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Weekly Review: IBM Practices Software Preaching By Phil Wainewright November 19, 2002 Last week's news that IBM has launched an "application enablement program" to help independent software vendors (ISVs) create "on-demand" versions of their software sounded eerily familiar to old hands in the ASP business (see Big Blue Moves to On-Demand 'Fast-Track'). Read and React "IBM seems to have realized that the only objective that really matters is getting more businesses using its software, and that it loses more by retaining a price barrier to adoption than it is likely to gain." Give us your feedback in the ASPnews Discussion Forum For surely this is the same program that first launched in June 1999 — so far back in the mists of history that Sequent, which initiated the scheme, at that time had not yet been acquired by IBM (see Sequent unveils ASP incubator). By August 2001, when the scheme was relaunched as xSP Prime, more than 300 software vendors had completed the program (see IBM Adds 'X' Factor). Successful alumni include providers as diverse as leading professional services ASP OpenAir, custom relationship management (CRM) vendor Pivotal Software and healthcare industry behemoth Siemens Medical Solutions. From its earliest days, the scheme was centered on encouraging ISVs to adopt a Web-native approach — the architectural precursor of what we now know as Web services — and it gradually expanded to embrace Linux and Windows server platforms as well as IBM's own proprietary systems. As well as this technical dimension, it also helped participants prepare appropriate business models for delivering online software services. Big Blue Taps Infrastructure ISVs With nearly four years' experience of advising ISVs how to service-enable their software, IBM must have amassed an unparalleled body of knowledge on the subject by now. Yet one of the most interesting aspects of the latest announcements was the type of software vendor that IBM chose to feature as the charter partners in its program: supply-chain software management company Adexa, Internet security software provider Entrust, asset-management software company MRO, and customer management and billing provider Portal Software. This selection of ISVs sends a clear message that the on-demand software delivery model is not only — or even primarily at the moment — for applications, so much as for infrastructure functions and tools. Oddly enough, I recall mentioning something similar in the August 1999 report, Anatomy of an ASP: "... the lowest layers of computing at the infrastructure and systems management levels will adapt faster simply because they have less end-user complexity to deal with. Those who want to probe the leading edge of application services should therefore pay particular attention to online providers of storage, security, systems management and other infrastructure services." IBM Mixes Pay by the Drink Pricing Plan Another interesting IBM announcement last week was the introduction of low-cost licensing for its entry-level WebSphere-Express application server and integration platform (see IBM Tweaks Integration Software Pricing). The cost of the full license is $2,000, but IBM's new by-the-drink scheme allows small businesses to pay according to the number of users, at just $25 per head. Once they reach 80 users (i.e., $2,000), the license becomes unlimited. Previously, the notion of by-the-drink software was firmly associated with ASPs and their per-user, per-month pricing. But there is no reason why it shouldn't also apply to traditionally installed software, especially in the case of server software that by definition is going to be connected to the Internet, and therefore could potentially be set up to report usage statistics back to IBM if the company wanted to make sure customers were playing fair. IBM seems to have realized that the only objective that really matters is getting more businesses using its software, and that it loses more by retaining a price barrier to adoption than it is likely to gain. Its calculations of the profit opportunity are probably also influenced by projected take-up of the hosted security service being offered by Verisign as an optional extra. IBM Heeds Its Own Advice This is the start of a move towards software pricing policies that are more akin to those of mobile phone network operators, who keep their entry price as low as possible and make their profits from service usage. Nothing could be more symptomatic of a move towards provision of software as a service than this move towards pricing models that are characteristic of service provider networks. It looks as though IBM is not only teaching its partners how to sell software as a service — it has itself already taken its own lessons very much to heart. Do you have a comment or question about this article or the ASP industry in general? Speak out in the ASP Discussion Forum.