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Software-as-a-service vs. packaged applications

Service model gaining momentum, even at Microsoft.

By , Network World
October 26, 2007 12:04 AM ET

Network World - There’s no doubt software-as-a-service is revolutionizing the business applications market. And while most people will say the death of packaged software has been greatly exaggerated, that won’t stop a few software-as-a-service proponents from claiming the battle has already been won.

“Software is dead. Dead, dead, dead, dead,” Jonathan Bush, chairman and CEO of athenahealth in Massachusetts, claimed a few months ago during a panel discussion on software-as-a-service.

Athenahealth provides Web-based services to doctors’ offices, and like other software-as-a-service vendors, will tell you its product is superior to traditional applications because of its ease of use, frequent upgrades and monthly payment plans that are supposed to force vendors to provide better customer service.

In Bush’s view, the Web equivalent of old-school software would be Yahoo charging $2,000 a seat for the ability to look up directions, rather than offering a free online mapping tool as it does today.

“There’s an acknowledgement that software in and of itself isn’t that differentiating a thing,” Bush said. “You’ve got to give software, and then you have to sell work.”

But it’s not hard to find software-as-a-service proponents who acknowledge this new trend isn’t likely to spell the doom of packaged applications.

It’s more likely that software-as-a-service and packaged applications will ultimately co-exist and complement one another, both within vendors’ product lines and within enterprises, says Jeffrey Kaplan, who runs consulting firm Thinkstrategies.
Still, co-existence isn’t exactly the same as peace and harmony, Kaplan acknowledges. There’s plenty of room for sniping between the two camps.

“The legacy application folks tend to believe their applications are more robust, more full-featured, more mature, more powerful,” Kaplan says, “whereas they consider software-as-a-service to be a skinnied-down version of the application for amateurs.”

There’s been a tug of war inside vendors who are concerned that offering Web-based services might cannibalize sales of their own software applications. And there are battles within enterprises, where end users want the ease-of-use of the Web and IT executives worry about security and reliability, Kaplan says.

“Business users obviously want to get more value from the application, and are less rigorous around the issues of security,” he says. “Whereas the IT folks are very apprehensive about software-as-a-service because of the security issues, the loss of control and what they perceive to be hidden costs.”

Big industry players such as Microsoft are recognizing the value of Web-based applications, but obviously believe that packaged software offers greater capability.

Microsoft CEO Steve Ballmer recently said “the notion that says the Web model gets richer is truthful. At some point you’ll think you’re downloading a full operating system. But if you want the full capabilities of what the Windows and the Mac have you need to have Windows or the Mac. There’s no free lunch here.”

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Read more about software in Network World's Software section.

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