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The role software plays in e-commerce is constantly changing as the Internet, and the methods of doing business over it, evolve. This evolution began with application service providers and moved to software as a service. According to IT industry leaders, the next stage is the offering of software as Web services. ASPs An ASP usually (1) owns and operates the software application, as well as owning, operating, and maintaining the servers that run it; (2) employs the staff needed to do (1); (3) makes the application available via an Internet browser; and (4) bills either per use, or on a monthly/yearly fee basis. The ASP is a third-party entity that deploys, hosts and manages access to a packaged application and delivers software-based services and solutions to customers across a wide area network from a central data center. Applications are delivered over networks on a subscription or rental basis. In essence, engaging an ASP is a way for a company to outsource some or almost all aspects of its information technology needs. ASPs deliver e-commerce Web sites, e-mail, accounting and other applications. The benefits of ASPs include low cost to access; fixed cost to host; short set up time; and remote access. Using an ASP eliminates the need for outsourcing to an entire IT staff for setup, training, maintenance, upgrades and so on; for support network of specialized employees; and for specialized infrastructure previously needed to handle software applications. The above benefits demonstrate how small businesses can now afford software. And large businesses benefit by being able to access smaller customers more affordably as well. The increasing complexity of software does not present as much of a problem for businesses that use an ASP because the ASPs are remotely upgrading and debugging, and applications automatically update to these changes. The Internet Business Service Provider — dubbed the second wave of ASPs — is an application service provider that provides and hosts applications exclusively for business functions. IBSPs were developed exclusively for use on the Web, not from independent software vendors who develop software for adaptation to the Web. COLLABORATION B2B collaborative networks combine business-to-business platform technology with that provided by an ASP. Some B2B models initially failed, especially with the dot-com crash. Businesses found that going to the virtual marketplace to do business with vendors they did not know made people nervous. The foundation of business relationships was missing. Now, there is more success with “collaborative networks,” as opposed to “marketplaces,” where businesses are working within a pre-existing buy-sell relationship with other businesses with which they are already comfortable. With this model, businesses not only share an application or a service, but documents and software — collaboratively, with each contributing and incorporating changes. SOFTWARE AS A SERVICE This change in business models over the last couple of years and the exponential rate of technology development has led to the implementation of “Software as a Service,” which is often dubbed “The End of Software as We Know it.” SaaS is, simply put, delivery of software over the Internet. Software is undergoing a shift from shrink-wrapped, stand-alone applications on CD-ROMs, to SaaS — a Web-based service that is effectively rented, or to which we subscribe. This is the ultimate version of outsourcing. Businesses have long outsourced payroll, distribution and manufacturing. The dot-com boom transported the outsourcing concept to the Web in the explosive emergence of ASPs. With SaaS, software makers themselves are delivering and supporting products and services through the Web. The demands on software will increase exponentially. The high rate of evolution will only be met and managed by remote delivery management. As an example, INTUIT TurboTax was offered over the Web in 1998 and is considered the SaaS “poster child.” INTUIT has been delivering this application software directly to computers ever since. The concept behind the SaaS movement is that since software use will only increase, and technology is constantly improving, software companies will deliver, install, maintain and upgrade software via the Internet instead of mailing out shrink-wrapped software. With this new SaaS movement, the software-industry giants that are otherwise enemies have met to develop and advance technical standards to govern future software design. And major companies are changing their business models. Consider the case of HP/Oracle/SUN and their departure from selling licensed software on CD-ROMs to renting software and services over the Internet. There is more pricing flexibility with SaaS since customers can effectively pick and choose what parts of the application they need and can use many different applications as resources. SaaS allows for total customization by ordering only the parts of applications that fit — � l� carte — and allows small businesses to use applications that, until now, only larger companies could afford (like customer relations management software). This aspect is good for the distributors as well, who can now expand their client base to include smaller and more remote businesses. Another huge benefit is the potential cost savings. The distribution itself — digital instead of packaged, shrink-wrapped and mailed — can save a tremendous amount of money. Contracting with an unseasoned ASP offering SaaS means taking the risk of the ASP going out of business. (With an ASP, your data is on someone else’s server. If the ASP go away, so does your data.) On the ASP end, this sort of risk, especially in such a young industry, creates the big challenge of securing and maintaining customer confidence. Customers have to learn to choose ASPs wisely — the most likely to succeed are those that streamline what they offer, rather than trying to be all things to all clients. The availability of very quick upgrades leads to the risk that service providers will send half-baked code out the door, because if there is a problem, it is easy to fix it later. Unfortunately, this can create problems, including the fact that easier, quicker upgrades mean more upgrades of which to keep track and keep improving. The easy access to information as it flows over the Internet, and the establishment of certain technology standards throughout the industry to allow for “seamless” architecture, potentially blurs the line between what is proprietary and what is not. The concern is primarily patent and copyright infringement Extending patents to SaaS business models could have a chilling effect on the entire SaaS industry. There is also the danger that this teamwork at play among the software giants as they standardize the industry could disintegrate, leaving an industry that is too young to survive on its own. But the great promise of software as a service is that software will no longer offer just one solution, but many applications. Up until now, the software code has been written based on the client device. With SaaS, businesses can just pluck out what they need and have access to it no matter what their device. Those writing the code will not have to spend as much time making tweaks and exceptions in consideration of different computer platforms — instead, the code will be more universal. SEAMLESS IT UNIVERSE The difference between previous ASP models and SaaS is that software is being offered as a service without any third party. With ASP, the ASP is actually the host who made the software available on the Internet or network. The ASP depended on software that was created as an independent application and then just managed by the ASP and made available on the Internet. Software as a service evolved to being software specifically created for use on the Internet or a network, or re-engineered from a software package to Web delivery. What makes the SaaS model different is its mode of delivery, and its development — it is meant solely for network access. This seems to eliminate any and all problems with software distribution, electronic or otherwise, because there is nothing to distribute. Web services is the next level. It is still fundamentally SaaS, but it is created and developed with the use of common Internet standards so that it can communicate seamlessly with other applications. So it doesn’t matter in what software language an application is written — they can still communicate with each other. At its core, it is a business relationship created between two or more software applications or organizations operating in one of three roles: as a service provider; a service requestor; or a service registry. The “Big Five” of the software industry — IBM, Microsoft, Oracle, Sun and Hewlett-Packard — are working together to try to establish the standards that will help Web services become a more universal reality. As it does evolve, the way software will be sold and developed will change drastically. Selling software as a packaged good will become less important; subscription services, leasing, one-time rentals and similar payment arrangements will become more common. DOWNSIDE TO WEB SERVICES Linked networks of applications affect everyone, so if someone on one end makes a change that someone on the other end does not want, it causes problems. It will still be difficult to develop software because the same problems will exist, especially when trying to define user requirements in an ever-changing industry. How will developers keep track of what users really need the software to do? Although not impossible, universality will make it increasingly difficult. Also, there are limits to networkability: Bandwidth is still costly, not universal; security will be an increasing issue; network administration can become troublesome; and the cost of setting up this infrastructure can still be prohibitive to small businesses that hope to benefit from universal use and linkage. Reliability of the network can also be affected — lower budgets mean less investment in the infrastructure. Obviously, this is an evolving concept, and we are in for many changes and developments as we go forward. ALTERNATIVE DISTRIBUTION METHODS Electronic software distribution enables SaaS, providing instant delivery and installation. It solves distribution problems and passes shipping savings on to consumers. It also provides easier sales tracking, which can help improve marketing strategies. ESD saves on physical shelf space, but also, eventually, it will turn in more profits for publishers, because you can fit more at once into the virtual retail space. Some of the challenges for ESD’s universal acceptance include: � long download times; � concerns about security; � concerns about piracy; and � concerns about rights management and protection. The primary priority of the software developers is to put consumers at ease and ensure their confidence in this method of distribution. Sophisticated ESD can enable encryption and code embedding for protection. The goal is to make the software easier to purchase than to steal. OPEN SOURCE Open-source is the opposite of closed-source software, where only a few people have access to the code, and all people who want to use the software have sort of blind access to it. Open source means that everyone has access to the code and can make changes and improvements. Open source is lower cost, but the accessibility to its code means it is undergoing constant debugging, expansion and improvement. This means that it can be optimized and fine-tuned to user needs, and then its new and improved versions have free redistribution, and everyone is happy. In fact, most of the Internet is run by open source, so most of us have used it whether we realize it or not. Linux is the most popular open-source operating system. You start with the Linux “Kernel,” which is the basic operating system that has everything you want an operating system to have in order to effectively and efficiently communicate between the hardware and the software you are using. There are many different distributions, adaptations and improvements of the Linux Kernel. The best known is Red Hat. Other distributors include SuSE, Mandrake, Caldera, Debian, Slackware and TurboLinux. Other open-source solutions are in a line called BSD including FreeBSD, OpenBSD and NetBSD. All have their plusses and minuses. EVOLVING MARKET As lawyers, the real challenge is to determine our role in attempting to protect intellectual property in the digital world, where the business model in question has become a moving target. How do we keep things proprietary and protect trade secrets when everyone is contributing? Does society benefit from open source, or is it contrary to the foundation of intellectual property law as enumerated in the Constitution? Is open source best for commerce? Or will it destroy the innovative spirit? Some believe that the shift to Web services is a requirement of globalized e-commerce while others remain skeptical. Most would agree, however, that we have come so far, yet we really have only just begun. The author is a shareholder at MillerMitchell of Princeton, N.J.

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