The Network is the Computer

If only 1% of 13 million (13,000) of your users are willing to incur a $10 surcharge within the first week after the release of a significant software upgrade, one has to wonder, how does one make money in the software business?

In this specific case, the 13 million users of Apple’s iPod Touch, Apple makes the bulk of its money not on the device’s software or even the iTunes Store sales (music, videos or apps), but on the hardware itself. Apple has been and still is, a hardware company. Despite its reputation for cutting edge software.

But if the adoption rate of Apple’s iPhone OS 3.0 is any indication, even a token charge for a software upgrade significantly impairs software adoption. So the question remains, how does one make money in the software business these days?

For some companies, the case for users to upgrade can go beyond “new computing features”. For example an anti-virus company that charges for upgrades that deal with new threats to computer security. Or a financial software company that releases new software for changes in accounting and tax codes.

Yet even these examples have limits, an anti-virus company can charge for an update to deal with a new type of threat, say an anti-virus software that gets an upgrade to also deal with spyware. But, the software security company would probably be out of business if it charge a fee for every new iteration of a specific threat type, for every new virus that might come along.

Enter Software as a Service (SaaS). Unlike, traditionally boxed PC software SaaS is a model of software retail whereby a provider licenses an application to customers for use as a service on demand. Instead of distributing the software for purchase, the developer/vendor hosts the application in a location where it can be reached by the users when needed.

With this model users don’t have to support or update the software themselves. Instead users are charged an access fee (per usage or monthly/yearly subscriptions) to the features they wish to use. Their fee covers the cost for maintaining and updated those specific features. User access (and in turn development and maintenance) can also be subsidized by some third-party, such as an advertiser.

The key is effective, reliable, ubiquitous access to where the application actually resides. In this day in age of computing that means, the Internet and specifically the Worldwide Web. Without this key infrastructure, online services such as Salesforce.com or Facebook would be significantly impaired.

None of this is really new, the concepts behind Software as a Service have been be around for awhile. But, understanding the concept helps to illuminate today’s news from Google, the Google Chrome Operating System.

Google’s public announcement of their own operating system is indeed a direct challenge to Microsoft’s bread and butter family of Windows Operating Systems as reported. But the Google OS isn’t a better than Microsoft Windows product, such as Apple’s Mac OS X. Nor is Google’s OS even focusing on the traditional tasks of managing the interface between the local hardware and user.

Instead Google’s operating system, like their own web browser of the same name (Chrome) and mobile operating system (Android), is about simplifying and enhancing access to applications online. In Google’s own words the operating system’s goal is “to start up and get you onto the web in a few seconds” and will be built around the existing “web platform” so that “web-based applications will automatically work” and will work “not only on Google Chrome OS, but on any standards-based browser on Windows, Mac and Linux.”

Google’s new operating system is designed to leverage the growing collection of service oriented software that can be found online, including, of course, Google’s own suite of applications such as Gmail, Docs and YouTube.

The trick for Google now is not just in implementation, but also adoption. Focusing first on the growing trend of netbooks helps, but thin computing itself is hardly a new concept.