Understanding the software-subscription model

Know the differences between hosting, software as a service, and application service provider offerings.

Manufacturing Business Technology - January 2006

The fact that everyone is familiar with the concept of a magazine subscription isn't necessarily helpful when it's software that's being subscribed to, argues Nigel Montgomery, a director with Boston-based AMR Research. "What isn't always clear is exactly what you're getting in exchange for the subscription that you pay," he notes.

Although terms like hosting, software as a service, and application service provider (ASP) all involve a subscription, in each case the subscription buys something different, points out Montgomery. "The real issue is who owns what, and who has rights to it if things go wrong," he says.

Hosting, argues Montgomery, is essentially a hardware play. The manufacturer making use of hosting owns rights to the software that is being hosted: the subscription is essentially a payment to a third party to manage the hardware and infrastructure aspect of the installation.

In the ASP model, on the other hand, the ASP vendor typically owns the software. In this case, what the subscription is buying is the right to access it for the period of the subscription on either a pure "time" basis, or on a usage basis—so much per transaction, for example.

Software as a service moves the focus away from hardware and software, and onto the provision of the underlying service itself. Under this model, a user typically needs nothing more than a Web browser to access the application. "Think of it like FedEx: the provision of a fixed service for a fixed price," urges Steve Savignano, CEO of procurement software vendor Ketera Technologies, which sees itself in the software-as-a-service space.

"FedEx doesn't expose its infrastructure to its customers, and you don't get involved in 'buying' portions of airplanes or vehicles. You pay them to deliver your package, and that's what they do. True 'on demand' software is simply providing the service—period," he says.