Weekly Review: Greed Is Not Good

There was something eerily familiar about Novell's announcement last week of new, lower-cost tiers of licensing for users of Web services (see Novell Says its Price is Right).

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It seems Novell has woken up to the fact that expensive user licenses are a major impediment to mass adoption of software delivered over the Web. "Expensive software licensing models have prevented organizations from affordably extending services to customers across the Web," said Chris Stone, vice chairman, office of the CEO, Novell.

If only any of the major vendors had realized this two or three years ago, when a host of ASP startups were vainly attempting to drum up customer interest in Web-delivered software and services. The villain of the piece then was Microsoft, whose Office and Outlook products seemed to be the natural choice to offer the small business market. But since each user had to be charged a full desktop license fee, the only offerings that reached the market were either ludicrously expensive or commercially unviable. (Microsoft was not the only villain at the time: Citrix, whose technology added the all-important Internet delivery capability, also contributed its own layer of sales-throttling license fees).

New Web Services, Same Mistakes
Now it seems all those lessons have been forgotten, and software vendors are going to make all the same mistakes with Web services that they already made with the ASP model.

Novell should be commended for seizing the initiative here, but it should be castigated for falling far short of what is required. It is trying to portray itself as generous by slashing user licenses to a quarter of the normal fee for business-to-consumer applications, and to a tenth in the case of government-to-citizen applications.

That may sound generous enough, until you do the math. Novell uses the example of offering its iChain single authentication process to the U.S. Department of Social Security. It suggests that its new low-cost fees would mean the Department could afford to buy licenses for 10 million U.S. citizens. I would imagine this is at least a hundred times more licenses than the Department would buy for its own staff (I doubt it employs even as many as that). So here's the bottom line: Novell is proposing to cut the cost of its license by a tenth, in order to sell a hundredfold more licenses, thus netting it ten times as much revenue as before (and the Department will still have to pay full price for users on its own staff).

Software vendors have got to get to grips with their greed and really think this through if Web services have got any hope of really getting somewhere. Mass adoption — particularly of essential infrastructure services like Novell's iChain — won't be achieved by simply chipping away at today's license fees. The only way the economics will stack up is if vendors start thinking in terms of cutting their per-user fees a hundredfold or a thousandfold. They should do the math: a million more users at a thousandfold less per user will still bring in a lot more revenue than they were getting before.

Make no mistake, the market understands this. Sooner or later a vendor will come along and give the market what it wants, and anyone who is still unprepared to slash their per-user license fees will be left high and dry.

Many Lessons Already Learned
There are many other Web services questions that could be settled a lot faster if vendors were to start listening to the lessons already learned from the experiences of ASPs. News emerged last week that IBM is developing software to help providers apply service level agreements (SLAs) to Web services. There's another area where ASPs have thoroughly explored all of the pitfalls and perils, and can offer valuable insights into best practice.

Whether anyone is listening or not, it's heartening to see successful ASPs at the leading edge of Web services technology adoption. Last week Salesnet became the latest of the Web-native sales automation providers to release Web services technology for integrating its service with its customers' other applications (see Salesnet Releases Web Services API). In August, online accounting provider Intacct released the latest version of its XML-based integration technology (see Intacct Unveils New XML APIs).

Intacct has also been pioneering a sophisticated pricing model that allows customers to pick and pay for modules on an a-la-carte basis, rather than for a flat-rate fee per user (see ASPs Try to Get the Price Right). That's an idea that's often been discussed in ASP circles, but with the much greater modularity of Web services software architectures, getting it right has become an urgent priority. Here's a provider that has already evolved a successful model for doing it as a response to actual market demand.

There's plenty of proven experience out there now in the ASP industry that vendors can — and should — be taking advantage of to evolve Web services instead of painfully reinventing the wheel at every turn. But amazingly, most will simply ignore it and make exactly the same mistakes. As I noted in my previous column, few seem to have recognized that they're retreading the same path all over again (see Web Services New Tree in Same Forest).

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