Onwards and appwards

Peter Griffin

Software developers are moving towards cloud-based solutions, turning software into apps that no longer reside on the desktop. ‘Software as a service’ is where the future of IT lies, says Peter Griffin

When technology entrepreneur Rod Drury said he planned to build the “Nokia of the South Pacific”, many of his fellow New Zealanders applauded his ambition, but expected him to fail. 

They didn’t count on the ‘software as a service’ (SaaS) revolution, which is transforming business, as the tools that keep companies running migrate to the cloud. In Drury’s case, it wasn’t literally the mobile phone he had in mind – but accounting software. Frustrated with the clunky desktop software packages dominating the market, he developed Xero: an online, subscription-based service that does for accounting what Gmail does for email – makes it simple, more productive and accessible from any device, anywhere in the world. 

Last month, Xero became the second most valuable company listed on the New Zealand stock exchange with a market cap of around US$5 billion – bypassing electricity companies, banks and the national carrier Air New Zealand. Xero joins a field of SaaS players that includes Demandware, Workday, ServiceNow, Rally Software and Marketo – all publicly listed companies with multi-billion dollar valuations that have emerged in the space of a few years. 

Along with established players such as Oracle, Intuit, SAP and Salesforce.com, which are already delivering their applications from the cloud, these SaaS companies represent a global market for apps that IT analyst group IDG estimates will reach $67 billion by 2016, up from $24 billion in 2011. The power of detaching productivity software from the office computer and making it available as an ‘app’ that the workforce can also use on a tablet or smartphone – in much the same way as the apps consumers enjoy – has fuelled a wave of investor interest in new enterprise software start-ups. Xero’s soaring share value is not driven by demand for its stock from Kiwi mum and dad investors, but from the likes of Silicon Valley investor Peter Thiel who co-founded Paypal, was an early investor in Facebook and recently led a $150 million investment in Xero. In the digital economy – and SaaS providers are its purest form – apps have global potential and can disrupt entire industries. That makes them incredibly valuable. 

Companies making enterprise apps tend to reach profitability more quickly than those targeting consumers, because businesses are more willing to sign up to a monthly subscription. Some have massive growth potential as they can easily be adapted for sale all over the world – Xero, a New Zealand minnow, is taking on US accounting software giant Intuit in the US market after adapting its software for US currency, and accounting and banking laws. 

That’s not to say that ‘freemium’ services targeting everyday internet users aren’t thriving in the cloud too. Evernote, Dropbox and Box.net attract millions of users seeking to store their files in the cloud for convenient access and Spotify has changed the face of music, with its internet streaming service that has notched up 24 million paying customers worldwide. 

Google and Microsoft have tens of millions of customers using their cloud storage services, while e-commerce operator Amazon has become the biggest data-warehousing provider in the world, as it leases out the capacity that powers other companies’ cloud computing services. After a shaky public listing last year, Facebook’s value has jumped 80 per cent, giving the social media network a worth of nearly $120 billion. Twitter, the micro-blogging platform, listed on the New York Stock Exchange in November in a spectacular flotation that valued it at around $25 billion. 

Twitter and Xero have never turned a profit. Instead, investors see huge future potential in these companies as they harness the power to change consumer and business behaviour, respectively. 

Common to the success of all of these cloud players is the smartphone. Market analyst IDC reports that smartphone shipments will pass one billion units this year for the first time. Google’s Android software will accompany most of those phones, though Apple’s iPhone will claim a sizeable chunk of sales, driven by the success of the iPhone 5S, which includes a fingerprint scanner that lets you unlock your phone without entering a passcode. 

The smartphone is the primary means of accessing the internet in most developed nations and the only computer available for millions of users in developing countries. The processing power and storage capacity of smartphones priced as low as $100, or less, makes them highly functional communication, productivity and entertainment devices. If software makers are ‘appifying’ their products for the cloud, they are mobilising them too, mindful of the fact that in their work and personal lives mobile users are reaching for the smartphone first. 

This year saw the roll-out of 4G mobile networks around the world, allowing broadband speeds that surpass those of fixed-line connections. Augmented-reality services will extend the mobile into new terrain, with Google Glass building many of the aspects of a smartphone into a pair of specs that provide a heads-up display featuring social media updates, maps and a digital overlay on the world around the user. 

The last piece in the mobile puzzle is a universal standard for m-commerce, allowing that powerful smartphone to serve also as a digital wallet, banishing the physical credit card and cash for good. Credit card giants Visa, MasterCard and American Express face challenges from Google Wallet, Paypal and m-commerce start-ups like Square as they seek to become the payment method of choice on the smartphone. 

Using mobiles to make payments in brick-and-mortar stores will increasingly rely on a technology called near field communication (NFC), a wireless chip built into new smartphones that communicates with terminals in stores to make secure payments from a digital wallet on the phone. 

Many smartphone users won’t even know they have an NFC chip in their phone, but Samsung, LG and HTC are building the chips into new phones. Apple, however, remains a hold-out, more intent on offering payment solutions delivered entirely over the mobile internet, rather than a wireless technology it sees as adding cost to the price of phones and reducing battery life. 

Whoever wins the battle for the digital wallet controls the increasingly pervasive relationship between the app makers and e-commerce vendors – and the mobile phone user will be stumping up for their services. As such the mobile payment space will be the one to watch in 2014. 


About the author:

Peter Griffin is a New Zealand-based science and technology writer


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