Software as Good & Software as Service

Last time I wrote about the web as a platform. One of the defining characteristics of the web as a platform is that it has some operating costs baked into its distribution model. Someone has to host and serve the content that is being served to users over the internet, and doing so comes at a price. Software delivered over the web is also often updated on a regular basis, another source of ongoing costs. The resulting norm is that the de-facto pricing model on the web as a platform is a subscription-based model. For certain classes of products there are alternatives, such as the utilisation of screen space for digital advertising, or recouping the costs associated with web software through other means, such as an adjacent mobile app that has a price for access while web access remains free.

If we went back in time to 1995, access to software was restricted to the inventory of brick and mortar retailers and the pricing model was single-fee. This was an environment where the internet was not a viable distribution channel at scale and computer software platforms such as Windows 95 were not the systems that update with high-frequency that we are familiar with today. The operating system was produced ahead of time and the third-party software was developed for the platform could be tested against a relatively static target.

When the developers of platforms such as Windows or other intermediaries made mistakes, third-party software developers were forced to work around those mistakes. This was not a problem exclusive to software either. The presence of operating systems was not as ubiquitous across consumer electronics as it is in 2026. Certain classes of products such as the Game Boy, which had no intermediary layer between a unit of software and the computer hardware and development teams were forced to take a greater interest in electronics than they are today.

There are a number of forces that drove the software market toward "software as a service". There is piracy, previously discussed as a black market for software. There is security - bad actors found ways to target software systems, and these risks became amplified as computer systems worldwide became interconnected through the internet. There is the cannibalisation of demand - products from Microsoft such as Windows and Office appeared to offer diminishing returns with each release. It was not uncommon for many consumers (individuals and businesses alike) to sit with a particular version for a decade or more.

Perhaps the most powerful force came from a desire from platform holders to form a stronger connection to their customers. The emergence of mobile was more than a new technology in the market, it was a significant enough event to change society. There is plenty to say about mobile, but in terms of the subject at hand mobile ecosystems are subject to the whims of the platform. After the iPhone, came the iPad and with the iPad came the expectation that applications should support a broader set of devices without a commensurate increase in revenue. In this way, the hardware market clearly shaped the expectations of consumers in the software market. A similar principle applies to software updates. The original iPhone ships with the first implementation of iOS as part of an enforced aspect of a digital supply chain. The original iPhone also supports subsequent versions of iOS. Rather than the "static targets" of earlier desktop platforms, contemporary third-party developers contend with a variety of devices, within each device a variety of versions, and an expectation in society that all of these collapse to a homogenous set of behaviour, which is unfortunately not so in practice.

And so we arrived at an asymmetry between pricing (more often fixed) and costs (effectively ongoing) before mobile apps powered by services delivered over the internet even became normalised which only exacerbated this asymmetry. Software as a service is not necessarily a "paid" model in the sense that consumers must transfer cash in exchange for access rights. Software as a service (SaaS) projects may (and do) monetise through other means like advertising, affiliate marketing, merchandising, the sale of data that consumers generate through usage, as well as by delivering intangible value to a broader commercial strategy. In such circumstances, SaaS projects are often "free". This can be helpful in understanding how we arrive at a situation where there may be two offerings in the market bear significant similarities and yet the pricing model could not be more different from a consumer perspective when one is "free" and the other has a recurring price attached.

Until next time.