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Corporate America Wary of Subscription Software
medical_geek writes: "According to this
article
on cio.com,
MS's subscription service is failing in the business world. I guess
that personal users are not the only group that balks at paying a yearly
fee for software. My question is have you at your job bit the bullet
and signed up as an early adopter, or are you rolling the dice and seeing
if this experiment fails?" This article focuses only on Microsoft, but the same analysis probably explains why ASPs haven't taken off like they were supposed to, either.
We have the same problems in going out to market. We face customers that want to control their own destiny and not completely give up control of their core business.
I believe that unless the technology is a complete commodity , no company is going to be excited about signing up for something thats subscription and reley their business on it.
It'll only be when the quality of the software is up to scratch that people will start thinking about its price. In the end, the total cost of ownership of software is much larger than the licence fee: putting in fixes after deployment is terribly expensive.
"Well, put a stake in my heart and drag me into sunlight."
My company is about to do a rollout to a company of about 50 users. We are telling them to go for Win2k rather than XP, purely because of all the driver problems we are having on our test systems.
They want a fast rollout, with minimum hassles.
Windows XP cant offer that right now.
That is, if you subscribe to these upgrades, you kind of feel you will have to upgrade when something new comes along, even though you do not have to. That takes time, especially in larger offices/companies/megacorporations. Time often much better spent on actually getting some work done. Hehe. No, I don't speak of necessary patches and such - although that is a huge cost (in time) when dealing with MS products too.
So there is no reason at all to subscribe for the newest software, I would upgrade when I must (or when it pays off in better efficiency). I really understand why these big customers don't want to have their IT administrators get their timetable from another company (MS).
And I really understand those that see a bit further and refuse simply because they don't want to be (even more) locked in.
I won't buy into a software subscription service for my software for a few reasons:
1.) I can use a given software packages for years at a time...for me, SecureCRT comes to mind, though my license won't support any of the downloadable versions.
2.) The overall cost of subscription is higher. My company's official office software suite is STILL Office 97. Not that there's anything wrong with 2k or XP, but 97 gets the job done...and it's already paid for.
3.) But the big thing is what happens when a product becomes unsupported? Does the program up and quit and force an upgrade, possibly bring a screeching halt to whatever business process you working on at the time? Does the program send off a little message so the marketing drones relentlessly pound on my phone line, reminding me to renew? Are all my data files locked out?
Even though the initial cost is higher, I much prefer to just buy my software. Unfortunately, subscription is pretty much here...it's in every program that requires an Internet connection to "activate" their products. It's not confined to Microsoft Office anymore...it's just a "lifetime" subscription thing to start getting us used to the idea.
// Agent Green (Ian / IU7 / KB1JQO)
// IEEE 802.3: All 10base Are Belong To Us
Just remember, when you are subscribing to a service, rather than purchasing an upgrade, you have a lot less leverage as a buyer to control your costs. The CIOs, mostly managers of 'corporate cost centers', obviously recognized that.
Second, the technological rate of progress for a service provider will always be slower because its so much easier for the vendor to retain its existing revenue base than to take the risks of developing new products. For example, I predict that the more you see Microsoft switching to a subscription-based software business model, the less focus you'll see on features (needed to get new business) and the more focus you'll see on risk-averse issues (like security and availability) to insure nothing rocks the revenue boat. Oh wait, Microsoft just announced that, didn't they?
--LP
Trust:
8. A combination of firms or corporations for the purpose of reducing competition (c.f. *) and controlling prices (c.f. **) throughout a business or an industry.
Surely someone here can help me resolve my confusion.
Ironically, the reason why CIOs feel empowered is that they probably have most of what they want out of their PCs; they're "good enough". Improvements post-Win2000 and older Office suites don't look that compelling. So why lock yourself into some unnecessary upgrade stream?
--LP
Just a thought.. but Linux Just Makes Sense more and more now-a-days, even if in some cases, it is less capable than the Microsoft alternative.
My company is in no rush to adopt XP. At the current time we're sticking with NT4 (some 2000). The reason is quite simple (and two fold) - the overall cost over the 'product lifespan' is significantly more. If you buy a copy of NT, then you own a copy of NT (or site license). It will remain 'valid' for several years (5 or so) and is a one off cost. Even better is the fact that when we buy a new PC this is included as the Redmond tax and thus is an 'invisible' cost to the business.
(No I don't like this practice, but the company as a whole does)
The other reason is the difference between capital and ongoing running costs. If you are renewing an XP license each year, your _service_ cost increases per desktop. As an IT department, we don't care, but our users definitely do.
The 'capital expenditure' of buying a new workstation and a copy of an OS goes into a different 'budget bucket'. It makes it easier to explain as 'we need to buy a PC and a copy of windows' rather than 'We need to buy a PC, and then we need to pay for a license for it each year'.
I'm really hoping this master plan of microsoft is going to fail. IT is the same situation as ASP - software developers want to have a steady income, but end users and companies see it as a 'I pay x bucks for your product'.
As long as any software distributer is selling 'forever' licenses, few are going to opt in to an ongoing fee service (IMHO).
eBay is one of the most successful ASPs on the Internet. Sellers seem to have no problem paying a per-auction fee to eBay for hosting the auction application. You can imagine an alternative where everone paid $10 for an eBay application that sat on their Windows desktop and did a P2P search of current auctions by communicting Gnutella-style with the other eBay applications. It would suck. The ASP version kicks its ass any day of the week.
Similarlly, I used to work for a company with an ASP remote access application. To circumvent firewalls that only allow outbound connections, the company routes all connections through their servers; there's no other way to do it if you want to support connections where both endpoints are firewalled. Hence, ASP. It's easy for me to justify paying a monthly fee to use this service because the application demands it. I have to use their servers. (The company includes free support and free upgrades with the subscription fee, too, which makes it rather more attractive than Microsoft's licensing scheme.)
As for ASP MS Office... At this point, my reaction is, "What's the point?" In the absence of ubiquitous thin-client computing, I can't see at all why I'd want to pay for a subscription. There's no value in an ASP model for lots of applications, include most of Microsoft's (with obvious exceptions like Hotmail).
ASPs didn't fail. They just succeeded where it was logical for them to succeed.
I was originally very sceptical of subscribing to software as a service. The tools I use every day (Dev Studio etc), I would like to buy on CD, install on my box, and keep.
I am starting to move towards the idea now. A couple of weeks ago I wanted to play around with some images in Photoshop. I had to find the CD, install it, use it for an hour or so, then uninstall it. It's not worth paying several hundreds dollars to do this, so most people won't bother. There are quite a few apps that I will want to use a couple of times a year, or once a month.
With a subscription based system my company could have an account with say, Adobe. When I need to use Photoshop, I go to the website, and use it as a service, and the company gets a bill at the end of the month. It's simple.
Offtopic, Inflammatory, Inappropriate, Illegal, or Offensive comments might be moderated up.
Good department. Certainly appropriate.
We're talking about a company here that wants to milk as much money out of its' customers, with the least effort required.
They're certainly working well toward that goal -- look where we are now!
- We have a 'server' OS that differs from the 'Ooo, SHINY!' home version by virtue of just a few registry settings!
- Microsoft will accept NO liability for its' software, neither for fitness for purpose, the accidental destruction of your company, or the surreptitious mailing of your anti-government rants to the FBI.
- Two words: Product Activation. Once upon a time, the MS Office license actually allowed you to install it on your home & work machines. Gee, Microsoft sure is a nice company! They're cute and cuddly, too! Now that everyone's used to it, all of a sudden we have to pay for every copy -- you can't tell me that wasn't a patiently engineered plan.
If Microsoft wants to make subscriptions attractive, offer something in return -- we already get all the benefits of WindowsUpdate, are they going to take that away? What is needed is a guarantee of fitness for use, stability, and timely repair of problems. And by timely, I mean 'timely from the customer's definition', not Microsoft's!(Why does a server need Media Player, DirectX, Active Desktop, and all the other home-version 'shell-upgrade' tweaks, anyway?!?)
If I go to Ford and buy a dump truck, I am guaranteed that it will haul N tons of material, or N cubic meters, whichever is less. If I bought a 10-ton truck, and the wheels fall off when I put a 5-ton payload in it, I can sue.
Apply this comparison to Microsoft: I purchase Windows 2000 Server, Exchange Server, and the recommended hardware to run it on, and when it fails at half the advertised max load, Microsoft will gladly bill me for a support incident to tell me I need better hardware! ...And there's nothing I can do about it.
I know this comparison isn't perfect, but it certainly makes the point. I know a lot of companies are sick and tired of buying something advertised as suiting a particular purpose, only to find it lacking.
If the subscription allows me to hold MS accountable, I'm interested. Otherwise, forget it.
"...America's great minds of today, teaching America's great minds of tomorrow. Poor bastards." -- A Beautiful Min
At my place of business, we develop VB applications (no flames please) that we use internally to control inventory, and to track units that we produce, as well as write test software to well, test our product before it ships. Besides running windows 98/NT/2000, we've decided to start converting our software over to Linux, writing in pure C, and using MySQL for databases. OK, I know this seems OT so far, but my point here is that we are doing all of this to avoid using XP and any other upcoming versions of MS windows. We have decided that we will do our best to make sure that 2000 is the last version of windows that we will ever buy, at least in our department. We've already been using Linux on servers within our department for about a year, using apache to run a simple intranet server, and have samba up doing file and print services. Since some of the brass have found out about our 'secret' of having high availability linux servers, they were intrigued and like the direction we've taken thus far. Hopefully we can avoid XP all together, and write software that can potentially be useful forever, by writing it for an OSS platform.
------
Random, useless fact: I type in startx entirely with my left hand.
...I'm using a company machine with WinNT 4.0 SP6a. With a "Windows(R) 2000 Professional 1-2 CPU" sticker on the side. We downgraded it, and for a very good reason.
It does everything that I need to do my job. It does nothing that I don't need. The issues are known. It doesn't require any more patching because it ain't broke, or it's broke in known and acceptable ways. It doesn't require our IT guys to have to ask what version of what OS I'm running, nor to hunt out the right ghost image for that combination of hardware and OS. It can be ghost installed or copied, which is vital for replicating software builds.
Windows 2000 would be a barely acceptable substitute. There are far too many unknowns with WinXP, plus it has that habit of knowing better than you what drivers you really want to use (I need to test beta drivers, for god's sake, give me an "I know what I'm doing" button!).
Windows.NET would be absolutely, utterly unworkable in a business environment, because neither I, nor our IT guys would know what exactly was on the machine, nor would it be possible to replicate that at a later date to reproduce a build exactly.
We cannot and will not upgrade to .NET. Ever. As application support for NT dies away at the same time as Linux support grows, it's looking like a better (corporate!) proposition every day, and not just in the server room.
If you were blocking sigs, you wouldn't have to read this.
A subscription model won't let you do this (without a heavily software modification by crackers).
My money is on the crackers winning. To my knowledge, very few games have _not_ been cracked in some measure. Those which are most resilient are those which require a login to a 'game server' (Diablo II battle net or Half life online). Even then, unless you want to play online, it's quite possible to get them going.
Which looks to be the way things are going I suppose, but it'll really suck to have to run a net connection _just_ to be able to use their application.
Now there's a thought. 'fake' authentication servers? Is that even possible?
Time will tell at a guess. My money though, is on people just sticking with the 'best' version of a product which doesn't require the upgrade.
One of the biggest factors keeping companies from adopting the "software as a service" model has been, as you suggest, fear of outsourcing critical business functions to shaky ASP Internet startups. However, in the current economic environment, most "bad" ASPs have already gone away, or are hanging on by their fingertips -- no longer are you seeing people dumping Windows apps over the Internet using Terminal Server and crap like that. It is just not cost-effective.
Still, outsourced software provides real value in many cases, and companies want it dearly. For example, if you have any idea how expensive it is to pay IT staff simply to support MS Exchange for a medium to large-size company, the costs are huge. Several companies are currently making a living hosting Exchange, Oracle Financials, and other "hostable" commercial software packages because over time it is actually cheaper to pay someone else a flat monthly fee to manage it than to hire your own staff, especially if you are a large organization. Intermedia is one ISP I've seen that hosts Exchange, for example.
Many solid ASPs are also targeting more distributed types of organizations, one of which is Professional Services. Companies such as Portera provide collaboration tools such as online time sheets and expense sheets, as well as document sharing and versioning, all over the Internet through a browser.
For PS organizations or Contract Agencies distributed around the globe, a hosted application avoids the staggering infrastructure costs that go along with having a global company. Take into account maintaining your VPN gateways, so you can get to varied internal applications, which must also be maintained, plus licensing and support costs, plus hardware/network and you are talking big money. With a hosted app, you pay your flat fee, after which all you need is an internet connection and you're in.
As for big-money (but new) service-arena players like Microsoft, it seems obvious they are trying to leverage customers into an even tighter spot with this new licensing scheme, without providing real added value. This subscription thing doesn't seem to work very well with shipped products, since you are forcing people to "throw away" something tangible that they feel works fine, and upgrading desktop machines costs dollars not only in licensing but also in the whole loss of inertia in the company with the upgrade (and IT staff). However, as M$ moves more toward providing .NET services we will see them become more successful in selling subscriptions for web services and the like. That is, as long as they don't shoot themselves in the foot with Passport. ;)
--Micko
Even Eric S. Raymond agrees with MS on this one :
"It is also worth noting that the manufacturing delusion encourages price structures that are pathologically out of line with the actual breakdown of development costs. If (as is generally accepted) over 75% of a typical software project's life-cycle costs will be in maintenance and debugging and extensions, then the common price policy of charging a high fixed purchase price and relatively low or zero support fees is bound to lead to results that serve all parties poorly.
Consumers lose because, even though software is a service industry, the incentives in the factory model all cut against a vendor's offering competent service. If the vendor's money comes from selling bits, most effort will go to making bits and shoving them out the door; the help desk, not a profit center, will become a dumping ground for the least effective and get only enough resources to avoid actively alienating a critical number of customers." - Eric S. Raymond
This is taken from The Magic Cauldron
I to use NT4 on some servers, just because they host websites and do that for a long time now and if it aint broke, don't fix it. However, Win2k brings new stuff to the plate, which you haven't touched according to your story. F.e. fully automated software installation/controll via AD using easy scripts. Windows.NET server will make this even easier. What you say about it wouldn't be workable is so far off the truth it hurts. Why? Because it has f.e. the checkpoint tech that's also in XP: you can roll back to any state you want: with the registry, with the drivers etc.
At ABN-AMRO, one of the worlds largest banks, they totally run on win2k and use an inhouse developed softwarecontrol/distribution system, based on AD and VBScript. Everything can be and is controlled from a central point in the WAN. Not workable? ha!. Perhaps you should kick your IT-guys in the butt so they finally get their head out of their asses and read the course material they received at the courses they attended to.
Never underestimate the relief of true separation of Religion and State.
I work for an ASP in the financial sector located outside of Philadelphia. I'd like to say for the record that not only are we surviving the dot-com crash, but we are doing quite well.
Even through the September 11th disaster and financial woes that followed, our firm thrived and actually had sales INCREASE during that time.
The trick to us being a successful ASP is that we have an extremely driven sales department, and a very adaptable product that can be modified to suit any user's needs. We fill a niche with industry knowledge and expertise that is quite valuable to our customers.
Please don't lump companies like mine in with Dr. Koop dot COM!
I'm an IT Manager, and also opted not to take the Software Insurance offer. For one it meant that we'd have upgrade (or at least buy the licenses) all our MS products to latest version. All the NT + Exchange + SQL CALs, and then Windows + Office + Project... It adds up quickly.
... :-) But if you don't take software assurance then you can't just upgrade down the line. You have to pay the full purchase price. Which is all fine and dandy, except that they didn't write the product from scratch, they built it on top of older versions. And you already paid them for the intellectual property in the previous versions, so why do it again? Upgrade in the older, normal sense is much more fair, since you only pay them for the added value... when you need it.
But my main point that I wanted to make is that it's just plain unfair. Microsoft want you to pay them even when you *don't* want the latest and greatest. (And 95% can life without it... If some people think StarOffice 5.2 is good enough
Pardon the rant.
Because microsoft measures value based on increasing revenues each year, maximizing share holder value means shorten the product cycle from 2-4 years to 1 year. From a share holder perspective, it's great. A rapid product cycle is a good thing for share holders because it means you're getting more repeat business more frequently.
From a user perspective, a certain level of product stability is necessary to create a sense of value and reliability. If the product cycles at a faster rate the customer is comfortable with, the company begins to loose business. Think of a can opener. What if every can opener was only good for 10 uses and it would break. No one would buy can goods or can openers. Food manufacturers would use some other container, like a jar instead of cans. It doesn't matter if the can opener is only 2.00. No one wants to buy a new can opener every week.
Microsoft is not immuned to the same market principles. Making a product too good or really poor isn't good for the company, consumers or the economy. Back in the 80's Honda found a good way to make bearings in such a way that they would last 30-50 years. Well guess what. Honda stopped using them in cars because they were too good. Using those bearings in cars made them way too reliable and was hurting replacement parts sales. There has to be some middle ground where corporate and consumer needs are in balance.
Microsoft may or may not realize it before it is too late.
My wife works for a large investment house. And they have not bought into this scheme. They are now thinking about deploying LINUX. This is done for two reasons:
1) Put Microsoft in its place
2) Test LINUX and see if it actually is usable.
I think now is a good time to show how good LINUX is. Corporations have the ear of the other software vendors.
Interesting that Microsoft always said they would never make the mistake that other corporations did when they got large. True they did not, but they are making their own mistake. It is not arrogance, but "Microsoft rightness". I bet this will make interesting business case in the future.
"You can't make a race horse of a pig"
"No," said Samuel, "but you can make very fast pig"
We're jumping head-first into Microsoft products here, at a non-profit operation. Office XP alone will cost us several tens of thousands of dollars (US) per year. All this while we're being told there's no money. All this despite the fact that I had prepared an alternate path that relied on open source and free (as in beer) software which met all of our needs. Why? Because the executive committee, or at least the only one on it with a backbone, decided that anything that is downloaded is bad. Never mind the fact that I countered that by saying that all of the software required could be acquired without download. Unfortunately, there's still a mindset among the people who write the cheques that Microsoft is the best option. So they'll shell out $50,000 per for Office, while their underpaid staff continue to leave to work for better managed companies.
This is the second time since I started working here that management hasn't followed my recommendations. The first time was a disaster. Hmmm, let's peer into my crystal ball...
Or VMS, or bespoke, which is what most of the monitoring and control systems in the nuclear industry runs on. But this was becoming too expensive, and when last I was working in the industry, NT 3.51 had been settled on as their new OS of choice. I thought (and said) at the time that it was insane, but the decision had been made.
The point is that developers supplying this industry (and any other safety critical industry, think air traffic control or hospitals) absolutely have to be able to replicate older systems when they do any fixes or replacements. It's a contractual requirement, and it should be obvious why it makes sense.
As Microsoft moves towards software as a service, that's becoming harder and harder to do, and I shudder to think of the consequences of an applications contractor replacing an NT 3.51 system with an NT 4, Win2k, XP or (god help us) .NET system simply because it's too much trouble for them to get their hands an NT 3.51 install, or to source new hardware that NT 3.51 has drivers for. Think 5, 10, 15, 20 years down the line. How many 1982 OS's will run on modern commodity hardware?
Ironically, the reason for the move from VMS and proprietary OS's to MS was that the industry was instructed to cut the ties to proprietary solutions for budget reasons (sourcing old hardware to replace broken VMS consoles cost a fortune). So now they're tied to MS, who have a clearly stated obsolescence policy. It's practically guaranteed that 2002 vintage WinXP won't be installable on 2022 hardware. NT is already unsupported, and 2K will be when .NET rolls out. So we're back to the same problems of replicating builds and sourcing old hardware to match the OS.
Was that clear enough? Corporate America is not just cube farms writing documents and browsing Dilbert, it's the very infrastructure of the country. Sections of that infrastructure cannot (or should not!) allow themselves to be railroaded into using systems with built in obselescence, which is why software-as-a-service is going to have a very, very hard sell in those sectors.
If you were blocking sigs, you wouldn't have to read this.
If you rent software, it's on the books as an expense.
If you "buy" software, it's on the books as a Capital Expenditure, i.e. an asset.
Soooo, given a choice which one will the bean counters choose?
~~~~~ BigLig2? You mean there's another one of me?
...between this subscription model and one where you have to renew your license annually else the software stop working? Well, IMHO, beyond being potentially more ``fine-grained'', not much. We were using a software package that required that we receive new license keys from the vendor each year. The package was expensive and any delays on the vendor's side in processing your paid invoice and getting the keys out to the customer were not considered to be their problem. I've worked at companies that were held hostage by vendors like this. In one case we were able to tell them ``No thanks'' when it came time to renew since their software wasn't Y2K compliant and the version that was would have required a whole lot of other software to be upgraded. And there were a whole lot of reasons why this wasn't possible. (As it turned out, this vendor's software could be replaced with a Perl script that provided the 99% of the functionality that people actually used.)
Businesses are going to look damned hard at any model that potentially halts their ability to function because of billing problems, communications delays, etc. It's one thing to have to subscribe to a support service so that configuration issues, bug fixes, etc. can be solved. But having to open up the check book just to be able to continue writing documents, doing spreadsheets, etc. just isn't going to be popular. And especially if it requires that proprietary business data actually have to reside on someone else's computers.
Just my US$0.02...
CUR ALLOC 20195.....5804M
"Not to be off topic - but this is illegal. "
You can downgrade licenses purchased under a volume license agreement, but yep not OEM licenses.
"I seen a lot of posts that state NT4 is running fine for that web site (its much easier to secure - that's why people are still using it) "
Well that's certainly not true. Windows 2000 is much better as a web server and far easier to secure.
Furthermore, NT 4.0 goes on the unsupported list this year.
At our small to mid size government shop we looked long and hard at the subscription service. The flaw for us it that the subscription service is based on upgrading every two years. We do not have the resources to roll out new OS/Productivity every two years. We are now upgrading from Win95 to Win2K and that will take 2 years alone. We calculated a 4 to 5 year cycle and with that purchasing the software outright is cheaper.
As a M$ shareholder, I beg to differ. When they were selling product in the normal way (with perpetual licenses and no asinine "activation"), my shares were worth $135 or so, and split fairly regularly. They bombed down to around $40 because of the DoJ thing and the general dot-com slide, but that's become a non-factor -- by now everyone knows M$ is going to get away with whatever they want, and the dot-bombs have all long since detonated.
IMO the biggest reason M$'s share price has not rebounded (and is still hovering at about $60 and hasn't split in ages) is NOT because of ongoing fear about M$'s future under the DoJ's eye, but because subscription licensing, WPA, the overblown cost to value ratio for WinXP, and similar bullshit, have degraded the value of M$ where the real money is, in the corporate purchasing dept.
So as a M$ shareholder, this nonsense is COSTING me money. It sure as hell isn't doing anything positive for my stock value!
~REZ~ #43301. Who'd fake being me anyway?
It's the expensive subscriptions that don't. Who wants to pay full price for a new copy of MS Word every year when the one from five years ago still works. A $5-$10 a year subscription over the lifetime of a product would go over very well, but a $50-$100 one will ALWAYS fail.
"Your superior intellect is no match for our puny weapons!"
I think the big problem with software as a service is that people think they own software right now. Most home users I know don't bother to read the license -- they think it's a combination of a warantee and a "do not copy" clause. Most corporate users I know think the same thing -- and some of them think that the license exists to protect THEM (this has come up in some of the Free Software conversations I've had: "but there's no license! Who can we hold responsible?").
They are, of course, wrong from a legal standpoint. But the interesting thing is that whatever reality is, perception affects buying just as much, and since buyers currently think they actually purchase the software, trying to get them to do something else is tricky.
It will, of course, be interesting to see what happens as technical efforts to drive the legal reality of not owning software home increase. I'm not sure if it'll result in people raising hell and a revolution, or if they'll just lowe a little and move along like so many cattle.
Libertarianism is rich wolves and poor sheep playing gambler's ruin for dinner.