In 1999, the Internet hype was nearing its peak and I was running a successful software company serving the banking industry. We had plenty of happy customers and we were making money. But, I felt like the press and market analysts were ignoring us because our software ran on Windows using a client-server model. We were not part of the Internet “revolution.”
I saw that the software industry was at the beginning of a big movement from a client-server model to the Internet and I began to develop a strategy to leverage this new Internet infrastructure, essentially a low-cost public network, available to everyone.
We first looked at a workflow tool we were already developing to process small business loans. We decided to build the application centrally to run on our servers and let our customers access it via the Internet. The idea was not revolutionary, just a natural evolution. Our banking customers were already used to outsourcing all their software and accessing it via private communication lines.
Over the next couple of years, many companies executed along similar lines and a new name appeared, Application Service Provider (ASP). Salesforce.com proved the validity of the model on a grand scale. Today, thousands of companies deliver what has become known as Software-as-a-Service (SaaS). Many companies that have adapted to SaaS enjoy a strong competitive and financial advantage over their competitors.
At the time, it became very clear to me that the software business as we knew it was going to change. Ultimately, software would be delivered via the Web. We had a thousand customers using our Windows software with tens of thousands of users. The databases were very large and entrenched. The process of delivering new versions included sending physical media to customers who had to install, test, run conversions, and retrain users. It was very inefficient.
By running software on our servers, we could manage the updates and conversions and keep our customers up-to-date, at a fraction of the overall cost. The lowered total cost of ownership, along with improved user satisfaction and productivity, changed the nature of how we delivered value.
Just as the SaaS model became clear in 2001, today, in 2010, it is clear that the way companies deploy IT infrastructure will change dramatically over the next 10 years. Hardware is following the same route as software. There are “clouds” on the horizon. And that’s what I want to talk about in my next two articles. In my second post coming shortly, I’ll look at Infrastructure-as-a-Service (IaaS).
Next Thursday, check back for Mark's second article titled Movement of Co-location Facilities to the IaaS Cloud Services Business
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