Michael Topolovac, CEO, Arena Solutions

Jeff HawkinsArena Solutions wants to change the way companies use software for product lifecycle management (PLM).

As with Salesforce.com, which is shaking up the traditional software
delivery model for customer relationship management (CRM) by delivering its
Software as a Service over the Web, Arena has similar ambitions for
manufacturers.

Michael Topolovac, CEO of the Menlo Park, Calif.-based maker of product
lifecycle management (PLM) software, recently took some questions from
internetnews.com about why he feels the time is right for software as
a service.

Q: Microsoft recently announced that it would deliver advertising-supported, online versions of its Windows operating system and Office
productivity software. What’s your take on the announcement?

In our view, it’s clearly a validation of where the market’s going [with
software]. Microsoft realized customers are looking for services they can
get across the Internet. I think it’s mostly a defensive move against Yahoo
and Google.


Q: Software as a Service assumes major broadband ubiquity by end users. But are businesses there yet with connectivity?

What’s fascinating about this model is that if you architect it
correctly, it does not require ubiquitous broadband. You need Internet
access, but with our bandwidth criteria, it works on a 54K dial-up
connection very well.

We do all the heavy computational work on the backend. And we’ve designed
the user interface so that pages that are sent between the database and the
customer are very light, five to 10 kilobytes, so it doesn’t require a big
pipe.

And with Ajax , which is a very powerful UI and toolkit that
more companies are using, it allows you to only acquire the snippets of data
you require from the server in real time.

So it reduces bandwidth needs and gives you a much richer client-like
experience. Common Internet access is required but it doesn’t have to be
broadband for this to be successful.

Q: How has the on-demand/Software as a Service model changed how you
build and develop software?

Well, there are two questions here. One is, how does the evolution to an
[Software as a Service] business model change the server model at the IT level, as well as the
desktops of users.

The impact is massive on both fronts. On the server side, to run an
enterprise application, whether its PLM, CRM or ERP , it
requires very sophisticated relational databases, very expensive hardware, a
lot of redundant systems, and a dedicated IT staff and database administrators
to run these systems. They’re just extraordinarily complex. And in the
client-server world, all that complexity had to be managed by the customer.

So the total cost of ownership was not just the software you bought from
the vendor, but all the IT management and hardware you had to buy to make it
work. In addition to that, on the users’ desktop, there’s usually software
you had to run and configure, plus you had to manage that.

What on demand does is eliminate all of that because we’re built to
centralize all the complexity of managing that application at our location.

In addition, because it’s now a Web app, the only requirement on the
desktop is a Web browser. The IT departments love this because it removes
all this cost of complexity, both on the server side and client side.

With that, we get enormous economies of scale. Now, I have one instance
of this where I can buy the best routers in the world, the best hard drives in
the world, the best servers, the best IT and security experts and have them
manage my system. We share that cost across thousands of customers
where customers couldn’t do that on their own.

Q: How does your pay-as-you-go subscription model support R&D for product
innovation? The traditional licensing model helps support R&D.

The short answer is that [the subscription model] actually works better
for all parties.

In a traditional software model, what happens is that you pretty much get
all the money up front from the customer. That helps fuel R&D. But there are
two consequences of that. One is that the vendor and customer are no longer
aligned, because the vendor has their money.

That’s not exactly what software companies will say, but that’s the
economics of it. With on demand, Software as a Service, we’re only as good
as last year’s work. So our interests and the customers’ interests are
aligned. If we don’t
do what we say we’ll do, they fire us and go somewhere else.

The other part of that question is “Well, yeah, but the older licensing
model got a lot of money up front [for a five-year software license, for
example]. Isn’t that that an economic disadvantage for Arena or an on-demand
player?”

If you look at players, such as Salesforce.com versus Siebel, or us versus
public companies [that provide traditional PLM], we have for the most part
reached feature parity with those companies that have been around a lot
longer and have spent more money.

They may have spent $200 million, and we may have spent $5 million on the
same product, and we’re basically in the same league. We’re not 40 times
smarter, it’s just that because we have one code base, we can be more
efficient in how we develop the software.

Q: It doesn’t concern you that software is going the way of a commodity by
becoming a utility-like service?

In the early days of electricity, not every house could get power.
There’s a similar case with cost and access to [some kinds of] software.

What is happening with Software as a Service is that it’s removing all the
barriers to the technology so that every company of any size can have
access to these toolkits.

What it’s not doing is making these all commodities in which they’re all
the same. Every company has different needs. Some need PLM, or CRM. There
are different types of CRM. It’s not like suddenly there’s one piece of
software that’s going to work for every business problem.

These very powerful software tools that were only available to big
companies are now available to small and mid-sized companies without
anywhere near the same costs. So it’s really enabling more innovation to
reach more people as opposed to commoditizing the marketplace.

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