McKinsey releases 2008 Enterprise Software Survey

Via Nick Carr’s posting today. The McKinsey survey suggests:

• The software industry technology innovations of the past 2-3 years are nothing compared to new technologies we’re about to see
• This innovation is likely driven by SaaS/PaaS and Web Services/SOA with 31% and 25% of respondents selecting them as the most important trend impacting their business. Open source received 8% of the votes from 857 respondents, just above 7% for “Software industry consolidation”
• Currently 65% of software spending is through traditional license/maintenance models, with 19% coming from subscription/on-demand. These figures are “expected” to shift to 58% & 21% respectively by 2009.
• The majority of this shift toward subscription-based models is coming from companies with <100 employees.
• The top three criteria for selecting SaaS vendors are: “deployment speed, ease of Integration”, “vendor track record in SaaS” and “Costs”.
• Overall, control of software decisions split 83% / 17% between centrally controlled vs. business unit controlled. This split grows as the company size increases. For example, it’s down to 67% / 33% in companies with > 25,000 employees.

Lots of other good info (you can read more here). I wonder that last data point will impact OSS adoption. It’s probably a net positive for applications that business users interact with. Not sure if a business unit decision maker cares as much about middleware decisions though.

 

Tidbits on Amazon’s Web Services business

This Wired story has some very interesting comments on Amazon’s Web Services (AWS) business. The first point was news to me:

“And the idea that AWS is mostly about wringing extra bucks (especially off-season) out of Amazon’s data centers? “We’ve far exceeded the excess capacity of our internal system,” Amazon’s Jassy says. “That ship sailed 18 months ago.”

….

“I’d be surprised if no one else does this,” Bezos says, pausing for effect. “It’s a really good idea!” And there may be an ace up his sleeve. Any economist will tell you that a commodity business — storing and processing data, for instance — is a mug’s game, with prices that plunge inevitably toward the cost of production (in the case of bits, pretty close to zero). That’s music to Bezos’ ears. “Commodity businesses don’t scare us,” he says. “We’re experts at them. We’ve never had 35 or 40 percent margins like most tech companies.”"

…

Wall Street’s best guesses for AWS’s 2007 revenue don’t even reach $100 million.

I scoured Amazon’s 2007 annual report to see if there was any additional data on the size of the AWS business. No luck. About all I could find is that Amazon’s expenses for “Technology and content”, which is where AWS expenses would be counted, were up to $715M ($818M if you include the cost of stock compensation to employees in the “technology & content” group). If the AWS business has grown beyond using the excess capacity of Amazon’s internal systems, it wouldn’t surprise me if 5-10% of that figure was associated with AWS. And based on the comment from Bezos, I’d probably uplift the expense estimate on AWS by < 25% to represent gross profit. All told, we’d be around [717M x ((5% + 10%)/2) x 125% =] $67M in revenue by my back of the envelope estimate. Not bad for 2007 (if my math is close to reality)…would love to know how big 2008 is considering that all the cool kids are using AWS.

 

Gartner - Software licensing costs to decline

Andy McCue at Silicon.com points to a Gartner report that, in many ways, reiterates what we’ve all been seeing.

“Gartner has identified seven major trends converging to change software delivery models, reduce dependence on the giant application vendors and force prices down.

These include business process outsourcing; software as a service (SaaS); low-cost development environments, such as China and India, combined with modular architectures and service-oriented architectures; the emergence of third-party software maintenance and support; growing interest in open source; the rise of Chinese software companies; and the expansion of the Brazilian, Chinese and Indian markets.”

Regarding OSS:

“Although Gartner says open source won’t topple the likes of IBM and Microsoft the analyst believes it will put pressure on traditional software margin structures, particularly in areas such as servers, operating systems, development tools and database technologies.”

I’ve seen customers using OSS as a negotiation tool to get lower prices on commercial enterprise software. This will surely continue.

Captain Obvious, over and out.

 

Painless Hosted Trials

Matt has a great post on the sources of deals & leads for Alfresco, which could be useful to a broader set OSS vendors.

What is surprising, but not unintuitive, is the low percentage of Hosted Trials that turn into deals. Namely, Hosted Trials represent 30% of leads, but about 5% of deals.

The conversion rate between Enterprise Trials leads (15% of all leads) and deals (10% of all deals) is much higher.

If you’ve tried the SugarCRM Hosted Trial “just to see what all the fuss is about”, then this data shouldn’t be a surprise. If I had to download, install and configure SugarCRM just to form a few general opinions on the product, I would have found something else to do with my time. Only (more) serious users would go through the hassle of downloading, installing and configuring the product.

So, don’t use this data to prioritize a Hosted Trial (SaaS) lower on your list of to-dos. Even if you don’t get deals via Hosted Trials, you’ll expose your product to a lot more people (especially of the kind that write checks vs. those that write code) than requiring that they install the product to try it out.

 

WGA Server Outage Says Little About SaaS

We’ve all read about the Windows Genuine Advantage server outage. Dvorak used the event to raise concerns about SaaS.

“All this proves is that these Web-based applications cannot be trusted.”

I am by far the biggest supporter of SaaS, but I do see it as a market inevitability.

The WGA outage proves that when you don’t design a system for five or six 9’s uptime, you won’t magically get that level of availability. As web apps move from “good enough” to “business critical”, these types of outages will be outliers.

Here’s another Dvorak conclusion:

“What is often lost in individual analyses of how to proceed with your data-processing needs is the concept of “being at the mercy of a single company.” “

If you work for a medium to large enterprise, it’s very likely that ADP, one of the oldest SaaS providers in the world, handles your payroll. Your company is very likely at the “mercy of a single company, ADP, when it comes to processing your bi-weekly salary and paying you on time”. And yet businesses choose to use ADP.
Staying with the ADP example: I find it somewhat amusing that “fear of data loss or risk of your data being mistakenly viewed by a competitor in a multi-tenant SaaS environment” are inhibitors to broader SaaS adoption. Isn’t your employee’s salary & privacy concerns just as important as your customer lists or sales records? Sadly, maybe the answer is no…..

In any case, SaaS isn’t going anywhere. It’s been here for decades. A few SaaS-related outages simply make the case for more mainframes! ;-)

 

SaaS vs. OSS? Users choose SaaS, next question.

Tim O’Reilly has an interesting post on why the GPLv3 took a pragmatic approach when it came to the “SaaS loophole” (i.e. SaaS apps aren’t redistributed; no redistribution means SaaS vendors can use GPLv2 code with modifications and keep the modifications to themselves).

Tim states in the comments to his post:

Having the source to Google or Amazon or eBay or CraigsList also won’t let you replicate the service, unless you have millions of dollars to spend on infrastructure, employees to manage the ongoing services, etc. etc.

I’ve found it amusing that OSS supporters calling for software vendors to open source all their software believe the future of the software market is SaaS+OSS. Let’s pause here for a second.

According to the FSF, here are the 4 freedoms that free software should provide:

• The freedom to run the program, for any purpose (freedom 0).
• The freedom to study how the program works, and adapt it to your needs (freedom 1). Access to the source code is a precondition for this.
• The freedom to redistribute copies so you can help your neighbor (freedom 2).
• The freedom to improve the program, and release your improvements to the public, so that the whole community benefits (freedom 3). Access to the source code is a precondition for this.

Yes, free software and open source software is different (as RMS has often said). But OSS proponents rely heavily on the above 4 freedoms when describing why OSS is a better answer than Traditional software (…to what question?).

I’d argue that SaaS expressly prevents freedoms 1 through 3. Considering that SaaS delivers on only 1 of 4 freedoms that OSS proponents suggest are immutable, why the love between SaaS & OSS?

In a future with SaaS at the core of non-commercial user applications, I suggest that the key things that users will care about are the openness of:

• their data (via something like Wesabe’s data bill of rights, as Tim points out)
• the application GUI

The source to Gmail will not greatly help me replicate Gmail. But an open GUI api will help me (or someone else) create things like better Gmail without (messy & brittle) hacks.

Thoughts?

PS: I doubt the success of SaaS in commercial user applications. I base this view mostly on the (un)willingness of IT managers & CIOs to cede control outside the walls. But I could be wrong here. Technology aside, we can’t overlook human nature.