© 2013, published by flat world knowledge 11-1 information systems: a manager’s guide to...

© 2013, published by Flat World Knowledge 11-1

Information Systems: A Manager’s Guide to Harnessing

Technology, version 2.0John Gallaugher

© 2013, published by Flat World Knowledge

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.

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Chapter 11

Software in Flux: Partly Cloudy and Sometimes Free

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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

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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

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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

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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

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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

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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

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Learning Objectives

• Know the primary reasons firms choose to use OSS

• Understand how OSS can beneficially impact industry and government

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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

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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

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Examples of Open Source Software

• Firefox• OpenOffice • Gimp• Alfresco • Marketcetera• Zimbra • MySQL, Ingres, and

PostgreSQL

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• HBase and Cassandra • SugarCRM • Asterix• Free BSD and Sun’s

OpenSolaris


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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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

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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

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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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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

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Learning Objectives

• Understand the concept of cloud computing• Identify the two major categories of cloud

computing

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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)

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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

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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

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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

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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

availability11-24

• 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


Learning Objectives

• Be able to list and appreciate the risks associated with SaaS

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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

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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

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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

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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

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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

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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

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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

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Clouds in Action

• 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

Cloudbursting

• 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

Black swans

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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

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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

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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

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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

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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 rapid-deployment server farm modules

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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

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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

assets11-40


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

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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

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Variables to Consider for Technology Decisions

Competitive advantage Security

Legal and compliance

requirements

Skill, expertise, and available labor

Cost and time Vendor issues

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© 2013, published by flat world knowledge 11-1 information systems: a manager’s guide to...

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