Software firms set up shop on Net

Software companies are following the lead of their hardware counterparts and setting up shop on the Web.

Online software store software.net today signed a deal with Netscape Communications, the second major distribution agreement in two days, to sell software from independent developers to work with Netscape's server and browser technology.

Yesterday software.net, a pioneer Web store, announced a $50 million deal to maintain and upgrade Microsoft (MSFT) software for two arms of the Pentagon--the Defense Logistics Agency and Department of Defense Procurement Agency--under a five-year deal. CyberSource subsidiary software.net estimates that online delivery will save the federal government $30 million in packaging, shipping, installation, and maintenance costs.

"The big picture is that there are finally ESD [electronic software distribution] deals worth announcing," quipped Jeff Tarter, publisher of industry newsletter SoftLetter.

The major contracts with Internet powerhouses Microsoft and Netscape highlight a trend among software companies toward selling, distributing, and updating software over the Net to cut costs. Oracle sells all its products from its Web site, as well as through other channels, and CyberSource has similar deals running software storefronts for Adobe, Lotus, Symantec, and others.

But online software sales efforts have been relatively slow to take off, plagued by high fraud rates. Once software is downloaded, it's tough to track down thieves, experts say.

So far, hardware companies have benefited most from sales on the Net. Cisco Systems expects to sell $2 billion on the Net this year, and Dell Computer boasts better than $1 million in daily sales from its Web site. Networking company 3Com this week opened the 3Com Shopping Network targeting small businesses and sales through resellers.

Software.net's Defense Department deal, similar to a smaller one last year with another defense agency, carries ESD into a bigger market and opens the door to "site licenses," which is the way big companies and public agencies usually buy software.

"I think believe we'll see more and more customers will find this access to products very attractive," said Microsoft's Jack Hersey, federal marketing manager. Microsoft software will be downloaded over the Net to servers on military sites so that employees can get the latest updates from their local network.

"What Microsoft wants is not so much maintenance, but the ability to deliver corporate licenses very cheaply and lock customers in," Tarter said. "They like ESD because it's a way to keep buying more copies of Word and Office and Excel. In the corporate market, ESD tends to favor whoever has dominant market share."

Netscape, which will continue to sell its own software from a separate area of its Web site, aims to tap its heavy online traffic to lure buyers into Software Depot to sell or offer test versions of software that runs on the Netscape ONE platform

"Electronic software distribution is becoming a stronger and stronger channel," said Cameron Lewis, Netscape's manager of electronic commerce, who says the Netscape store will open by mid-August.

He cited ESD's multiple appeals: Getting the latest version to customers immediately, handling download and support online from a single site, avoiding costs of floppy disks and packaging, and buyer satisfaction for efficient delivery.