In the course of preparing this report, the author has spoken to virtually every major practitioner of software rental in the world today. Every single one of them professes to be targetting small and medium business with their offering. And yet, on probing, every single one confesses that they have been surprised by the size of company they have found to be interested in their service. It turns out that software rental has universal appeal. It is just as attractive to the large enterprise user as it is to the small business; just as appealing to the departmental manager as it is to the home user.

The author recalls the advent of the PC, nearly two decades ago. Its creators and proponents saw it as a cut-down version of the larger, more serious computers then used by big business. They believed it could play a valuable role in bringing business computing within the budget range of smaller enterprises - organisations who, many felt, were not in the right league to buy serious computers from industry leaders like DEC, Data General, Wang and others. We now know how all their preconceptions were overturned by what followed.

History is about to repeat itself.

Outsourced apps are all over the Net

Even though no-one stops to think about it, the habit of outsourcing applications is already deeply ingrained in the everyday routine of the Internet. Whenever anyone uses a search engine, calls up a stock index chart or checks the weather, they are taking advantage of an application that someone else has installed, set up and maintains on the net for their benefit.

These services are not provided out of charity. However much its early partisans denigrate the commercialisation of the Internet, most people acknowledge that it is not possible to have a networked economy without money changing hands. Even though many application services appear to be free on the Web, what is actually happening is that those services are being provided for payment that has been either displaced or deferred. Instead of the user paying the provider directly, the service is indirectly funded, either by advertising revenues, from access fees, or - to a surprisingly large extent - from the proceeds of stock market flotations or investments by large corporations, made in the expectation of returns to be generated from future advertising and subscription income.

Server hosting is another form of outsourcing that has become an Internet commonplace. When organisations first decided to build a presence on the Web, it was only natural that they should turn to their access provider for assistance. The Internet service providers themselves were glad of the extra revenue opportunity, while users happily avoided getting sucked into the complications of setting up online servers with all the wide area networking and security issues which that entailed.

What started out as simple Web server hosting has become increasingly complex. Sites have progressed from brochureware to electronic commerce, from intranet noticeboards to messaging and groupware platforms. Users are no longer renting slices of hard disk on a server. They are buying sophisticated resources and management services for applications that have become critical to the successful operation of their business.

Its time to start renting them

One simple anomaly is holding this process back from reaching its logical conclusion. Because of the way that computing has evolved, users think of software as something which they must own in order to use it. In reality, this perception is simply a historical aberration. Software is no more than the underlying mechanism which delivers an application, and it is the application which users are interested in.

Gradually, the Internet is chipping away at this belief in software ownership, because the Internet makes it absurd. In a computing paradigm where applications are server-based, and servers are hosted, there is no longer any sustainable reason for users to own software licences.

Somehow, these server-side transactions do not seem like rental, perhaps because hosting makes them seem remote. But the next step that service providers are now beginning to take is an even more explicit form of software rental. Commerce service providers, who host electronic commerce shopping malls on the Internet, are moving beyond renting out empty store space to customers, and beginning to rent out the software to build the stores as well.

Instead of expecting users to download and install their own copy of a store creation application and then upload the finished Website pages back to the mall, providers are making the application available online. At a stroke, this removes several barriers that previously deterred customers. It changes setting up an online store from a rigmarole into an impulse buy. Yet strangely enough, still no-one calls it software rental. Its seen as just part of the service.

Only the new breed of Internet companies known as application service providers have seized the nettle and explicitly gone out to offer online rental of packaged software. This report documents the factors which have brought about the emergence of this new industry. It describes the makeup of application service providers as they have developed to date and the challenges they face. Finally, it outlines the far-reaching impact that online packaged software rental is about to make on the shape of computing and the internet.

This is a verbatim extract from edition 1.0 of "Packaged Software Rental: The Net's Killer App", published November 1998. For details of current special reports from ASPnews.com, .. click here.