Do you remember a time when most meals were the sit-down, full-service, dessert-included kind? Even if all you wanted was a cup of soup or a simple salad, you were offered the blue plate special with everything at one price. Then the culinary folks came up with small plates, a la carte items, tastings, pairing menus, buffets, and the like. Whew! Choices—who knew!

So is it any surprise that high-tech companies have stopped serving everything one way with a side of structured licensing? Where once companies had to select /install/customize/upgrade, now we're allowed to use smaller-scale online services that do one thing really well, without integration and without customization.

It's a different era of software delivery models. Proof: A few weeks ago IBM started charging for software based on "processor value units." A recent article by Stephen Shankland of CNET announced the change on 7/25/06, calling it "one of vocabulary," but it's becoming clear that the utility pricing model I've written about for the last two years is about to become commonplace. In the same article, Jeff Tieszen, an IBM spokesperson, said that Big Blue is moving toward a pay-per-use (read: utility pricing) model.

What does this mean? Anything? Nothing? Probably a little of both.

To take a look at it, let's look at the new name of this delivery model: SaaS (software as a service) in depth.

SaaS: What Is It?

I know a lot about SaaS. So do you, but you may not know it by that name. It is typically...

  • Software that's viral (anyone can download it and try it out)

  • Generates value for an end user (so they'll have an incentive to install it)

  • Doesn't require any data entry or training (so users can work with it instantly)

  • Generates immediate value ("value first, pay later")

Anything strike you when you see that list? Do you think of, Skype, IM, QuickBooks Online, Six Apart's Movable Type, Google Desktop? These are all SaaS solutions. They range from simple to sophisticated, but they all have in common scalable offerings, hosted within firewalls, and they're taking over traditional software release cycles.

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Nilofer Merchant is the CEO of Rubicon Consulting (, a strategy and marketing consultancy based in Silicon Valley that solves complex business challenges for high-tech companies.