IDC Examines the Impact of the 3rd Platform on Software Business Models and the Building Customer Revolution

FRAMINGHAM, Mass. May 21, 2013 – The 3rd Platform, with cloud at its core, will serve as the primary growth driver of the information and communications technology (ICT) industry over the next decade, responsible for 75% of new growth as worldwide ICT spending moves from $3.7 trillion in 2013 to more than $5 trillion in 2020, according to International Data Corporation (IDC) research. The proliferation of 3rd Platform solutions – and new customer expectations – is rapidly disrupting software business models, changing them forever.

"The 3rd Platform is not just a technology revolution; it's also a customer revolution. As a result, expect the rise of new software business models that align more closely with business outcomes and customers' experiences," said Amy Konary, Research Vice President for Software Licensing, Provisioning, and Delivery. "Customers should expect to see models that enable access to and consumption of applications when and where they want. Pricing will scale up or down according to consumption or need, allowing customers to pay only for what they use."

Additional IDC analysis shows:

The 3rd Platform makes possible a broad proliferation of two important, value-generating overlays – big data analytics and social technologies.

Most net-new commercial applications – as much as 82%, according to IDC – are being built specifically for cloud delivery in 2013. By 2016, nearly $1 of every $6 spent on packaged software and $1 of every $5 spent on applications will be consumed via the software-as-a-service (SaaS) model.

Customers want access to positive outcomes, and subscription pricing has proven to be a better means of facilitating this access than the perpetual license model.

Start-ups aren't the only ones offering subscription license models – 16% of the top 100 software vendors have more than 50% of their revenue coming from subscription and virtually all software vendors are at various stages in a seminal transition in how they build, sell, and deliver their products as services hoping to generate more revenue and improve customer satisfaction.

"Disruption rarely, if ever, leads to wholesale replacement," cautions Konary. "IDC believes that while packaged software applications are being slowly re-platformed for virtualized use on converged systems in datacenters, they will be available for distributed client/server computing environments (the 2nd Platform), and they will be priced and licensed accordingly. These applications will just become less interesting than they once were, as software developers shift innovation to where the growth opportunity exists – the 3rd Platform."

The IDC report, The Coming of the 3rd Platform and What This Means for Software Business Models (IDC #240918) focuses on the rise of the 3rd Platform and the ways in which software business models will change as a result. Advice to customers on the pricing and licensing of software-based applications and services is provided.

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