Is Traditional Software Dead?
According to the latest numbers by IDC, we may be seeing traditional licensed software wheezing its way to its ultimate demise.
IDC’s report states “that by 2012, almost 85 percent of new vendors will be focused on SaaS services…and some two-thirds of new offerings from established vendors will be sold as SaaS”
Further, IDC predicts that “SaaS revenue numbers will jump up accordingly in the next few years, rising from US$13.1 billion in 2009 to $40.5 billion by 2014…while license revenues for traditional on-premises applications will drop roughly $7 billion this year and are likely in permanent decline.”
Frankly, this comes as no surprise.
The relatively recent recognition by software companies that the small and medium business segment is a growth area, coupled with reliable and ubiquitous broadband has made offering cloud-based applications a smart business move.
According to the US Small Business Administration, businesses with fewer than 500 workers account for half of the nation’s private, nonfarm real gross domestic product and half of all Americans who work in the private sector are employed by a small firm.
While these companies have many of the same software needs as larger enterprises, they lack the money and in-house resources to install, maintain and administer the associated hardware and applications. Consequently, they’ve been largely ignored by the enterprise software companies who traditionally made their money on upfront license fees and hefty annual maintenance contracts.
The availability of inexpensive computing cycles and storage made possible by cloud computing has leveled the playing field for these small businesses, who can now subscribe to the same application services used by larger organizations at a price that fits their budget. No upfront license, no annual maintenance contract – just one predictable recurring cost.
Cloud computing has also leveled the playing field for startup software companies who are now able to compete with the software giants of yesterday. Their innovative, agile and inexpensive online applications are a welcome alternative to traditional software products.
IDC’s numbers validate what we’ve been seeing for quite a while. Software as a service, delivered via the cloud will spell the end for the traditional licensed software model.
Comments
Challenge indeed
Thank you for taking the time to appreciate and address the concerns of small businesses with less than 500 employees. I know from experience, it can be a real challenge for most of them and I am sure they appreciate your article.
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Down Time
What happens when you lose your Internet for two or three days. In my area we have one main trunk to the Internet and in the last year it's been cut twice with downtimes lasting two to three days each time. I can't and won't rely upon hosted services for critical data. While four to six day of lost connection out of a year may not seem like much business could not have been conducted if we had been on a hosted service.
I'm not opposed to hosted services, but considering it will be 15+ years before we see a second trunk that services our area it doesn't make good business since to rely upon hosted services. We are a business of less than 20 employees.
SaaS versus On-premise / behind the firewall
Matthew, as you point out, not all companies are located in areas that have reliable telecommunications.
Given the proliferation of reliable broadband in all developed, and many developing countries, these companies are thankfully in the minority, allowing many to see many of the financial and productivity benefits of SaaS business applications.
Good luck with your telecoms hassles!