Dark Cloud: “Software as a Service”

Storm cloud cartoonEver since the emergence of the personal computer software market in the 1970s, vendors mostly adopted an “outright sale” model of licensing.  The customer purchased the product, often originally in a shrink-wrapped box, which delivered the software on media such as floppy discs or CD-ROM, along with a license which (usually) conferred the perpetual right to use the software on one computer.  This model, adopted from the consumer electronics industry, is not a particularly good fit for the software business.  Unlike a television set or even a personal computer, software continues to evolve over time, as new features are added, support for new and more capable hardware is integrated, changes are made to maintain compatibility with the underlying software platform (operating system, window manager, database package, etc.), and modifications are made to comply with and support evolving industry standards.

All of this requires ongoing investment by the software vendor, and if revenue is received just once, with the initial purchase, it’s difficult to see how this can be funded, especially once the period of rapid growth comes to an end and a product obtains a large market share with an installed base which have already paid for it.  Trying to persuade users to buy an entire new product and discard the old one is a non-starter, except for some very low price point products such as games (where the update is usually positioned as a new edition in a series).  So, vendors mostly tried to persuade their installed base to pay for updates, at a fraction of the price of the original software, and customers constantly pushed back about the cost of the updates and often continued to use ancient versions of the software, which caused the vendor headaches and customers difficulty when older versions of a program wouldn’t read files written by the current release.... [Read More]