The Old Way of Shipping Software
In the early 70s, selling software started to become an independent business since software was no longer bundled and sold together with hardware. It has been shipped as a set of binaries on storage carriers like floppy-disks, and later CDs and DVDs. The customer pays upfront license fees for the right of using the software product and typically also for support fees, professional services, and periodic upgrades. At the beginning of the Internet era, a new, yet only slightly different model appeared: software is no longer bound to physically devices, but can be downloaded instead. However, the economical model – upfront payments, licensing, software updates – didn’t change at all: customers buy, install and run software products.
From Products to Services
The real innovation came a bit later: under different labels such as On-Demand Software, ASP (Application Service Provider), Web-Services, SaaS (Software as a Service), – and recently more generally Cloud Computing – utility or subscription based models have gained a lot of popularity. Customers pay relatively small amounts of monthly fees for the usage of an application that runs on the servers of the software provider. Software installation and upgrades are no longer part of the customers’ responsibility. Reduced capital and maintenance costs for software and hardware as well as more flexibility in resource allocation and contract termination make this model more and more attractive.
IaaS as Enabler for a New Way of Shipping Software
Amazon AWS were the first to combine the utility model of the SaaS approach with virtualization technology. They give customers the possibility to create their own virtual data center and IT infrastructure on Amazon’s physical one. In such a model (often referred to as Infrastructure as a Service – Iaas), the customer has full control over the underlying computing, storage and networking infrastructure while paying only for the resources he actually uses. He can perfectly customize his computing and data environment while still enjoying the advantages of the utility economic model.
From the perspective of a software company, the IaaS model can also be seen as a new paradigm that may change radically the way software is distributed, upgraded, and billed in the future – a model that lies in the middle between shipping a product and providing a service.
What It Means for Customers and Software Companies
Let’s have a closer look at Amazons Elastic Cloud Service (EC2). Software providers can ship completely pre-configured virtual images of servers to their customers that simply need to start them up to have it running on Amazon’s virtual infrastructure. VMWare calls those images Virtual Appliance (VA) and created even a marketplace for them – however, they did not provide a infrastructure to run these VAs, but rely on the infrastructure enterprises build themselves.
In addition to providing computing resources to their infrastructure customers, Amazon also takes over the billing for third party software providers. Each instantiated image can be associated with subscription or utility fees to be charged from the customer and credited to the provider of the image (see DevPay). From the perspective of a software provider, such a model has the advantage that he can respond to the customers’ need of utility pricing models without being forced to undertake the efforts of building a potentially costly service infrastructure to deliver his applications.
Although delivering software as a service as well as the classical approach of providing installers will surely remain popular models to deliver software, the idea of virtual appliances in IaaS environments will open new opportunities for software companies. A healthy virtual appliance market will make it easier than ever to ship application server software and to respond to specific customer needs without building up own computing and billing infrastructures. On the other hand, customers that are building their own virtual infrastructures, can benefit from the VAs advantages to combine easy installation with a maximum of control.