Why Desktop as Service (DaaS) Profits Are So Elusive

Each time January arrives, I hear the same prediction: This will be the Year of Desktop as a Service. So far, the prediction just hasn't come true. Why's that? The simple answer involves control, economics and user experience. 

First, the big picture. Desktop as a service (DaaS) shifts desktop productivity workloads (office applications, etc.) up to a server. That server can  be located on-premises or in the cloud. In theory, that means users and customers can access all of their desktop applications from any device -- a PC, notebook, smartphone or tablet.

Sounds great. And DaaS has certainly found some corporate success. But many I.T. entrepreneurs have launched DaaS businesses only to see them implode. Why's that? I've got three answers:

1. Control: Most of the startups don't really control the underlying technology. Instead, they depend on Citrix Systems, Microsoft, VMware and others for the underpinnings of DaaS. Most of the technologies work really well. But startups that try to sell the DaaS services sometimes run into trouble because they are essentially marking up somebody else's software without adding much value.

2. Economics: In the vast majority of cases, the intellectual property owners (again, Microsoft, Citrix, VMware, etc.) control the economics of DaaS. Thousands of businesses have paid for those software platforms and deeply value the offerings. But again, startups that try to build businesses around the DaaS platforms must build their economic models around somebody else's intellectual property. 

3. User Experience: Generally speaking, I've seen some great DaaS services that run really well across remote PCs and laptops. But some DaaS companies have tried to "shrink" traditional desktop interfaces down to smartphones and tablets. Big mistake. Microsoft learned that more than a decade ago when they tried to put the Start button and a Windows 95-type menu on phones. 

Don't misunderstand me. I'm sure the DaaS market is growing. I know there are thousands of satisfied customers. But I've also seen at least four DaaS startups implode in 2014 because they didn't really control the underlying intellectual property. Sometimes, they were two or three steps removed from the technology. Let me give you a prime example:

  • First, Citrix, Microsoft or VMware develops the technology.
  • Second, Acme company customizes the technology.
  • Third, Acme then puts the customization in a third-party cloud (call it Beta Cloud).
  • Finally, Gamma company sells Acme's customization -- still hosted in Beta's cloud -- to small businesses.

In that scenario, Gamma company is hard pressed to find profits because they are so far down the food chain. Gamma is essentially paying Acme rollup fees for (1) Acme's customization, (2) Beta's hosting (3) plus the underlying intellectual property from Citrix, Microsoft or VMware.

As an I.T. entrepreneur, you want to be as close to the intellectual property as possible to maximize your own profit margins. If you can't touch the code, chances are you can't touch the profits, either.

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