April 24, 2003

Selling software as a service

"In the past few weeks I have had a number of conversations with my friends in the venture capital community that have convinced me that consumers really want to purchase software as a service and not a shrink-wrapped CD offering."

So says US Venture Capital executive Charles Hudson in his web log

He goes on to add:

"I am fairly convinced that consumers do not want to manage complex applications or worry about the impact that a new application will have on his/her desktop computing environment. In a world where big businesses seem to have had their fill of enterprise software, enterprising entrepreneurs might want to take a hard look at services that customers would be willing to pay money to use."

Andrew Anker of August Capital adds in response:

"The services or ASP model is unfairly maligned because of a number of unsuccessful attempts at it during the late 90's. Those failures had more to do with the product than the model. I think the most important point Charles makes is that we don't even tend to realize that many of the services we use today (PayPal, Yahoo) are really just hosted software."

While these VCs are obviously talking about the US context, I believe that "selling software as a service" is something that is highly relevant--if not more relevant--in India.

Companies attempting to sell shrink-wrapped software in Indian constantly crib about how the Indian market is "very price sensitive". Add to that the problem of rampant piracy. Toss in the fact that the availability of affordable "always on" connectivity (through DSL/Cable) is increasing by the month. And my conclusion is that "pay per use" is going to end up as the best model to sell software in this country.

In selling the Internet to small and medium businesses, companies like ccavenue.com (payment gateway services), Net4India (ISP and hosting services) have already shown that the winning formula in India is to go for volumes with a "sweet spot" pricing. I believe it is a matter of time that this happens in software as well. What is missing so far are the "killer apps"--which address India-specific problems.