Software as a commodity / utility?
Thu, May 28 2009

It's pretty much an accepted trend now that the Internet has become the new delivery method for software: instead of buying it in a box with a manual, you can pay for it online and download the installer without having to make a trip to the local computer store only to find they're out of stock of the program you want. And web applications that actually run online and simply charge a monthly or yearly subscription fee have become so common it's a bit of a yawn even talking about it. However, Amazon and IBM recently collaborated to demonstrate that the concept of billing for online services can be taken to even more of an extreme: instead of paying big fees for a perpetual license, or smaller fees for a monthly subscription, they're experimenting with charging tiny fees for "as you use it" charges for software. In effect, they're treating software as an on-demand utility. We're all accustomed to the volume-based billing applied to household utilities: turn on a switch or a tap and out flows electricity, or water, or gas. Turn it off and it stops, with usage charged on a "volume consumed" basis. With the exception of basic service levies you just pay a rate per kW/h or kiloliter consumed. Amazon's latest announcement is that they are providing access to certain software packages in the same way. If you want to use one of their supported packages you just use it when you need it and they bill you by the hour for the actual time it was in use: use it a little and pay a little, use it more and pay more. So far Amazon are only offering a limited range of server-oriented packages that are unlikely to interest the average consumer: things like the Informix database and the WebSphere Portal Server. There's no "pay-by-the-hour word processor", for example. But what this move makes clear is the potential for developers of online applications to move towards a range of more consumer-oriented online utility services where you simply pay for the time you use the software. Instead of paying $350 for a perpetual license for a word processor, or $10/month for a subscription for an online word processor, you'd pay 10 cents / hour just for the time you're actually using it. If you use a word processor a couple of times a year you may only pay 50 cents total per year, but still have access to the exact same features as a heavy user who may spend $135 / year because they spend hours every day using it. What you pay is exactly proportional to how much you use it, just like the other utilities we're already accustomed to. I'm keeping my eyes open for the first consumer-oriented Software-as-a-Service (SaaS) offering that provides a utility-based hourly billing model. I haven't seen one yet but I doubt it will be long coming. Actually, tell you what: I will send free copies of both "How To Build A Website And Stay Sane" and "Quickstart Guide To Google AdWords" to the first person who lets me know about the launch of a consumer-oriented web application that is billed on an hourly basis. Good hunting!