Software firms are exceptionally vulnerable when business confidence is low, as their customers can easily put off new projects and cancel upgrades. So, the current pessimistic atmosphere is giving added impetus to the search for more stable sources of revenue.
Last year, during the heyday of enthusiasm for application service providers, there was much talk of moving towards a subscription model. ASP proponents seemed to believe we’d soon be paying for software, hardware and everything else IT on a rental basis. But for the ASP pioneers the current climate is tough. Long-time trailblazers Futurelink and Interliant have both announced that they are reining in the ASP side of their businesses to concentrate on more profitable services. Many ASP players without this option are cutting staff or folding. So, if the ASP route isn’t the answer, what is?
One approach is apparently free software that yields revenue in other ways. Software has long been given away to win market share – after all, that’s how Microsoft’s Internet Explorer ended up the dominant browser.
But software giveaways are becoming popular among small companies that want to achieve visibility. They can then go on to make money selling more elaborate “pro” versions of their programs.
A current example is Zone Labs, which makes security software. It claims over 9 million users have downloaded its free Zone Alarm personal firewall – which is designed primarily to protect users connecting to the Internet through “always on” ADSL or cable connections. It also sells a pro version suitable for business.
Another approach is to make money by carrying adverts. Advertising arguably makes more sense for software than for web sites, as most users spend more time using software. Norway’s Opera Software claims that 2 million copies of its Opera browser have been installed since it introduced an ad-funded version in December 2000. The ads look like standard banner ads on web sites, and rotate every 60 seconds. Users can get an ad-free version for $39 – but most don’t bother.
The ads for the Opera browser are delivered by Cydoor, a firm that specialises in adding advertising to software. Several dozen applications use its system, including customer service and contact management programs. This approach is made possible because the programs can connect to the Internet – and most users go on-line often enough to allow ads to be updated regularly.
The blurring of the distinction between program and web site is even greater in so-called “webware”. These rental applications are simple examples of the ASP approach. Key parts of the software reside on the host’s server, as with an ASP, but the service is sufficiently standardised that users can sign up for it on a simple take-it-or-leave it basis without an elaborate contract.
Many webware applications are in the marketing, human resources or customer service areas. eService Manager, for example, enables web site visitors to book appointments on-line, according to a set of rules that you specify, and organises follow-up by your staff. The price starts from $99 a month.
There’s a good list of such applications at CNET’s www.webware.com site.
All these applications rely on users connecting to the Internet, to either download adverts or get at essential program code or data. This inevitably raises security issues – which is where Microsoft’s Hailstorm initiative comes in. Announced in March 2001, and due to go live during 2002, it’s a major initiative to get a more appropriate infrastructure in place.
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Hailstorm is based on Microsoft’s existing Passport service, a system for authenticating users and giving them access to multiple systems with a single log-on. What it adds is an XML database capable of storing personal details. The kinds of things envisaged are the user’s identity and log-on names for different systems, their credit card numbers, standing order details, software preferences and records of software usage.
The idea is that Hailstorm could be accessed by other authorised programs as required, providing a mechanism that would allow monthly software subscriptions or even detailed pay-per-use charging on a TV-style pay-per-view model.
This is why Hailstorm is so strategic for Microsoft – and many other firms in the software and content industries. It would greatly simplify the introduction of new forms of software charging.
DATA PROTECTION IGNORED
Only 44% of firms that do business on the net comply with the basic requirements of the Data Protection Act, such as giving information on how registration details may be used by a third party, says a survey by law firm Manches and the London Chamber of Commerce. Breaches can result in heavy fines or closure of the website.
UK and German companies ranked joint-second-highest in a table of e-commerce security breaches, with 14% of respondents in each country reporting security lapses. A KPMG Global E-Fraud survey put India at the top of the list with 23% of respondents declaring security breaches.