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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."
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.
It also cripples the utility of MS work-alike software like SAMBA. If you have your desktops on mandatory upgrade, MS can break SAMBA connectivity at will. Thus using a non-MS implementation of the protocol becomes a LOT riskier. You can't just hold off on desktop upgrades until you (or the SAMBA team) figure out what to do.
pr0n - keeping monitor glass spotless since 1981.
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
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.
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
...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.
At a cost-level, paying for one Unix admin at $100k a year who knows your network inside and out, and saving $1,200/workstation on Microsoft Licensing, it only takes 83 workstations to recoup the salary that you're paying your Unix admin, and that's just in licensing. Add the decreased downtime, faster trasnsitions and upgrades, and so on, and the Unix admin comes out much cheaper.
Also, Unix admins tend to be very self-motivated and self-managed. They don't need micromanagement. Give them a task, they run with it and it gets done. No questions. These people excel, and make good managers overall. You can save the cost of yet another employee in IT to manage your Unix admin, if you hire wisely.
It's much cheaper to keep the Unix admin on staff, when you aggregate the overall costs of the less-technical MCE you would have hired.
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
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.