Blog Post

I Don't Want Source Code; I Want App Tone

Stay on Top of Enterprise Technology Trends

Get updates impacting your industry from our GigaOm Research Community
Join the Community!

For a long time, source code was viewed as a software company’s crown jewels, protected by dongles and complex encryption schemes to prevent copying and theft. In the software-as-a-service world, however, source code becomes irrelevant. If someone offered us the schematics to a telephone, we wouldn’t care. We don’t want to know how to make a phone. We want a dial tone. When it comes to IT, we want app tone.

A recent April Fool’s joke claimed the Vista source code was leaked. But really, would we care? Gartner says Windows is collapsing under the weight of 20 years’ worth of legacy code. Forrester says that only 6.3 percent of enterprise users it surveyed at the end of 2007 had switched to Vista. It’s not just Microsoft. IT administrators will tell you that the cost of running any application far exceeds its license fees.

Even the open-source movement is feeling the change: Recent modifications to the third revision of the GNU Public License recognize that it’s the service, not the source code, that has value — and that any user of the service has the rights to its source code. IP-protection firm Palamida’s GPLv3 blog says that “in a SaaS arrangement…the opportunity to receive such source code must be prominently offered to all users who interact with the program remotely over a computer network.” (italics ours)

But I increasingly don’t care. If 37 Signals gave me the Basecamp source code for free, I’d still use their service. If Freshbooks burned me a copy of their app, I’d still subscribe to them. Even if handed me their software, I’d use their hosted portal.

In the license world, it’s all about the ability to make copies of the software. By contrast, in the world of app tone, it’s about the ability to run instances of the code. It’s about operating an application reliably, and the ecosystem the SaaS provider can build around it through APIs, partners and extensions such as the Salesforce for Google Apps integration.

Microsoft clearly wants Yahoo for its traffic. The future of consumer applications is free, and having traffic to monetize those applications in other ways is essential if Microsoft is to make the jump from software to service.

But the ability to deliver “app tone” is an equally compelling reason for Microsoft to go after Yahoo. Instead of selling software burdened with 20 years of backwards compatibility, they need to start running applications. Yahoo is not only staffed with people experienced at this, but it has a large-scale computing cluster to run it on, and an installed base that already thinks of it as a service. It’s something that Redmond desperately needs, and something Yahoo’s willing to ally with its biggest competitor to defend.

16 Responses to “I Don't Want Source Code; I Want App Tone”

  1. I think that Alistair has it right on with the “app-tone” thing. It’s too painful to host your own application these days, compared to using SaaS.

    I think that proprietary applications will continue to thrive because operating software is expensive whether it’s open source or proprietary. For many folks, the difference in “free” vs “paid license” makes it not worth switching from proprietary applications to open source applications.

    Another thing to consider is that hosting applications and data has gotten very cheap. For example, 3 years ago, our company was paying $1500/month for a single server, software, physical security, network security, and availability at a high-quality data center. If I were to do it today, I would just use Amazon EC2 to host the application at a starting price of about $70/month, with the same security & reliability. As the application processing and data grows, Amazon’s solution scales up and out very nicely, and the computing costs grow proportionally to traffic, processing, and storage.

    However, even though the hosting is cheap, service operations, customer support, software maintenance and evolution etc have not gotten any cheaper. Those costs are starting to drive the overall costs more these days.

    The big issue coming down the pipe is data portability and data security for applications hosted by 3rd parties. Once the big hosting companies convince enterprises that they can host data more securely than the enterprises, SaaS will become more and more dominant. Data portability has always been a big problem, and often represents the last available form of vendor lock-in.

    I don’t think that Microsoft needs to buy Yahoo. Microsoft has the skills in operating SaaS applications such as hotmail, search, and XBox Live. They have deep domain expertise in the software that would make great SaaS applications, and they have the trust of enterprises that pay for that software. What Microsoft does not have is an executive culture that enables them to successfully run a profitable P&L unit that provides SaaS. What they should do is hive off a fully owned subsidiary to run Live as a separate brand from Microsoft, and then staff that subsidiary with capable executive managers from the likes of Google, Yahoo, Amazon, or eBay. They could buy up a few small SaaS players such as Zoho, and then integrate them into Live. The nice perceived advantage with Live is that if they ever claim that their software interworks with Microsoft licensed applications and services, people are more likely to believe them because they’re owned by Microsoft. The other big habit they have to break is charging every user a license for every installed piece of software. Live as a separate subsidiary will enable them to use other revenue models to achieve business success.

  2. Good points but I’d argue that this is a bit simplistic. It’s not either-or but both-and … both the service and the source have value.

    If not, why don’t SaaS folks etc. post out their source?

    More here.

  3. @Ed: I agree only for a narrow slice of the software world where your algorithms are a trade secret. For software like a word processor, or a contact manager, it’s easy to recreate the functionality because the app is a spec. But if the code is the secret — some magical stock tracker, for example, that anticipates the market’s whims better than others — then I absolutely agree.
    I would argue, however, that most of the software we use most of the time is now so easily copied and imitated, or already available for anyone to see, that it’s not a sustainable competitive advantage. But ordering 10,000 servers at a time, or amortizing application load around the world and across hundreds of customers, is an advantage because it allows the operator to achieve economies of scale.
    So if Freeagent has some secret sauce that makes people choose it for reasons other than the service, then absolutely keep it secret. But such applications are fewer and farther between in today’s world, IMHO.

  4. Maybe I’m missing something, but if I gave away the source code for FreeAgent, why wouldn’t any tom/dick/harry hosting company not offer FreeAgent app tone at a fraction of the price I can, given that they don’t have to recoup the significant upfront development investment or support an ongoing development team?

    As the cost of actually doing this goes down, surely the source code is exactly the crown jewels that I’ll need to hang onto?

  5. Interesting comments. I think there’s a lot of value in being able to review the source code — primarily for security and compliance — and transparency is a good thing. But I agree with @whoopie that data portability, which is a good predictor of just how much one SaaS or PaaS (platform-as-a-service) vendor can hold you ransom, is a big issue.

    Maybe we’ll see an “open data” equivalent of open source that commits to making data, metadata, and relations openly retrievable to its owner in a structured, standardized manner. And maybe an open source license can enforce that kind of behavior in apptone operators.

  6. I don’t want to spam the comments section but I think I have explained very well with the following four posts (albeit a bit disjointed in the presentation) about the importance of open source in the SaaS world, in spite of arguments made by people like you, Tim O’ Reily, etc.

  7. whoopie

    care for open source is also care for data portability – in the end the key issue is your freedom. if all you care about is app-tone, in the end you will end up in the same situation as with closed-source software – you will be beholden to a single vendor. but wait, its worse, in the app-tone world, they have your data too. at least in the “windows” model you could conceivably reverse engineer a file format and read the your own files from your own disk. how will this work in the app-tone world? it won’t. you will be completely beholden to your vendor and its url.

  8. Derek Fields

    As an individual, I completely agree with this. I make extensive use of Google’s various applications as well as a few others. Long ago, I started forwarding all of the mail from my private domain, which functions like a brand name, to an “invisible” gmail account. I don’t have the time or the inclination to run any of this stuff on my own server.

    But I think that you need to distinguish between applications that are heavily user-oriented such as spreadsheets, text, CRM, calendars, email and those applications that operate a business but whose value is largely in the processing algorithms and data and require highly specialized skills to operate. A banking system, for example, that manages large scale transactions is not a good candidate for SaaS computing.

    Maybe this is obvious, but as an employee of a software company that makes this kind of database-intensive, minimal-user system, I keep wondering whether the license-and-install model will eventually move to SaaS. While we see some small customers moving in the hosted direction, very few are comfortable or willing to operate their company on someone else’s server farm.

  9. Pretty sure MS has yahoo beat in large scale computing. They’ve been innovating in the space (dryad , etc) , while yahoo has been mainly a consumer of OSS implementations(hadoop) that were based off of Google’s innovations in the years prior.