Jan18th2008

Software as a Service, ASPing, ESPing, ISPing and many more “SP’s”

Software as a service. Sounds nice doesn’t it? How about utility computing or computing as a service?

Well it is not until you actually start to UNDERSTAND it – that you get to appreciate it. All too often the pundits of tech in society (as nice as they are), like twit.tv, cnet.com and zdnet.com – have a great habit of talking about tech and service – but never having actually done it themselves or can appreciate it at a deeper and more sophisticated level.

Case in point, is the fact that many people go on about “I want a real app, not some web app”. Or, I need to have connectivity while I am in a cross country flight, etc. To me it just seems that some people can’t get with the times from either a tech standpoint, or even from another perspective, say costs.

I am using software as a service to highlight the missed nuances of many a lay person or tech pundits analysis of such situations and trends.

I look at all the effort that goes into running email infrastructure, the costs of running servers and IDC’s. And it is quite common now for people to expect email to work like a light switch (major oversimplification) or to be a single small cost in the case of hosting.

Why is it, that software then and other technologies like thin clients, that seek to change the usage and costing of hardware and software from a disparate and ad-hoc, per person/cpu based exercise to a usage and deployment style that is more akin to hosting and email services, that one encounters so much resistance?

Resistance to change from clients and resistance to change from vendors. Why do people still see computing and laptops and applications as objects that can be traded and bought and sold like shells and clams?

I know I asked the question, but I can’t answer it. I simply can’t understand it.

Where we must give some props to in this regard is Amazon, Google and Microsoft, for somewhat seeing the light and being industry leaders. Amazon, offer pay as you need it grid computing power, Google offers online applications and now Microsoft is also offering online applications.

To be fair though, Microsoft has had licensing schemes in place like the SPLA model for a while. Allowing people to just pay a monthly fee to use all the software that they need. Never having to worry about upgrade costs or “upgrade insurance” as some snake oil salesmen like to push.

Allow me to further expand my thoughts on this, with respect to some recent dealings of mine and in China and some questions that I can answer! I will do this as a little Q+A session with myself. 😉

Richard The Interviewer:

“Richard, why would you not want to own your own software and hardware and put it inside your office or in your lap on a laptop?”

Me:

“Thank you for the thoughtful question Richard, allow me to answer on the issue of hardware first. You see Richard, the problem with hardware is that, well it is expensive! And tis fact is made even worse by the fact that it is outdated and superseded so quickly.

Richard The Interviewer:

“But surely even if something loses it’s value it is still useful? I have seen many an old car drive around leaving a trail of rust behind it?”

Me:

“Yes, to a point. The problem is that software gets more complicated and our needs get more demanding as we become more used to and comfortable with our technology. A better way to look at it, is like hand-me-down clothes. Servers and infrastructure to a degree can just be demoted down the line with new beasts coming in at the top for critical systems and then older ones being eventually upgraded – or converted into a VPS as they come up for expiry.”

“But to answer your question more accurately, it has to do with technologies like Virtualisation, economies of scale, operational costs and idle capacity. If you look at your infrastructure like a time share holiday house or corporate jet, it suddenly becomes a lot easier to handle, both on cash flow and on your exposure to depreciation, so there really becomes very little in the way of real world value propositions to hold on to that old junk – this is even without going into the issue of power usage!”

“For many years people liked to finance their equipment. That is a great way to do it, as it lets you amortise the costs over the actual useful life of the system and then throw it out and get a new one. That way, you can look at the leasing fee as a perpetual subscription model. Just make a payment every month and the system is always online, up to date and fault free.”

“Plus it does wonders for your tax exposure when you claim all those leasing payments back against your tax. Much better than doing it the Chinese way with a 5 year depreciation curve!”

Richard The Interviewer:

“OK, I get it. Why own it and pay for the depreciation of it – that will take longer to remove a residual book value than it does to remove any operational value. And just pay one fee once, per month for life and always have the tech taken care of.”

“But it seems that if I do this, I am still having to manage the equipment and run an IT dept, even though I am leasing the hardware?”

Me:

“Yes, so why manage it then if you have already outsourced the ownership to your financing company? That is the strange thing that happens. It is like financing a truck and then paying for a driver. Why not just use DHL or FedEx instead. They offer economies of scale and are better at it.”

Richard The Interviewer:

“But I need control!!! I am worried about privacy!”

Me:

“Control = expense. Digital technology and servers = no privacy. Your needs to control and keep data secure are very valid. But to be truthful, simply having equipment on site or in your control does not make it any more secure or better. These are separate issues. And companies never really think about them any further than just that. I have it, so it is safe. I can touch it, so it is safe. This is really an illusion of security and control.”

Richard The Interviewer:

“Ok, so what about software then? Software as a service….?”

Me:

“Well software is no different. Take all that I mentioned above and change hardware to software. The one exception being that software in most countries does not have any depreciation allowance. In China for example, software is always booked in as a single transaction once into your overhead. That is the tax law. Even if the software cost 1,000,000,000,000 USD and you intend to use it over 20 years, you can’t book the expense in and match it over many accounting periods. So you are much better off in China at least operationally by renting or using an ASP service.”

Richard The Interviewer:

“So in a single paragraph, what is your main issue then with these old dinosaurs who want to own, control, touch and carry their technology around with them all the time?”

Me:

“Do I have to be polite? Well, I would simply say, “What are you thinking?!” Get rid of the big software investments and yearly upgrades and all that hassle. Just hand over a list of needs to an ASP, get a copy of their SLA (service level agreement) and be done with it. Problem solved – for life!”

“As to hardware, well, the beauty of an ASP, is that you don’t need any!”

Richard The Interviewer:

“Well thanks for that Richard. I think I will go and study the intricacies of ASP’s, ISP’s, ESP’s, the tax code, our cash flow, the tech road maps of the various companies out there some more. And work out just why it is, that I feel so compelled to continue handing over cash by the fist full to continue in this rat race of upgrade cycles, repair windows and deployment plans.”

“IT that is like watching a TV or renting a movie online…..hmm, that would be useful and stress free…..seems tomorrow has been here for a few years already!”

Me:

“Maybe next time we can touch on issues like data security, data retention, corporate governance compliance, audit trails, business continuity, capacity budgeting, staff retention, staff acquisition, staff training, staff vetting, staff knowledge pooling and on demand resources?”

Richard The Interviewer:

“That would be good. Is that a whole load of hassle too?”

Me:

“Well it used to be, but it is all par for the course when dealing with a good ASP, ESP, ISP or any xSP really. Even more value!”