SaaS and Open Source Software Quiz

Software in Flux

• Open source software (OSS) is free and modifiable code
• Marginal costs for software are zero
• Software business is very attractive
• Microsoft Bill Gates and Oracle Larry Ellison are among the wealthiest people

Learning Objectives 15.1

• Low marginal costs, network effects, and switching costs have created a major industry
• The software industry is changing due to open source software, cloud computing, and software as a service

Introduction

• Marginal costs are the costs associated with each additional unit produced
• Software products have zero marginal costs
• The software business is highly attractive
• Key figures in software include Microsoft Bill Gates and Oracle Larry Ellison

Introduction

• Cloud computing replaces computing with services provided over the internet
• Software as a service (SaaS) is a cloud computing form where firms subscribe to third-party software delivered online
• Virtualization technology makes one computer behave like many separate computers, consolidating resources and improving efficiency

Learning Objectives 15.2

• Define open source software and its differences from conventional software
• Provide examples of open source software and how companies can use it

Open Source

• Linux is an open-source operating system
• Source code for open source products is publicly shared
• Linux powers various devices from cell phones to supercomputers
• Anyone can modify and redistribute open-source code
• Conventional software firms often keep their source code secret

Turn on the LAMP

• LAMP is an acronym for Linux, Apache, MySQL, and PHP (Perl/Python)
• LAMP powers many websites, from Facebook to YouTube

Learning Objectives 15.3

• Understand the main reasons why firms choose to use open-source software
• Appreciate the benefits of open-source software on industry and government

Why Open Source?

• Cost: Free code is a major motivator for switching to OSS, as seen in Barclays' 90% cost reduction
• Reliability: Multiple contributors improve code quality
• Security: OSS vulnerabilities are found more quickly due to multiple review
• Scalability: Enables firms to scale from startups to larger companies without rewriting code
• Agility/Time to Market: Enables faster product development and market entry

When the Open Source Army Doesn't Show Up: Lessons from Heartbleed

• Many open-source projects are well-maintained by paid professionals
• The Heartbleed bug in OpenSSL in 2014 exposed vulnerabilities in some two-thirds of websites, highlighting the importance of security reviews

When the Open Source Army Doesn't Show Up (Cont'd)

• Linux Foundation established the Core Infrastructure Initiative for projects critical to core computing functions.
• Managers should audit software despite widespread use, because use does not guarantee quality

Learning Objectives 15.4

• Recognize that commercial products often have open-source equivalents
• Provide a list of commercial products as well as open-source competitors

Examples of Open Source Software

• WordPress powers a third of websites
• Firefox is a web browser competing with Chrome
• LibreOffice is similar to Microsoft Office
• Gimp is a graphic tool similar to Photoshop
• Magento is an e-commerce software
• TensorFlow is open source machine learning software
• Alfresco is a competitor to Microsoft Sharepoint
• Marketcetera competes with FlexTrade and Portware
• Zimbra is an email software competing with Outlook
• MySQL, Ingres, and PostgreSQL are relational database software
• MongoDB, HBase, and Cassandra are nonrelational database software
• SugarCRM competes with Salesforce
• Docker tools for "containerization"
• Asterisk an open source implementation for PBX systems
• Git-version control software
• Free BSD and OpenSolaris

Learning Objectives 15.5

• Understand the disproportionate impact of OSS on the IT market
• Understand how vendors monetize open-source offerings

Why Give It Away? The Business of Open Source

• Open source is a $60 billion industry with a significant impact on the trillion-dollar IT market, particularly by lowering computing costs
• Open-source businesses often are worth more than $1 billion, and the first one to reach significant market cap is Red Hat
• Oracle provides Linux free, making money more from services than hardware

Why Give It Away? (Cont'd)

• Vendors primarily generate revenue through support services and consulting, such as Red Hat
• Pre-Linux days saw incompatibility between operating systems, while the ubiquitous nature of Linux today leads to a unified large market

Linux on the Desktop?

• Linux is common in mobile devices and enterprise solutions, but less prevalent on personal computers
• Installation complexities combined with total cost of ownership factors discourage widespread desktop use

Legal Risks and Open Source Software

• Certain open-source products are hard to use, especially without support contracts
• Firms can face legal risks when distributing open-source code
• Open-source license agreements vary significantly and can lead to legal complications if misused

Learning Objectives 15.6

• Understanding the definition of cloud computing
• Identifying the major cloud categories: SaaS, PaaS, and IaaS

Defining Cloud Computing

• Two primary cloud computing categories:
  • SaaS: Firms subscribe to third-party software online
  • Utility computing: firms run their software on internet servers of their provider
  • PaaS: Firm develops tools including programming languages, databases and OS to run on their chosen cloud
  • IaaS: Barebones services are offered as an alternative to purchasing hardware

Defining Cloud Computing (Cont'd)

• Private clouds are pools of resources specifically for one organization
• Cloud computing usage is rapidly changing industries, with implications for the future of hardware and software business models, and the skill sets valued by employers

Learning Objectives 15.7

• Understanding how SaaS dramatically lowers costs in information systems
• Understanding how SaaS vendors earn money
• Identifying benefits SaaS provides business
• Identifying benefits SaaS provides vendors

Software in the Cloud: Why Buy When You Can Rent?

• SaaS products reduce many costs associated with software licenses, personnel and maintenance associated with physical servers.
• SaaS firms earn revenue primarily from usage-based pricing models similar to monthly subscriptions, and from advertising.
• SaaS is a rapidly growing portion of the IT market

Benefits of SaaS

• SaaS reduces costs related to software, hardware and personnel
• SaaS offers faster deployment
• SaaS offers variable costs
• SaaS mitigates financial risks
• SaaS systems are often scalable
• SaaS generally provides high-quality service

Benefits of SaaS (Cont'd)

• SaaS allows for remote access and availability
• SaaS provider feedback loops and ability to quickly deploy updates
• SaaS generally has lower distribution costs than physical software.
• SaaS platforms reduce the incidence of software piracy

Learning Objectives 15.8

• Understanding the risks associated with SaaS usage

SaaS: Not Without Risks

• Dependence on single vendors
• Viability of partner firms
• Migrating to new versions
• Reliance on network connections

SaaS: Not Without Risks (Cont'd)

• Remote-access vulnerabilities
• Contractual and legal issues
• Limited customization and integration
• Costs of homegrown alternatives
• Less sophisticated user interface
• Risks of unauthorized access and use through ease of adoption

Learning Objectives 15.9

• Distinguishing between SaaS and hardware clouds
• Identifying firms and uses of hardware clouds
• Understanding cloud computing, cloudbursting, and black swan events
• Recognizing the challenges and economics involved in shifting to cloud computing

Understanding Cloud Computing Models

• Some firms develop custom software but want others to support and maintain the service (clouds)
• Firms pay for storage, processing and communication costs
• Cloud vendors host software
• Google, Salesforce, and Microsoft offer cloud-based resources

Understanding Cloud Computing Models (Cont'd)

• Platform-as-a-service (PaaS) offers one complete platform (OS, databases, and tools) for users
• Infrastructure-as-a-service (IaaS) providers run the hardware and handle storage, networking, and offer more control to the user

Figure 15.4: Estimated Monthly Costs to Run a Website

• Estimated monthly costs of running a website for different cloud providers are compared to a company-owned service for 50 million page views

Clouds in Action

• Cloudbursting: Using cloud computing to increase capacity during peak demand
• Black swans: Unpredictable events making scalable resources crucial

Challenges Remain

• Installing complex systems on third-party hardware presents challenges
• Financial analysis is essential before cloud adoption, as is thorough system maintenance planning
• Unlimited data storage in the cloud needs careful consideration
• Firms should approach cloud cautiously, especially regarding critical systems
• Vendor failure can lead to significant problems

Learning Objectives 15.10

• Understanding cloud computing's impact across industries
• Effects of cloud computing on hardware sales and service shift
• Influence of cloud computing on innovation and job skills
• Cloud computing's role in lowering entry barriers
• Importance, size, and metrics of server farms

Clouds and Tech Industry Impact

• Companies invested heavily in physical servers for computing power
• Cloud computing impacts the margin structure for many in the computing industry
• Server farms are large networks of servers coordinating use
• Cloud computing often accelerates innovation

So What's It Take to Run This Thing?

• The Pacific Northwest is ideal for massive cloud computing data installations
• Cheap land, low-cost power, and high-speed fiber optic are key considerations
• Server farm modules from cloud providers are readily available

Figure 15.5: Server Farms

• Microsoft's data center in Holland illustrates the size of server farms
• These facilities are enormous and expensive, often exceeding multiple billions of Euros

Learning Objectives 15.11

• Understanding virtualization software and its impact on cloud computing.
• Benefits for companies using virtualization

Virtualization

• Virtualization software allows a single or grouped computers with shared OS functionality
• Use of virtualization reduces hardware costs, creates private clouds and reduces environmental impact.
• Software can be run on various platforms
• Containers allow shared operating systems, saving resources and accelerating execution.
• Virtual desktops allow for remote access, upgrading and scaling

Learning Objectives 15.12

• Understanding the benefits and challenges of app stores
• How app stores are changing software business models

Apps and App Stores

• App stores lower the costs of distributing and maintaining software
• Apps are rich user interfaces and tightly integrate with device OS
• Huge companies often rely on smartphone apps for customer interaction.
• App stores can cause consumers to stay within one walled ecosystem, increasing their costs to switch.

Learning Objectives 15.13

• Understanding the decision options for companies in choosing software solutions
• Determining whether to make, buy or rent software

Make, Buy, or Rent

• Key considerations for companies acquiring software solutions, based on competing advantages through unique processes, procedures or technologies; ensuring security and reliability of the systems with suitable legal cover; financial issues (costs, time); potential vendor issues based on reputation and reliability.

Make, Buy, or Rent (Cont'd)

• Companies should consider factors such as specific legal and compliance requirements related to the acquisition of the solutions; assessing the in-house skills, expertise and labor required for acquisition, development or deployment of the solutions; the cost-effectiveness of each option. Finally, the robustness and reliability of the vendor and the potential implications of vendor failures.