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Rent-an-app could remake software market

Check out your favorite online software store, and you'll see admirable efforts to make buying software on the Net as similar as possible to buying it at a brick-and-mortar store.

In three years, the Internet has barely altered how software is sold, but soon it will change how software is written.

Check out your favorite online software store, and you'll see admirable efforts to make buying software on the Net as similar as possible to buying it at a brick-and-mortar store.

That's not a criticism--mimicking a familiar experience is a logical way to launch a new medium, but that method doesn't take advantage of the Internet's full potential. Granted, you can search for a title more easily online or download it instead of having a box shipped to you.

Online software sales remain a minuscule percentage of total software sales. International Data Corporation estimated $250 million in sales in 1996 for software downloaded. Software Publishers Association extrapolates twice that in 1997. Those figures exclude software sold online but delivered in a physical box.

To date, discussions of selling software online have focused on electronic software distribution or ESD--buying online, then downloading the bits. But most software sold on the Net is shipped for delivery. Bandwidth is the biggest culprit--it simply takes too long to download most applications.

But now rentable applications are emerging, potentially altering how software is written and sold.

Many users don't need to own an application--they need to use it once or several times. So rent, don't buy. If you think the rent-an-app phenomenon isn't serious, look at who's doing it: Oracle, Intuit, Lotus, IBM, PeopleSoft.

Different forces drive the consumer and business markets, so let's start with Intuit. Its TurboTax Online lets taxpayers with fairly simple returns fill out forms on its Web site, then pay $9.95 when users print the form or file electronically.

Tax software is the perfect rentable app--you need new software every year to keep up with tax law changes and most people only need it once.

Intuit has obviously done some serious thinking about how much revenue it gives up by renting TurboTax at $10 instead of selling it at $40.

Intuit is surely running spreadsheets now to explore renting its flagship Quicken personal finance software too--rental TurboTax was undoubtedly a test case. For users, renting Quicken for an annual fee would give them access to continuous updates without buying a brand new version.

On the corporate side, market dynamics differ. Renting enterprise software is closely related to a trend toward outsourcing.

US Internetworking last month launched its outsourcing service for midsized firms with PeopleSoft human resources and financial software. It will add apps from BroadVision, Microsoft, Netscape, Siebel (sales force automation), and Sagent (decision support/data warehouse).

Instead of buying those applications, customers pay a monthly fee to rent them.