Ch10

Software as a Service (SaaS)

A form of cloud computing where a firm subscribes to a third-party software and receives a service that is delivered online.

Why does firms choose open source products over commercial alternatives ?

Cost , reliability, security, scalability, agility and time to market

marginal cost

Extra cost of producing one additional unit of production.

When choosing the software needs of a firm

It's also important to keep in mind that these decisions need to be continuously reevaluated as markets and business needs change. What follows is a summary of some of the key variables to consider. Competitive Advantage—Do we rely on unique processes, procedures, or technologies that create vital, differentiating competitive advantage? If so, then these functions aren't a good candidate to outsource or replace with a package software offering. Security—Are there unacceptable risks associated with using the packaged software, OSS, cloud solution, or an outsourcing vendor? Are we convinced that the prospective solution is sufficiently secure and reliable? Can we trust the prospective vendor with our code, our data, our procedures and our way of doing business? Are there noncompete provisions for vendor staff that may be privy to our secrets? For off-site work, are there sufficient policies in place for on-site auditing? If the answers to any of these questions is no, outsourcing might not be a viable option. Legal and Compliance—Is our firm prohibited outright from using technologies? Are there specific legal and compliance requirements related to deploying our products or services? Even a technology as innocuous as instant messaging may need to be deployed in such a way that it complies with laws requiring firms to record and reproduce the electronic equivalent of a paper trail. For example, SEC Rule 17a-4 requires broker dealers to retain client communications for a minimum of three years. HIPAA laws governing health care providers state that electronic communications must also be captured and stored (Shapiro, 2004). While tech has gained a seat in the board room, legal also deserves a seat in systems planning meetings. Skill, Expertise, and Available Labor—Can we build it? The firm may have skilled technologists, but they may not be sufficiently experienced with a new technology. Even if they are skilled, managers much consider the costs of allocating staff away from existing projects for this effort. Cost—Is this a cost-effective choice for our firm? A host of factors must be considered when evaluating the cost of an IT decision. The costs to build, host, maintain, and support an ongoing effort involve labor (software development, quality assurance, ongoing support, training, and maintenance), consulting, security, operations, licensing, energy, and real estate. Any analysis of costs should consider not only the aggregate spending required over the lifetime of the effort but also whether these factors might vary over time. Time—Do we have time to build, test, and deploy the system? Vendor Issues—Is the vendor reputable and in a sound financial position? Can the vendor guarantee the service levels and reliability we need? What provisions are in place in case the vendor fails or is acquired? Is the vendor certified via the Carnegie Mellon Software Institute or other standards organizations in a way that conveys quality, trust, and reliability?

What is the difference between Saas and hardware clouds and utility computing ?

While SaaS provides the software and hardware to replace an internal information system, sometimes a firm develops its own custom software but wants to pay someone else to run it for them.

Oss security benefits

allowing "many eyes" to examine the code, the security vulnerabilities of open source products come to light more quickly and can be addressed with greater speed and reliability (Wheeler, 2003). High profile hacking contests have frequently demonstrated the strength of OSS products.

cloud vendors

cloud vendors typically host your software on their systems, many of these vendors also offer additional tools to help in creating and hosting apps in the cloud.

There are thousands of open source products available

covering nearly every software category. Many have a sophistication that rivals commercial software products. • Not all open source products are contenders. Less popular open source products are not likely to attract the community of users and contributors necessary to help these products improve over time (again we see network effects

Blackswan

forecasting demand is difficult and can't account for the ultrarare, high-impact events, sometimes called black swans.

Vendors of SaaS products benefit from the following:

limiting development to a single platform, instead of having to create versions for different operating systems ◦ tighter feedback loop with clients, helping fuel innovation and responsiveness ◦ ability to instantly deploy bug fixes and product enhancements to all users ◦ lower distribution costs ◦ accessibility to anyone with an Internet connection ◦ greatly reduced risk of software piracy

Hardware cloud computing services

replace hardware that a firm might otherwise purchase.

Summary of computing

set of services referred to as cloud computing is making it more common for a firm to move software out of its own IS shop so that it is run on someone else's hardware. In one variant of this approach known as software as a service (SaaS), users access a vendor's software over the Internet, usually by simply starting up a Web browser. With SaaS, you don't need to own the program or install it on your own computer. Hardware clouds can let firms take their software and run it on someone else's hardware—freeing them from the burden of buying, managing, and maintaining the physical computing that programs need. Another software technology called virtualization can make a single computer behave like many separate machines. This function helps consolidate computing resources and creates additional savings and efficiencies.

Software as a service (SaaS) refers to

software that is made available by a third party online. You might also see the terms ASP (application service provider) or HSV (hosted software vendor) used to identify this type of offering.

Cloud Computing

use of web services to perform functions that were traditionally performed with software on an individual computer; i.e. Flickr, Google Docs, etc.

The risks associated with SaaS include the following:

-dependence on a single vendor. -concern about the long-term viability of partner firms. -users may be forced to migrate to new versions—possibly incurring unforeseen training costs and shifts in operating procedures. -reliance on a network connection—which may be slower, less stable, and less secure. -data asset stored off-site—with the potential for security and legal concerns. -limited configuration, customization, and system integration options compared to packaged software or alternatives developed in-house. -the user interface of Web-based software is often less sophisticated and lacks the richness of most desktop alternatives. -ease of adoption may lead to pockets of unauthorized IT being used throughout an organization.

Why does firms pay for what is free?

1. for MySQL service, and (2) for the right to incorporate MySQL's code into their own products (Kirkpatrick, 2004). Amazon, Facebook, Gap, NBC, and Sabre pay MySQL for support; Cisco, Ericsson, HP, and Symantec pay for the rights to the code (Ricadela, 2007). Top-level round-the-clock support for MySQL for up to fifty servers is fifty thousand dollars a year, still a fraction of the cost for commercial alternatives. Founder Marten Mickos has stated an explicit goal of the firm is "turning the $10-billion-a-year database business into a $1 billion one"

SaaS Benefits

1.Ease of use and limited/minimal administration. 2.Automatic updates and patch management. 3.Standardization and compatibility: All users will have the same version of the software release 4.Global accessibility 5. . Firms using SaaS products can dramatically lower several costs associated with the care and feeding of their information systems, including software licenses, server hardware, system maintenance, and IT staff. 6. Organizations that adopt SaaS forgo the large upfront costs of buying and installing software packages. 7. There are also accounting and corporate finance implications for SaaS. Firms that adopt software as a service never actually buy a system's software and hardware, so these systems become a variable operating expense. This flexibility helps mitigate the financial risks associated with making a large capital investment in information systems. ility helps mitigate the financial risks associated with making a large capital investment in information systems. For example, if a firm pays Salesforce.com sixty-five dollars per month per user for its CRM software, it can reduce payments during a slow season with a smaller staff, or pay more during heavy months when a firm might employ temporary workers. At these rates, SaaS not only looks good to large firms, it makes very sophisticated technology available to smaller firms that otherwise wouldn't be able to afford expensive systems, let alone the IT staff and hardware required to run them.

Open-Source License

Allow software to be freely used, modified, and shared. Known as GPL and Apache license

Linux

An open source software operating system created by linus torvalds was given away for free now modified versions are found everywhere

Why is open source software free?

By lowering the cost of computing, open source efforts make more computing options accessible to smaller firms. More reliable, secure computing also lowers costs for all users. OSS also diverts funds that firms would otherwise spend on fixed costs, like operating systems and databases, so that these funds can be spent on innovation or other more competitive initiatives. Think about Google, a firm that some estimate has over 1.4 million servers. Imagine the costs if it had to license software for each of those boxes!

Barriers to entry regarding cloud and tech industry

By lowering the cost to access powerful systems and software, barriers to entry also decrease. Firms need to think about the strategic advantages they can create, even as technology is easily duplicated. This trend means the potential for more new entrants across industries, and since start-ups can do more with less, it's also influencing entrepreneurship and venture capital

Products that help detect legal issues with their oss

Chief among these are products, such as those offered by the firm Black Duck, which analyze the composition of software source code and report on any areas of concern so that firms can honor any legal obligations associated with their offerings.

Clouds and tech industry impact

Cloud computing can accelerate innovation and therefore changes the desired skills mix and job outlook for IS workers. If cloud computing customers spend less on expensive infrastructure investments, they potentially have more money to reinvest in strategic efforts and innovation. IT careers may change, too. Demand for nonstrategic skills like hardware operations and maintenance are likely to decrease. Organizations will need more business-focused technologists who intimately understand a firm's competitive environment, and can create systems that add value and differentiate the firm from its competition (Fortt, 2009). While these tech jobs require more business training, they're also likely to be more durable and less likely to be outsourced to a third party with a limited understanding of the firm.

Cloud computing impact

Clouds may also lower the amount of capital a firm needs to launch a business, shifting power away from venture firms in those industries that had previously needed more VC money. • Clouds can shift resources out of capital spending and into profitability and innovation. • Hardware and software sales may drop as cloud use increases, while service revenues will increase. • Cloud computing can accelerate innovation and therefore changes the desired skills mix and job outlook for IS workers. Tech skills in data center operations, support, and maintenance may shrink as a smaller number of vendors consolidate these functions. • Demand continues to spike for business-savvy technologists. Tech managers will need even stronger business skills and will focus an increasing percentage of their time on strategic efforts. These latter jobs are tougher to outsource, since they involve an intimate knowledge of the firm, its industry, and its operations. • The market for expensive, high margin, sever hardware is threatened by companies moving applications to the cloud instead of investing in hardware. • Server farms require plenty of cheap land, low cost power, ultrafast fiber-optic connections, and benefit from mild climates. • Sun, Microsoft, IBM, and HP have all developed rapid-deployment server farm modules that are pre configured and packed inside shipping containers.

Cloudbursting

Describes the use of cloud computing to provide excess capacity during periods of spiking demand. Cloudbursting is a scalability solution that is usually provided as an overflow service, kicking in as needed.

SaaS examples

Even Microsoft has gone SaaS, with a variety of Web- based services that include CRM, Web meeting tools, collaboration, e-mail, and calendaring. SaaS is also taking on desktop applications. Intuit has online versions of its QuickBooks, TurboTax, and Quicken finance software

Firms considering considering cloud computing

Firms considering cloud computing need to do a thorough financial analysis, comparing the capital and other costs of owning and operating their own systems over time against the variable costs over the same period for moving portions to the cloud. For high-volume, low-maintenance systems, the numbers may show that it makes sense to buy rather than rent. Cloud costs can seem super cheap at first.

Oss cost benefits

Free alternatives to costly commercial code can be a tremendous motivator, particularly since conventional software often requires customers to pay for every copy used and to pay more for software that runs on increasingly powerful hardware. Big Lots stores lowered costs by as much as $10 million by finding viable OSS to serve their system needs

People who work on oss

Guido van Rossum, the inventor of the open source Python programming language, works for Google where he continues to coordinate development. IBM programmers work on several open source projects, including Linux. The firm has even deeded a commercially developed programming tool (including an IDE) to the Eclipse foundation, where it's now embraced and supported by dozens of firms.

Another SaaS benefit

In addition to cost benefits, SaaS offerings also provide the advantage of being highly scalable. This feature is important because many organizations operate in environments prone to wide variance in usage. Some firms might expect systems to be particularly busy during tax time or the period around quarterly financial reporting deadlines, while others might have their heaviest system loads around a holiday season. Using conventional software, an organization would have to buy enough computing capacity to ensure that it could handle its heaviest anticipated workload. But sometimes these loads are difficult to predict, and if the difference between high workloads and average use is great, a lot of that expensive computer hardware will spend most of its time doing nothing. In SaaS, however, the vendor is responsible for ensuring that systems meet demand fluctuation.

security event

In one well-publicized 2008 event, laptops running Windows and Macintosh were both hacked (the latter in just two minutes), while a laptop running Linux remained uncompromised

Utility computing is known as cloud computing

In this model, a firm replaces computing hardware that it might otherwise run on-site with a service provided by a third party online. Computing hardware used in this scenario exists "in the cloud," meaning somewhere on the Internet. The costs of systems operated in this manner look more like a utility bill—you only pay for the amount of processing, storage, and telecommunications used.

Linux on a desktop

Linux is a major player in enterprise software, mobile phones, and consumer electronics, the Linux OS can only be found on a tiny fraction of desktop computers. There are several reasons for this. Some suggest Linux simply isn't as easy to install and use as Windows or the Mac OS. This complexity can raise the total cost of ownership (TCO) of Linux desktops, with additional end-user support offsetting any gains from free software. The small number of desktop users also dissuades third party firms from porting popular desktop applications over to Linux. For consumers in most industrialized nations, the added complexity and limited desktop application availability of desktop Linux just it isn't worth the one to two hundred dollars saved by giving up Windows.

What is the LAMP stack?

Linux, Apache, MySQL, PHP open source software

Oss benefit scalability

Many major OSS efforts can run on everything from cheap commodity hardware to high-end supercomputing. Scalability allows a firm to scale from start-up to blue chip without having to significantly rewrite their code, potentially saving big on software development costs. Not only can many forms of OSS be migrated to more powerful hardware, packages like Linux have also been optimized to balance a server's workload among a large number of machines working in tandem.

As a result Microsoft

Microsoft has begun offering low-cost versions of Windows (in some cases for as little as seven dollars) in nations where populations have much lower incomes. Microsoft has even offered a version of Windows to the backers of the OLPC. While Microsoft won't make much money on these efforts, the low cost versions will serve to entrench Microsoft products as standards in emerging markets, staving off open source rivals and positioning the firm to raise prices years later when income levels rise.

How does SaaS firms make money ?

Most SaaS firms earn money via a usage-based pricing model akin to a monthly subscription. Others offer free services that are supported by advertising, while others promote the sale of upgraded or premium versions for additional fees.

How does vendors make money on open source ?

One way is by selling support and consulting services. Red Hat, the largest purely OSS firm, reported half a billion dollars in revenue in 2008. The firm had two and a half million paid subscriptions offering access to software updates and support services. Service also represents the most important part of IBM's business. The firm now makes more from services than from selling hardware and software And every dollar saved on buying someone else's software product means more money IBM customers can spend on IBM computers and services. Oracle, a firm that sells commercial ERP and database products, provides Linux for free, selling high-margin Linux support contracts for as much as five hundred thousand dollars. Sun Microsystems was a leader in OSS, even before the Oracle acquisition bid. The firm has used OSS to drive advanced hardware sales, but the firm also sells proprietary products that augment its open source efforts. These products include special optimization, configuration management, and performance tools that can tweak OSS code to work its best

Legal risks and other risks of open source software

Open source software isn't without its risks. Competing reports cite certain open source products as being difficult to install and maintain (suggesting potentially higher total cost of ownership, or TCO). Adopters of OSS without support contracts may lament having to rely on an uncertain community of volunteers to support their problems and provide innovative upgrades. Another major concern is legal exposure. Firms adopting OSS may be at risk if they distribute code and aren't aware of the licensing implications. Some commercial software firms have pressed legal action against the users of open source products when there is a perceived violation of software patents or other unauthorized use of their proprietary code.

Examples of open source software equivalents

OpenOffice like Microsoft office Firefox—a Web browser that competes with Internet Explorer Gimp—a graphic tool with features found in Photoshop

SaaS Benefits

SaaS firms handle backups, instantly deploy upgrades and bug fixes, and deal with the continual burden of security maintenance—all costly tasks that must be performed regularly and with care, although each offers little strategic value to firms that perform these functions themselves in-house.

Also SaaS

SaaS vendor can likely leverage its scale and experience to provide better, cheaper, more reliable standard information systems than individual companies typically can.

SaaS (Software as a Service) benefit

SaaS vendors are more attuned to customer needs. Since SaaS firms run a customer's systems on their own hardware, they have a tighter feedback loop in understanding how products are used (and why they fail)—potentially accelerating their ability to enhance their offerings. And once made, enhancements or fixes are immediately available to customers the next time they log in.

Micro-Transactions

Sales in-game that are may or may not affect gameplay. Generally less than 5 dollars example add ons for virtual clothes

Benefits of saas

Sas firms may offer their clients several benefits including the following: ◦ lower costs by eliminating or reducing software, hardware, maintenance, and staff expenses ◦ financial risk mitigation since start-up costs are so low ◦ potentially faster deployment times compared with installed packaged software or systems developed in-house ◦ costs that are a variable operating expense rather than a large, fixed capital expense ◦ scalable systems that make it easier for firms to ramp up during periods of unexpectedly high system use ◦ higher quality and service levels through instantly available upgrades, vendor scale economies, and expertise gained across its entire client base ◦ remote access and availability—most SaaS offerings are accessed through any Web browser, and often even by phone or other mobile device

Saas Benefits

Savings on distribution costs-Going direct to consumers can cut out the middleman, so vendors can charge less or capture profits that they might otherwise share with a store or other distributor 2. SaaS vendors are more attuned to customer needs. Since SaaS firms run a customer's systems on their own hardware, they have a tighter feedback loop in understanding how products are used (and why they fail)—potentially accelerating their ability to enhance their offerings.

SLA

Service level agreement. An agreement between a company and a vendor that stipulates performance expectations, such as minimum uptime and maximum downtime levels. It defines the vendors ability to meet demand spikes

Managers seeking to fulfill software needs

So now you realize managers have a whole host of options when seeking to fulfill the software needs of their firms. An organization can purchase packaged software from a vendor, use open source offerings, leverage SaaS or other type of cloud computing, outsource development or other IT functions to another firm either domestically or abroad, or a firm can develop all or part of the effort themselves.

Open Source Software (OSS)

Software that is free and where anyone can look at and potentially modify the code.

MySQL

The most common version of the Structured Query Language, a language for creating, maintaining, and querying a database.

For those that contribute to oss

The vast majority of people who work on efforts like Linux are now paid to do so by commercially motivated employers . Nearly every major hardware firm has paid staff contributing to open source projects, and most firms also work together to fund foundations that set standards and coordinate the release of product revisions and improvements

Many OSS vendors offer security focused (sometimes called hardened) versions of their products.

These can include systems that monitor the integrity of an OSS distribution, checking file size and other indicators to be sure that code has not been modified and redistributed by bad guys who've added a back door, malicious routines, or other vulnerabilities.

What does Linux power?

Today Linux powers everything from cell phones to stock exchanges, set top boxes to supercomputers. You'll find the OS on 30 percent of the servers in corporate America and supporting most Web servers (including those at Google, Amazon, and Facebook).

Oss benefit Agility and Time to Market

Vendors who use OSS as part of product offerings may be able to skip whole segments of the software development process, allowing new products to reach the market faster than if the entire software system had to be developed from scratch, in-house. Motorola has claimed that customizing products built on OSS has helped speed time-to-market for the firm's mobile phones, while the team behind the Zimbra e-mail and calendar effort built their first product in just a few months by using some forty blocks of free code

Visulation software into cloud computing

Virtualization software allows one computing device to function as many. The most sophisticated products also make it easy for organizations to scale computing requirements across several servers. • Virtualization software can lower a firm's hardware needs, save energy, and boost scalability. • Data center virtualization software is at the heart of many so-called private clouds and scalable corporate data centers, as well as the sorts of public efforts described earlier. • Virtualization also works on the desktop, allowing multiple operating systems (Mac OS X, Linux, Windows) to run simultaneously on the same platform. • Virtualization software can increase data center utilization to 80 percent or more. • While virtualization is used to make public cloud computing happen, it can also be used in-house to create a firm's own private cloud. • A number of companies, including Microsoft and Dell, have entered the growing virtualization market.

SaaS Benefits continued

When looking at the benefits of SaaS, also consider the potential for higher quality and service levels. SaaS firms benefit from economies of scale that not only lower software and hardware costs, but also potentially boost quality. The volume of customers and diversity of their experiences means that an established SaaS vendor is most likely an expert in dealing with all sorts of critical computing issues. 2. aaS firms handle backups, instantly deploy upgrades and bug fixes, and deal with the continual burden of security maintenance—all costly tasks that must be performed regularly and with care, although each offers little strategic value to firms that perform these functions themselves in-house. The breadth of a SaaS vendor's customer base typically pushes the firm to evaluate and address new technologies as they emerge, like quickly offering accessibility from mobile platforms like the BlackBerry and iPhone.

Hardware firms now find their technical talent can be deployed in other value-added services mentioned above:

developing commercial software add-ons, offering consulting services, and enhancing hardware offerings.

The software business is attractive

due to near-zero marginal costs and an opportunity to establish a standard—creating the competitive advantages of network effects and switching costs.

Oss reliability

the more people who look at a program's code, the greater the likelihood that an error will be caught and corrected. The open source community harnesses the power of legions of geeks who are constantly trawling OSS products, looking to squash bugs and improve product quality. And studies have shown that the quality of popular OSS products outperforms proprietary commercial competitors. In one study, Carnegie Mellon University's Cylab estimated the quality of Linux code to be less buggy than commercial alternatives by a factor of two hundred

MySQL does make money

ust not as much as its commercial rivals. While you can download a version of MySQL over the Net, the flagship product also sells for four hundred ninety-five dollars per server computer compared to a list price for Oracle that can climb as high as one hundred sixty thousand dollars. Of the roughly eleven million copies of MySQL in use, the company only gets paid for about one in a thousand

Keeping legal

with so many licensing standards can be a challenge, especially for firms that want to bundle open source code into their own products. An entire industry has sprouted up to help firms navigate the minefield of open source legal licenses.

SaaS claims that

you can now get the bulk of your computing done through your Web browser. Don't install software—let someone else run it for you and deliver the results over the Internet.

SaaS Benefits and challenges

• Benefits and risks are similar to those discussed in SaaS efforts. Benefits include the use of the cloud for handling large batch jobs or limited-time tasks, offloading expensive computing tasks, and cloudbursting efforts that handle system overflow when an organization needs more capacity. • Most legacy systems can't be easily migrated to the cloud, meaning most efforts will be new efforts or those launched by younger firms. • Cloud (utility) computing doesn't work in situations where complex legacy systems have to be ported, or where there may be regulatory compliance issues. • Some firms may still find TCO and pricing economics favor buying over renting—scale sometimes suggests an organization is better off keeping efforts in house