October 5, 1998
Delivering the bits is only half the battle in Net software sales
Selling software on the Internet should be as natural as selling beer in a bar. After all, software is nothing but bits and the Internet is made to move bits -- so where's the problem?
The answer is bandwidth: The pipes just aren't big enough to download big software titles fast enough, particularly for modem-using consumers.
But don't tell that to David Rubin. He's made quite a nice business out of electronic software distribution (ESD). Rubin is president and founder of Los Altos, Calif.-based BitSource, which focuses on a market segment other ESD pioneers disdain: channel sales.
BitSource's customers are big value-added resellers (VARs). These customers' customers are big corporations who buy software in bulk, often dropping millions of dollars for thousands of licenses to use a single software product.
BitSource's flagship product is a software vending machine called SmartShelf. If you're buying software in volume from a VAR that is a BitSource customer, that VAR can install a SmartShelf PC on your network. This system's hard drive contains all the software you might want to buy, in an encrypted form.
When you need another license of, say, Windows NT Workstation, you purchase it from your VAR using the SmartShelf Web site. After the VAR approves the sale, BitSource transmits a digital "key" that unlocks the encrypted code on the SmartShelf PC.
The SmartShelf vending machine then places the software's decrypted installation files on a network volume, or burns the bits onto a CD-ROM on the spot.
The advantages to corporate purchasers are obvious: They get immediate delivery, electronic licenses that are more easily managed than paper contracts, and standard network-based or CD-ROM-based installations.
What's more, BitSource's software can help corporate purchasing managers get better prices by suggesting the cheapest way to get to the next volume-discount tier.
Perhaps best of all, in 15 states, software that's sold and distributed electronically is not subject to sales tax.
Rubin's business model is interesting. The Internet isn't being used for delivering software, but licenses. This is a significant enough difference that research company International Data Corp. (IDC) coined a new three-letter abbreviation to describe it: ELD, for electronic license distribution.
Also, Rubin's brand of Internet commerce doesn't cut out the intermediaries. In fact, it helps them do their jobs better. But this should benefit the corporate customer, too.
Place your bets now: According to IDC, electronic distribution of software licenses, which accounts for about 5 percent to 10 percent of the software license market, will achieve nearly 100 percent market share by 2008.
I think IDC's estimates are much too conservative: ELD should account for almost all of the corporate software purchasing market within just a few years. It just makes too much sense not to happen quickly, and other ESD companies will certainly develop solutions similar to BitSource's.
Will there be a SmartShelf vending machine in every IT department? That depends on whether Rubin's 30-person company can successfully defend itself against ESD competitors like GlobeTrotter and Digital River.
But one thing's for sure: Corporate ESD -- via ELD -- will remain a much larger market than consumer ESD for as long as bandwidth remains a limited commodity.
Dylan Tweney (dylan@infoworld.com)
has been covering the Internet since 1993. He
edits InfoWorld's intranet and Internet-commerce
product reviews.
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Every column since August, 1997
