Traditional enterprise software product licensing is being replaced with more creative hosted or managed "software as service" models. The latest business model is utility computing and associated pricing. Sometimes referred to as "grid" computing, this on-demand model is a trend that has captured the attention of technology heavyweights including IBM, Hewlett Packard (HP), Oracle, and Sun Microsystems. Functioning on concepts similar to common electric and water bills, utility computing allows customers to purchase processing power and software access as needed and to pay based on how much and how often the software is used. This emerging model may even be attractive to large organizations, given that almost all of the initial hosted applications have targeted small and medium businesses (SMB).
In the past, most first-generation hosted applications were not suitable for delivery over the Internet and certainly not appropriate for SMBs, its target market. Application service providers (ASP) were all but pronounced as a failed business model early in 2000 after a raft of availability, privacy, security, compliance, control, customization, and cost concerns by customers and market observers emerged, resulting in many real-life disasters.
Additionally, ASPs faced challenges, the main one being how to drive long-term costs down while accumulating a solid revenue stream. Earlier ASP offerings were based on using a third-party client/server system, but lacked the economies of scale. One cost inhibitor was the amount of dedicated bandwidth that had to be maintained to support thousands of users. Another challenge ASPs faced was service level agreements (SLAs)—if, for some reason, the ASP lost Internet connectivity, customers would lose connectivity to their outsourced production systems and negative impacts on their internal SLAs would result. To make things worse, many of these "flash in the pan" companies went public before making any profits, when the market and investors were disillusioned with the dot-com bubble.
ASPs also over-promised its ability to host heavily customized and concocted enterprise applications environments, which was not technologically feasible at the time. They often tried to fit a "square peg into a round hole" by hosting applications that were not amenable to hosting at that stage (or not at all). Such failures, coupled with the mass demise of early ASPs, and subsequent disgrace of an otherwise great idea from a positively dull, reliable, service-oriented business model ensued. For more information, see Hosting Horrors!.
Revising ASP Value Propositions
However, the current, difficult economy is making customers—particularly those with multiple, dispersed worldwide locations and with many outsourcing partners—prefer this type of subscription model. Because capital budgets have been slashed, everyone wants to avoid one, up-front lump payment, preferring to stretch financing over a prolonged period. Also, users' mindsets have changed significantly over the years. Now multinationals are increasingly sending some operations, like taxation, to third-party companies for processing. Activities that are considered commodities rather than core competencies will likely be the first to go the hosting or subscription route. Yet, given the unsustainable financial model of many early ASPs and due to the many hosting snafus of the past, the move from software-as-a-standalone or pre-packaged, on-premise solution to software-as-a-service will not happen overnight. Nonetheless, because of this growing demand, hosting will get another breath of fresh air in a few years' time, as gigantic IT providers such as IBM, EDS, Microsoft, Oracle, and Accenture will likely compete in the hosting/ASPs market.
Also carrying the "on-demand" moniker, and with more standardized service delivery systems, IBM's recent purchase of Corio, is possibly the best indication of a revised ASP value proposition. In January, IBM announced it was bolstering its presence in the SMB market by paying $182 million (USD) in cash—about twice of Corio's annual revenues—for the APS pioneer. Founded in 1998, and backed by venture capital heavyweight Kleiner Perkins Caufield & Byers, Corio has delivered enterprise applications over the Internet since its inception. Today, the San Carlos, California (US) hosting provider delivers applications from vendors such as Ariba, Oracle (including former PeopleSoft), SAP, and Siebel Systems, many of which have been IBM enterprise applications partners. The purchase also gives IBM five new data center facilities, including one in the heart of Silicon Valley.
Yet, despite its longtime role in the ASP market, the 300-person Corio has shown only modest success, with five consecutive years of losses. Undoubtedly, IBM is not spending a hefty amount of money for Corio's existing revenue stream, but rather for its know-how of scalable hosted applications. The ASP provider has espoused rapid deployment capabilities, an application deployment and management platform, and configuration tools that other ASPs have never invented. Essentially, IBM is buying Corio's tools and people, to complement them with the scale of IBM Global Services (IGS).
SOURCE:-
http://www.technologyevaluation.com/research/articles/get-on-the-grid-utility-computing-17869/
In the past, most first-generation hosted applications were not suitable for delivery over the Internet and certainly not appropriate for SMBs, its target market. Application service providers (ASP) were all but pronounced as a failed business model early in 2000 after a raft of availability, privacy, security, compliance, control, customization, and cost concerns by customers and market observers emerged, resulting in many real-life disasters.
Additionally, ASPs faced challenges, the main one being how to drive long-term costs down while accumulating a solid revenue stream. Earlier ASP offerings were based on using a third-party client/server system, but lacked the economies of scale. One cost inhibitor was the amount of dedicated bandwidth that had to be maintained to support thousands of users. Another challenge ASPs faced was service level agreements (SLAs)—if, for some reason, the ASP lost Internet connectivity, customers would lose connectivity to their outsourced production systems and negative impacts on their internal SLAs would result. To make things worse, many of these "flash in the pan" companies went public before making any profits, when the market and investors were disillusioned with the dot-com bubble.
ASPs also over-promised its ability to host heavily customized and concocted enterprise applications environments, which was not technologically feasible at the time. They often tried to fit a "square peg into a round hole" by hosting applications that were not amenable to hosting at that stage (or not at all). Such failures, coupled with the mass demise of early ASPs, and subsequent disgrace of an otherwise great idea from a positively dull, reliable, service-oriented business model ensued. For more information, see Hosting Horrors!.
Revising ASP Value Propositions
However, the current, difficult economy is making customers—particularly those with multiple, dispersed worldwide locations and with many outsourcing partners—prefer this type of subscription model. Because capital budgets have been slashed, everyone wants to avoid one, up-front lump payment, preferring to stretch financing over a prolonged period. Also, users' mindsets have changed significantly over the years. Now multinationals are increasingly sending some operations, like taxation, to third-party companies for processing. Activities that are considered commodities rather than core competencies will likely be the first to go the hosting or subscription route. Yet, given the unsustainable financial model of many early ASPs and due to the many hosting snafus of the past, the move from software-as-a-standalone or pre-packaged, on-premise solution to software-as-a-service will not happen overnight. Nonetheless, because of this growing demand, hosting will get another breath of fresh air in a few years' time, as gigantic IT providers such as IBM, EDS, Microsoft, Oracle, and Accenture will likely compete in the hosting/ASPs market.
Also carrying the "on-demand" moniker, and with more standardized service delivery systems, IBM's recent purchase of Corio, is possibly the best indication of a revised ASP value proposition. In January, IBM announced it was bolstering its presence in the SMB market by paying $182 million (USD) in cash—about twice of Corio's annual revenues—for the APS pioneer. Founded in 1998, and backed by venture capital heavyweight Kleiner Perkins Caufield & Byers, Corio has delivered enterprise applications over the Internet since its inception. Today, the San Carlos, California (US) hosting provider delivers applications from vendors such as Ariba, Oracle (including former PeopleSoft), SAP, and Siebel Systems, many of which have been IBM enterprise applications partners. The purchase also gives IBM five new data center facilities, including one in the heart of Silicon Valley.
Yet, despite its longtime role in the ASP market, the 300-person Corio has shown only modest success, with five consecutive years of losses. Undoubtedly, IBM is not spending a hefty amount of money for Corio's existing revenue stream, but rather for its know-how of scalable hosted applications. The ASP provider has espoused rapid deployment capabilities, an application deployment and management platform, and configuration tools that other ASPs have never invented. Essentially, IBM is buying Corio's tools and people, to complement them with the scale of IBM Global Services (IGS).
SOURCE:-
http://www.technologyevaluation.com/research/articles/get-on-the-grid-utility-computing-17869/
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