The Coming of the 3rd Platform and What This Means for Software Business Models

IDC Opinion

IDC is observing that a new computing platform is emerging. This "3rd Platform" has cloud as its core, and 3rd Platform solutions will offer anyplace, anytime access to application functionality. Lightweight mobile apps running on ever-changing classes of mobile devices will be critical access points for these cloud services and solutions, leveraging 4G+ networks and WiFi rather than MPLS networks for connectivity. The new platform makes possible a broad proliferation of two important, value-generating overlays on top of this foundation: big data analytics and social technologies.

  • IDC believes that 3rd Platform solutions will be the primary growth driver of the ICT industry over the next decade, responsible for 75% of the growth as worldwide industry spend moves from $3.2 trillion in 2013 to $5.3 trillion by 2020.
  • The 3rd Platform has massive scale, reaching trillions of IP-addressable "things" — devices, monitors, and sensors — and billions of users through millions of new applications and services with a potentially global user base and unlimited hardware resources.
  • The 3rd Platform is not just a technology revolution; it's also a customer revolution. As a result, another key tenet of the 3rd Platform is the rise of new business models that align more closely with business outcomes and customers' experiences. Where platforms form, devices, developers, and customers form, creating the same stable ecosystem that drove 2nd Platform growth.
  • The proliferation of 3rd Platform solutions — and expectations — is rapidly disrupting software business models, changing them forever. But disruption rarely, if ever, leads to "wholesale replacement." 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.
  • Disruptions are rarely an "overnight success." The successful rise of the 3rd Platform will be determined by the rate of development of a supportive infrastructure including the application itself and the technology underlying it. In addition, the rise and acceptance of business models to support the adoption of 3rd Platform solutions will play a key role in the growth rate.

IN THIS STUDY

In the software industry today, there are many trends driving changes in business models. This document 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.

SITUATION OVERVIEW

The IT industry is in the midst of a massive structural shift toward what IDC calls the 3rd Platform. The 3rd Platform is the next-generation compute platform characterized by a proliferation of always-connected smart mobile devices, coupled with the widespread usage of social networking, and layered over a cloud-based server infrastructure supporting important new workloads such as big data analytics (see Figure 1).

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. The shift is driven by the insight that SaaS delivery, which comprises the applications and system infrastructure software (SIS) markets, will significantly outpace traditional software product delivery — continuing to grow at nearly five times faster than the software market as a whole and becoming the significant factor driving growth for all software markets.

At the same time, developers of business applications are focusing innovation on ways that companies can take advantage of end-user connectedness and mobility, with some software companies developing applications for mobile access instead of — not in addition to — client devices. Indeed, CIOs are finding that virtually anything that they put out has to have a mobile component and that laptops are increasingly out of scope. Some are even on the verge of eliminating their hardware infrastructure altogether.

Applications, content, and services residing within the 3rd Platform will be accessed by billions of users. The 3rd Platform is more than just end-user access; just as important is the bidirectional value-add that end-user interaction via smart devices brings to the market. In addition to being data consumers, these devices also serve as the hub for social networking. With the 3rd Platform, applications become much more nimble and open than they have been in the past, acting more like a service that can be deployed where and when needed. This is the pinnacle of anytime, anywhere access and has been a long time coming in the software industry.

Different from the 2nd Platform

In the era of the 2nd Platform, distributed systems helped usher in the era of packaged software applications. Customers would acquire software via a perpetual license, install it themselves, and begin to use the product. Compared with mainframe-class software technologies (the 1st Platform), application software in the distributed era was low cost, broadly available, and easy to use, with little or no training required. This enabled the development of mass software markets.

A combination of factors are actively driving the adoption of the 3rd Platform, some of which are an evolution of previous drivers (including lower cost and ease of use) and others are brand new. Unlike the 2nd Platform, however, 3rd Platform applications will be designed for the consumer and enhanced for the enterprise (as opposed to being designed for the enterprise first). Consumer-like expectations for ease of acquisition and access as well as simplicity and transparency of pricing models will dictate pricing models and payment terms. In addition, expectations for ease of use and interoperability will also be gleaned from consumer experiences. Following are some of the key tenets of the 3rd Platform:

  • Ease of access: Just as with the 2nd Platform, expanded access is a driver for 3rd Platform technologies. This means anytime, anywhere access via any device.