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Desktop app makers eye rental market

As traditional revenue sources for their desktop applications begin to drag, Microsoft, Corel, and Lotus are eyeing software rentals in search of new customers and fresh revenue.

As traditional revenue sources for their desktop applications begin to drag, Microsoft, Corel, and Lotus are eyeing software rentals in search of new customers and fresh revenue.

All three major developers of desktop productivity suites--Microsoft, Lotus, and Corel, are evaluating a Web delivery model for their suites, looking to deliver their products through application Service Providers (ASPs) or Internet Service Providers (ISPs). Microsoft and Corel are outlining real deals to make at least some of their products available for rent.

With analysts predicting that Microsoft's revenues from Office will decline and other makers unable to crack Microsoft's desktop hegemony, all three software makers are looking for fresh sources of revenue, and hope to reach untapped users through rentals, say analysts.

This push into the rental market by desktop software makers marks a radical change from the traditional pricing and implementation models for these bulky desktop application suites. Instead of installing hundreds of megabytes worth of software on their hard drives, users could opt for a Web-hosting rental model that could save money and provide simpler software management.

"The [customers'] entry cost is lower," said Rob Enderle, an analyst with Giga Information Group. "And it means these vendors get to sell to a market that otherwise wouldn't buy their products."

Enderle expects a shift from desktop-based applications to ASPs, an emerging group of companies that host applications for both corporate users and consumers accessing programs via Web browsers. While the shift to server-based applications appears clear, the subsequent shift and advantages for ASPs are just emerging, he said.

His firm has concluded that the ASP/ISP rental market "represents the future" for the desktop space. Giga expects that by 2002 desktop rentals will be the most common way to get desktop software.

But not all analysts see the need for hosted desktop applications. Eric Brown, an analyst with research firm Forrester, said users, accustomed to subsecond response through locally installed applications, may balk at centrally-hosted software.

"There is a tradeoff. You might not find the same responsiveness with the [hosted] application as you would with it on your desktop," said Brown. "We haven't done much analysis in this area but it doesn't make sense to me to host desktop applications. These are the applications I want on my desktop, where they will be more interactive and responsive."

Still, there's no denying that personal productivity applications are headed to the Web and central hosting. Already, portal sites that host personal calendaring applications and free email, such as Yahoo, are offering an alternative to the standard Windows desktop applications.

To fend off new competitors, Microsoft and other traditional desktop software vendors need to offer hostable versions of their packages.

For now, computer makers are targeting those companies in the small-to-medium-sized business that can't afford to purchase, implement, and manage an office productivity network within their company. In years to come, Enderle expects larger companies to start renting desktop suites from ASPs and ISPs as well.

At its official launch of the latest version of its office productivity suite-Office 2000, Microsoft announced a new set of Web-collaboration services based on Office 2000 that will be hosted by Internet service providers Concentric Network, Verio, InterLand, and AIS. The new service allows users who don't have a Web server onsite to collaborate on Office documents over an ISP that supports the new program, Microsoft said.

Although the software giant and current lead horse in the desktop suite Market race has appeared to put a toe in the ISP/ASP hosting market pool with the Web Server Extension announcement, Microsoft says it has no immediate plans to start to providing its whole Office productivity suite to ASPs and ISPs for renting or hosting to customers.

"ISP hosting of productivity applications is an interesting topic for the software industry and we anticipate that interest will grow," said Deanna Sanford, a Microsoft product manager.

"The real benefit of productivity application hosting is the reduced TCO [total cost of ownership] that customers get from outsourcing support and hardware acquisition," said Sanford.

Though Corel may be losing the battle in the desktop office suite market, trailing both Lotus and Microsoft, it's ahead of Lotus and stepping on the coat tails of Microsoft in the race to bring its desktop applications to the ASP rental and hosting market.

As previously reported, Corel last week jumped on the Web application hosting bandwagon, teaming with Channelware, a business unit of Nortel Networks, to rent its software applications to customers.

The application rental agreement is the latest example of Corel's efforts to generate revenue outside of its usual markets. Corel has been plagued by a number of low quarterly results marking a significant lag in sales of its software products.

Although the Canadian software company said the deal with Chanelware is a pilot program, it is investigating other ways to exploit the Web rental model for other pieces of its desktop product family, most notably its desktop suite WordPerfect 2000 and its designer product Corel Draw.

"We are looking at this closely," said Katherine Hughes, a spokesperson for Corel. "We are currently talking to four or five ASPs to see if we could broaden our strategy. There's nothing formal. We're just talking."

While Corel and Microsoft begin to make noise about hosting desktop software through ASPs and ISPs, Lotus has been noticeably quiet.

The IBM subsidiary isn't new to the idea of hosting applications through ISPs and ASPs, for it has done so with a number of its products, like Instant TeamRoom. Based on its Web server Domino, Instant TeamRoom allows distributed users to work together over the Internet though an ISP.

That said, the company has yet to release a desktop application for hosting through an ASP or ISP, nor has it outlined an ASP strategy for its desktop product SmartSuite.

Lotus. "has no current plans to offer the suite via ASPs," said a Lotus SmartSuite executive. "However, it is something we are evaluating based on our current business model."

International Data Corporation expects spending on services offered by ASPs to reach $150.4 million worldwide this year. Over the next several years, IDC predicts the ASP market will grow at a rapid clip to reach $2 billion by 2003, a whopping 91-percent compound annual growth rate.

For desktop applications vendors looking for new revenue sources, numbers like that are hard to pass up, and it looks like the major players in the market are at least taking notice.