Information Systems: A Manager’s Guide to Harnessing Technology, version 2.0 John Gallaugher © 2013, published by Flat World Knowledge 11-1 Published by: Flat World Knowledge, Inc. © 2013 by Flat World Knowledge, Inc. All rights reserved. Your use of this work is subject to the License Agreement available here http://www.flatworldknowledge.com/legal. No part of this work may be used, modified, or reproduced in any form or by any means except as expressly permitted under the License Agreement. © 2013, published by Flat World Knowledge 11-2 Chapter 11 Software in Flux: Partly Cloudy and Sometimes Free © 2013, published by Flat World Knowledge 11-3 Learning Objectives • Understand how low marginal costs, network effects, and switching costs have combined to help create a huge and important industry • Recognize that the software industry is undergoing significant and broadly impactful change brought about by several increasingly adopted technologies including open source software, cloud computing, and software as a service © 2013, published by Flat World Knowledge 11-4 Software Industry • Marginal cost: Cost of producing one more unit of a product – Is effectively zero to produce an additional copy of a software product • Network effects and switching cost can offer a degree of customer preference and lock in • Open source software (OSS): Software that is free and where anyone can look at and potentially modify the code © 2013, published by Flat World Knowledge 11-5 Software Industry • Cloud computing: Replacing computing with services provided over the Internet – Software as a service (SaaS): Firm subscribes to a third-party software and receives a service that is delivered online • Virtualization: Technology that can make a single computer behave like many separate computers – Helps consolidate computing resources and creates additional savings and efficiencies © 2013, published by Flat World Knowledge 11-6 Learning Objectives • Define open source software and understand how it differs from conventional offerings • Provide examples of open source software and how firms might leverage this technology © 2013, published by Flat World Knowledge 11-7 Open Source Software • Linux: Open source software operating system • Source code for OSS products - Openly shared – Can be changed and redistributed by anyone • In stark contrast to the practice of conventional software firms who: – Treat their intellectual property as closely guarded secrets – Almost never provide the source code for their commercial products © 2013, published by Flat World Knowledge 11-8 Open Source Software • Seen as a threat by some firms undermining their economic model • LAMP: Acronym for Linux, Apache Web server software, MySQL database, and Perl/Python/PHP – Powers many of the sites visited each day from Facebook to YouTube © 2013, published by Flat World Knowledge 11-9 Learning Objectives • Know the primary reasons firms choose to use OSS • Understand how OSS can beneficially impact industry and government © 2013, published by Flat World Knowledge 11-10 Why Open Source? • Cost • Reliability • Security – Security focused: Technology products that contain particularly strong security features • Scalability: Ability to either handle increasing workloads or to be easily expanded to manage workload increases • Agility and time to market © 2013, published by Flat World Knowledge 11-11 Learning Objectives • Recognize that just about every type of commercial product has an open source equivalent • Be able to list commercial products and their open source competitors © 2013, published by Flat World Knowledge 11-12 Examples of Open Source Software • • • • • • • Firefox OpenOffice Gimp Alfresco Marketcetera Zimbra MySQL, Ingres, and PostgreSQL • • • • HBase and Cassandra SugarCRM Asterix Free BSD and Sun’s OpenSolaris © 2013, published by Flat World Knowledge 11-13 Learning Objectives • Understand the disproportional impact OSS has on the IT market • Understand how vendors make money on open source • Know what SQL and MySQL are © 2013, published by Flat World Knowledge 11-14 Impact of OSS on the IT Market • Lowers the cost of computing and makes computing options accessible to smaller firms • Reliable, secure, and lowers computing costs for all users • Diverts funds that can be used for other competitive initiatives and encouraging innovation © 2013, published by Flat World Knowledge 11-15 Business of Open Source • Vendors make money on OSS by selling support and consulting services • Industry’s evolution (standards competition) – Pre-Linux days - Almost every major hardware manufacturer made its own incompatible version of the Unix operating system • They had difficulty attracting third-party vendors to write application software – Now all major hardware firms run Linux resulting in a large, unified market attracting software developers © 2013, published by Flat World Knowledge 11-16 Linux on a Desktop • Linux is common on mobiles, consumer electronics, and on enterprise solutions, but not on desktop computers – It is not easy to install – This complexity can raise the total cost of ownership • Total cost of ownership (TCO): All costs associated with the design, development, testing, implementation, documentation, training and maintenance of a software system © 2013, published by Flat World Knowledge 11-17 MySQL • SQL stands for structured query language – Structured query language: Language for creating and manipulating databases • Dominant open source database software product • Adoption of the SQL standard eases some issues with migrating from commercial products to MySQL © 2013, published by Flat World Knowledge 11-18 Learning Objectives • Understand the concept of cloud computing • Identify the two major categories of cloud computing © 2013, published by Flat World Knowledge 11-19 Categories of Cloud Computing • Software as a service (SaaS) • Utility computing: Firm develops its own software and then runs it over the Internet on a service provider’s computers – Variants • Platform as a service (PaaS) • Infrastructure as a service (IaaS) © 2013, published by Flat World Knowledge 11-20 Cloud Computing • Private clouds: Pools of computing resources that reside inside an organization and that can be served up for specific tasks as need arrives • Evolution of cloud computing has huge implications across the industry – Financial future of hardware and software firms – Cost structure and innovativeness of adopting organizations – Skill sets likely to be most valued by employers © 2013, published by Flat World Knowledge 11-21 Learning Objectives • Know how firms using SaaS products can dramatically lower several costs associated with their information systems • Know how SaaS vendors earn their money • Be able to list the benefits to users that accrue from using SaaS • Be able to list the benefits to vendors from deploying SaaS © 2013, published by Flat World Knowledge 11-22 Earning Money Through SaaS • Money can be earned via a usage-based pricing model similar to a monthly subscription • Other SaaS firms: – Offer free services that are supported by advertising – Promote the sale of upgraded or premium versions for additional fees – Compete directly with the biggest names in software © 2013, published by Flat World Knowledge 11-23 Benefits of SaaS to Users • Lower costs and financial risk mitigation • Faster deployment times and variable operating expense • Scalable systems • Higher quality and service levels • Remote access and availability • Limits development to a single platform • Tighter feedback loop • Ability to instantly deploy bug fixes and product enhancements • Lower distribution costs • Greater accessibility • Reducing software piracy © 2013, published by Flat World Knowledge 11-24 Learning Objectives • Be able to list and appreciate the risks associated with SaaS © 2013, published by Flat World Knowledge 11-25 Risks Associated with SaaS • Dependence on a single vendor • Concern about the long-term viability of partner firms • Users may be forced to migrate to new versions – Possibly incurring unforeseen training costs and shifts in operating procedures • Reliance on a network connection which may be slower, less stable, and less secure © 2013, published by Flat World Knowledge 11-26 Risks Associated with SaaS • Data asset stored off-site may lead to security and legal concerns • Limited configuration, customization, and system integration options compared to packaged software or alternatives developed in-house • User interface of Web-based software is less sophisticated and lacks the richness of most desktop alternatives • Ease of adoption may lead to pockets of unauthorized IT being used throughout a firm © 2013, published by Flat World Knowledge 11-27 Learning Objectives • Distinguish between SaaS and hardware clouds • Provide examples of firms and uses of hardware clouds • Understand the concepts of cloud computing, cloudbursting, and black swan events • Understand the challenges and economics involved in shifting computing hardware to the cloud © 2013, published by Flat World Knowledge 11-28 Hardware Cloud • Makes computing resources such as hardware and storage, along with infrastructure management, available to a customer on an as-needed basis • Service provider charges for specific resource usage rather than a flat rate • In the past, similar efforts have been described as utility computing, hosting, or time sharing © 2013, published by Flat World Knowledge 11-29 Hardware Cloud • Cloud computing efforts focus on providing a virtual replacement for operational hardware like storage and backup solutions • SaaS provides the software and hardware to replace an internal information system – Hardware cloud means replacing computing hardware with a service provided by a third party online © 2013, published by Flat World Knowledge 11-30 Hardware Cloud • Salesforce.com offers Force.com – Includes several cloud-supporting tools to write applications specifically tailored for Web-based delivery • Google’s App Engine offers developers several tools – Including a database product called Big Table • Microsoft offers Windows Azure © 2013, published by Flat World Knowledge 11-31 Hardware Cloud • Platform as a service (PaaS): Cloud providers offer services that are used by customers to build their own applications on the provider’s infrastructure – Services - Hardware, operating system, tools, and hosting • Infrastructure as a service (IaaS): Cloud providers offer services that include running the remote hardware and networking – Client firms can choose the software used © 2013, published by Flat World Knowledge 11-32 Clouds in Action Cloudbursting • Use of cloud computing to provide excess capacity during periods of spiking demand • It is a scalability solution that is provided as an overflow service, kicking in as needed Black swans • Events that cannot be predicted but can cause an impact • Scalable computing resources can help a firm deal with spiking impact from Black swan events © 2013, published by Flat World Knowledge 11-33 Challenges Remain • Installing a complex set of systems on someone else’s hardware is very difficult • Firms considering cloud computing need to do a thorough financial analysis • Firms should enter the cloud cautiously, particularly where mission-critical systems are concerned © 2013, published by Flat World Knowledge 11-34 Learning Objectives • Understand how cloud computing’s impact across industries is proving to be broad and significant • Know the effects of cloud computing on high-end server sales and the influence on the trend shifting from hardware sales to service • Know the effects of cloud computing on innovation and the influence on the changes in the desired skills mix and job outlook for IS workers © 2013, published by Flat World Knowledge 11-35 Learning Objectives • Know that by lowering the cost to access powerful systems and software, cloud computing can decrease barriers to entry • Understand the importance, size, and metrics of server farms © 2013, published by Flat World Knowledge 11-36 Clouds and Tech Industry Impact • Shifting to cloud computing modifies the margin structure for many in the computing industry • Cloud computing can accelerate innovation – Changes the desired skills mix and job outlook for IS workers – Enables organizations to spend less on hardware infrastructure and reinvest in strategic efforts and innovation • Firms need to think about the strategic advantages that can be created © 2013, published by Flat World Knowledge 11-37 Server Farm • Massive network of computer servers running software to coordinate their collective use – Provide the infrastructure backbone to SaaS, hardware cloud efforts, and many large-scale Internet services – Require plenty of cheap land, low-cost power, ultrafast fiber-optic connections, and benefit from mild climates – Sun, Microsoft, IBM, and HP have all developed rapiddeployment server farm modules © 2013, published by Flat World Knowledge 11-38 Learning Objectives • Know what virtualization software is and its impact on cloud computing • Be able to list the benefits to a firm from using virtualization © 2013, published by Flat World Knowledge 11-39 Virtualization • Allows a single computer or cluster of connected computers to function as if it were several different computers – Each computer runs its own operating system and software • Can be used in-house to reduce an organization’s hardware needs • Can generate huge savings • Can create a firm’s own private cloud of scalable assets © 2013, published by Flat World Knowledge 11-40 Virtualization • Can cut energy consumption and lower carbon footprint • Firms can buy and maintain fewer servers • Can power down servers until demand increases • Virtual desktops: Running an instance of a PC’s software on another machine and delivering the image of what is executing to the remote device – Allow firms to scale, back up, secure, and upgrade systems far more easily than if they had to maintain each individual PC © 2013, published by Flat World Knowledge 11-41 Learning Objectives • Know the options managers have when determining how to satisfy the software needs of their companies • Know the factors that must be considered when making the make, buy, or rent decision © 2013, published by Flat World Knowledge 11-42 Variables to Consider for Technology Decisions Competitive advantage Security Legal and compliance requirements Skill, expertise, and available labor Cost and time Vendor issues © 2013, published by Flat World Knowledge 11-43