August 14th, 2007

SaaS (software as a service) invades enterprise software markets

Nicholas Carr, the former Harvard Business Review editor who agitated the information technology industry with his article "IT Doesn't Matter," has published a sequel that predicts another, even more disruptive change.

"The history of the commercial application of IT has been characterized by astounding leaps, but nothing that has come before--not even the introduction of the personal computer or the opening of the Internet--will match the upheaval that lies just over the horizon," Carr predicts in a summary of his next work, "The End of Corporate Computing." The article appears in the spring 2005 issue of the MIT Sloan Management Review.

Carr's previous work made the case not that computing technology was unimportant, but that it's no longer a route for one company to gain competitive advantages over others. Carr riled many in the computing industry; Intel Chief Executive Craig Barrett was among those to deride the position.

This time around, Carr argues most companies will stop messing with information technology altogether, instead tapping into the resources of gigantic centralized computing utilities.

"Information technology is undergoing an inexorable shift from being an asset that companies own--in the form of computers, software and myriad related components--to being a service that they purchase from utility providers," Carr argues. "IT's shift from an in-house capital asset to a centralized utility service will overturn strategic and operating assumptions, alter industrial economics, upset markets and pose daunting challenges to every user and vendor."

Many computing companies are embracing the idea of utility computing in varying degrees. In particular, Sun Microsystems rents out the use of its own grid of computers for calculation tasks; in the future, Sun expects chiefly to supply plumbing to business partners that actually sell the service to the ultimate customers.

Sun Chief Executive Scott McNealy said the shift is slow in coming, though.

"They don't seem to have any problem buying electricity on that basis, but when it comes to computers, they freak," McNealy said this week at a product launch. "It's more of an anthropological issue than a technological or business model issue."