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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
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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
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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
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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
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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
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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
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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
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