Korva is a scroll of the internet’s best ideas.
Same ideas, sometimes 100 times bigger
Delivery and economics changed
Application service providers, or ASPs, was the label in the late 1990s, and the new model improved two things. Delivery changed first: instead of shipping CDs for customers to install, the vendor hosted, ran, maintained, and upgraded the software. The economics changed too. Old software sold once and then charged about 18 percent a year for maintenance and upgrades, while the new model charged recurring fees.
What stayed the same
Plenty stayed the same. Sales were still big-ticket enterprise deals, and each customer still got its own instance, so the software was not multi-tenant. Behind the scenes, the vendor stacked servers, installed the software, and configured an instance on the customer's behalf. Across thousands of customers, that made automation worth building.
The founders often knew the category cold. The people behind Peregrine went on to found ServiceNow. They knew what to build and which features mattered, and the software experience was not that great. What they added was the better delivery and economic model.
The lopsided results
The results were lopsided. Siebel ended in an acquisition of around 3 billion dollars, and Salesforce has grown about two orders of magnitude beyond that. PeopleSoft to Workday looks like roughly 5 times, and Peregrine to ServiceNow perhaps 150 times. Some of that is market expansion, and some of it is the better delivery and economic model.
Why did customers pay yearly maintenance on old software?
Traditional licenses gave a customer the software outright, while patches, upgrades, and support came through a separate annual contract. Vendors liked the arrangement because the revenue recurred with little extra selling. Customers who stopped paying lost access to new releases and help. For many enterprise vendors, maintenance fees became a large share of profit.
Why is multi-tenant software cheaper to run?
In a multi-tenant system, many customers share one running copy of the software, with their data kept separate by the application itself. A single upgrade then covers everyone, and adding a customer takes little more than creating an account. Single-tenant software needs a separate installation and database for each customer. Salesforce, founded in 1999, was built as multi-tenant from the start.
What made it easy to launch servers automatically?
Virtualization let one physical machine act as many separate servers that software could create on demand. Amazon Web Services launched in 2006 with storage and computing offered through an API. Scripts could then provision servers, install the software, and configure an instance without a technician on site. That turned a manual setup job into something a vendor could run for thousands of customers.
More from Invest Like the Best with Patrick O'Shaughnessy
