world -- could only exist on the internet, and a client-server architecture is the most efficient way to deliver that application. As Napster has shown, there are new ideas out there that will be anything but one-user-one-computer programs. Microsoft is betting the farm that the next generation of software is going to be middleware-enabled, that team communication is going to be the critical piece in any enterprise software, and that software updates via the internet are going to become practically invisible.

Sure it has limitations -- but so does putting software on a CD-ROM and shipping it in a box. I have a lot of that kind of software. Most of it is over one year old -- and I have two computers, both of them less than one year old.
posted by dhartung at 1:48 AM on January 12, 2001

Right now, if you want to play with Adobe Photoshop and do cool graphics on your computer, you have basically two choices: pay Adobe $600, or steal it.

Let's say you only need Photoshop a couple of times a week, but when you need it, nothing else will do. Wouldn't you rather rent it for, say, $1 per hour of usage?

Wouldn't Adobe make lots more money by making this professional product available at a price ordinary people can afford, and charging based on use? Maybe your pro would still just shell out the $600 for it, but the other potential users for whom spending $600 just wouldn't be worth it use other products, or else steal Photoshop. It gives those users a way to afford a powerful product (legally) and it gives Adobe a whole new market.

Wouldn't it be great to buy a computer that basically came with every program in existence already installed on it, and you only paid for the ones you used as you use them?

Obviously sales and rental will co-exist for some time but I think rental is a great option. I'd love to play with some high-end 3D software (after seeing Maya at Macworld this past week) but I don't want to shell out thousands of dollars to do it. Maybe the software could be free until you wanted to render at broadcast resolution or higher. Say 400 X 300 renders are free -- you get to learn the software and see your results, they could charge you maybe $1 for a video-res render and $5 for a print-res render. I can see this kind of pricing flexibility opening up huge new markets for high-end software (especially among students) and bringing more power to people at prices they can afford. Why not? What's bad about it?
posted by kindall at 8:40 PM on January 12, 2001

Fleener, when the government tallies up exports they divide them into "goods" and "services". Some people think you can't export a service, but in fact the US makes enormous amounts of money exporting things which the government classifies as services.

See, TV programs and movies are classified as "services" and not as "goods". When ITV reruns Bonanza or Gilligan's Isle, and pays the copyright owners, or when a foreign movie theater runs a US movie and pays the studio, that's considered a service even though a tape/film was involved.

I believe they also classify software exports as "services", on the same basis.
posted by Steven Den Beste at 9:37 PM on January 12, 2001