Ed Sims writes in Delivering software as a service:
What I have learned and what Adam points out is that it comes down to the customer experience, making a product easier to use for a customer and evolving it as quickly as possible to meet the customer’s needs.
Software delivered as a service enables that and packaged software does not. In the time it takes Microsoft to deliver an application (went from 1 year to 5 years), a company delivering software as a service can deliver 60 iterations of its product.
Ed goes on to list a number of important advantages of the ASP business model in his full post. Seems to me there are at least two key issues, however, with the ASP approach.
First, the question of revenue ramp. No question that building sustaining recurring revenue streams results in highly valued businesses at the end. But it requires patient investors who are comfortable with the slope of the revenue curve vs. more traditional product companies.
Second, the target environment has to presume broadband to deliver a decent consumer experiencce. That’s increasingly less of an issue — but has to be thought out.
It’s also important to note that some companies can do both. Intuit’s Quickbooks on the Web comes to mind as a great example of taking packaged software and delivering it in a very high quality way as an ASP. (By the way, the team at Intuit is doing a great job with their Official Quickbooks Online Weblog!) What Sixapart is doing with Movable Type and TypePad is another.