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Software Sea Change

Why should you buy applications when you can rent them?
November 1, 1999

I just built a fully functional e-commerce Web site, and I didn’t have to acquire a Web development program to do it. In fact, I didn’t use any software residing on my computer at all. Instead, I built the whole thing online at

Sure, my new site is simple-it doesn’t have the bells and whistles I could have added by hand or with a Web-design program such as Microsoft FrontPage. But it’s an interesting example of a trend that promises to change the way people use and think about software. Rather than existing as products, software is becoming a service. Instead of purchasing application programs, people are accessing what they need over the Internet. Renting, not buying.

SiteMatic represents the latest incarnation of the new model-called “hosted applications”-which began with the wildly popular Web-based e-mail services such as HotMail. Today, tens of millions of people use these services, and traditional software companies are leaping onto the hosted-app bandwagon with so-called “application service providers,” or ASPs, which charge customers via a service contract, a pay-per- use deal, or not at all, depending on the service.

ASPs are doing a brisk business, and Forrester Research in Cambridge, Mass., predicts the hosted-application market will top $6 billion by 2001. Though the general public knows of online e-mail and calendaring services and the little mortgage calculators, games, widgets and applets they find on the Web, the bulk of today’s ASP market is actually in expensive, specialized programs for giant companies. Corporations pay hefty rental fees for these applications because the ASP covers all the hassles-from installation to maintenance and upgrades.

Mainstream office applications have also begun moving to the hosted model. Late this summer Sun Microsystems bought tiny German-based Star Division and announced StarOffice-a free suite of hosted office productivity applications (word processor, spreadsheet, scheduler, database and presentation
programs) compatible with the Microsoft Office file formats. In response, Microsoft announced it was working with partners to host Office 2000 applications online.

Despite the potential conveniences, relying on hosted applications isn’t a simple decision. The big advantage right now is that most consumer-oriented hosted applications are free, not for rent-ASPs typically support the services through advertising sales or use them as loss leaders for other services. That’s likely to change as better techniques evolve for charging consumers piecemeal for their use of the software.

Even when pay-per-use pricing kicks in, renting may remain a better deal for occasional users, since there’s no need to invest cash and computer resources in software that might sit idle for months. Just as important (for both occasional and frequent users) is the fact that the host company takes care of maintenance and upgrades-you’ll never have to worry about configurations or whether you’ve got the latest version. Finally, if you use more than one computer, you won’t need multiple copies of your programs or have to deal with platform incompatibilities. Hosted apps are available anywhere there’s access to the Internet and they run in all different browsers, sporting the same familiar look and feel.

Hosted applications have some serious drawbacks, though. Obviously, they work only when you’re connected to the Internet. No connection, no application. And their performance depends on the speed of the connection-try accessing most ASPs with a dial-up modem and frustration is the only thing that happens quickly. What’s more, using hosted applications puts you at the mercy of the host. If the ASP has problems, you’re out of luck, even if your computer is working perfectly. HotMail and Excite Mail, for example, have had some widely publicized reliability difficulties.

Ceding control to the host has some other, subtle implications. If software lives on your computer, it’s up to you to decide whether to buy the new upgrade when a new version is released. But what if you don’t want to upgrade? What if the latest version is still unstable? Or costs more? If you’re using a rented application, you’re going to be upgraded-ready or not-when the ASP decides to upgrade.

The advent of rental apps doesn’t mean the box of software you just brought home is a dinosaur. For now, many people will want to own their software-especially programs they use frequently or to which they have sensitive data attached.

The real trick for the folks offering the applications will be to give the programs the power of their desktop equivalents, and make them simple enough to be used once in a blue moon. Then there must be an easy, efficient way for people to pay a small fee each time they use the software. When software developers straighten out those kinks, the stack of dusty software boxes on your bookshelf could finally start to shrink.

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