(Via zdnet) Software as a service, a corner of the computing industry is seeing faster growth than traditional software sales. The creation of an IBM-hosted application bundle is one of several initiatives at IBM to promote the notion of software as a service, or having applications delivered over the Internet. This model for buying software "on demand" is taking hold after years of missteps and failures, which were due to both technical challenges and faulty business models. IBM recently acquired Corio,an application service provider serving medium-size businesses. IBM also has programs to encourage independent software vendors, or ISVs, to convert their applications to run effectively over the Internet. IBM's growing interest in hosted services reflects a belief among software companies that spending on hosted applications offers brighter growth prospects than traditional software sales. Latest convert is Siebel Systems. Others include the likes of PeopleSoft, Oracle, SAP, Epiphany and Ariba
Now IBM is working with a variety of software companies so that it can offer hosted software bundles -horizontal and vertical on demand building blocks on its hardware and software infrastructure. This may be viewed as infrastructure-as-a-service, creating huge data centers running pre-configured applications, tuned to its middleware and hardware, and delivered over high bandwidth Net.
Rather than purchase a license and spend months installing software, a hosted offering lets people get started immediately with applications delivered via a Web browser. The purchasing model is different as well, with customers paying a monthly fee for a specified number of users. This is particularly attractive to smaller companies wary of large up-front costs. virtualization software lets a data center operator partition off dedicated portions of a single large server to separate customers. Also, software companies are increasingly building their applications in a more modular form around standardized protocols, such as Web services, which greatly simplifies the task of moving data between different applications. The services themselves are getting more mature as well, with better management tools and even the option to have applications run in-house while being remotely managed by a third-party service provider. A preconfigured combination of different applications, will help drive the market for hosted applications from one-off purchases for an individual department to broader usage, said analysts.
"It's becoming less and less one-item shopping, Providers are combining elements into a broader solution." Over the next few years--as enterprises get past capital expenditures off their books the concept of owning your own (infrastructure) for basic applications should appear ridiculous and preposterous when telcom, server, storage and application capabilties have improved several times. This can possibly facilitate birth of several new specialised applcations as well - as entry barriers and distribution costs can come down dramatically - what impact this can have on the maintenance revenue of established while Jeff Nolan says he is non plussed as the thing enterprise software companies lust for is not license revenue, it's the maintenance base. In fact,he argues, mature software companies will almost always generate more revenue from maintenance than they will from new license sales, because an enterprise license contract is a form of annuity. With green flag from all enteprise majors and enteprises seriously considering on-demand this movement can only go from strength to strength.
Update: Joe Wilcox adds,If uptake for Outlook Live meets Microsoft expectations, more software-rentals-with-attached-services offerings is a distinct possibility. In a sense, some of the software features packed into MSN, like those from Money or Picture It, already are there. With consumers, small and medium businesses and enterprises slowing down software upgrades in many categories, Microsoft needs to find new ways to entice adoption of newer products. Since some of those products have reached the perceived "good enough" threshold, the services approach would act as a carrot encouraging newer version adoption. Microsoft also would benefit from any shift to reoccurring revenue, as it does with enterprise contractual licensing.