Redshaw says the SaaS model will have an enormous impact on enterprise IT. Commercial software may boast shorter time to market and lower maintenance costs than big in-house development projects, but SaaS incurs no hardware or software capital investment and drives maintenance costs lower still. Redshaw predicts a continuing drop in enterprise software prices, due to unfulfilled promises of big ROI, greater customer diligence in purchasing, and increasingly fierce vendor competition.

New, attractive buying options raise the bar to justify in-house development. They may also tip the balance toward replacing aging proprietary apps with tried-and-true commercial solutions.

Building for success

Over the past few years, the District of Columbia city government has engaged in a district-wide standardization effort to migrate from homegrown departmental systems to standard off-the-shelf applications from Ariba, PeopleSoft, and others. Nonetheless, Dan Thomas, director of the District’s DC-Stat business-intelligence group, decided to develop a BI system with functionality that commercial software alone could not deliver.

To leverage his development efforts, Thomas opted for an SOA approach and mixed commercial software with in-house development to create an array of Windows and Web-based analytical tools for executives, analysts, general staffers, and mobile workers. “We buy the core applications and build connectivity and tools to do the work,” Thomas says.

First, he licensed the foundation applications: geographical information systems from Oracle and ESRI, business intelligence applications from Business Objects, an ESB (enterprise service bus) from Sonic, and a portal solution from Plumtree. Next, DC-Stat developers used Java and .Net to build services and interfaces to tie the core applications together.

The stakeholders needed four applications with different UIs, a principal reason Thomas opted to build rather than buy. “We try to move very quickly and follow agile development methodologies,” Thomas explains. “I would rather give stakeholders something that is 80 percent of the way now, versus 100 percent later.”

Although combining off-the-shelf and in-house development can lower risk and cost, certain core areas are so strategic and specific to the business that commercial apps never enter into the discussion. At MCI, that means anything that directly touches its telecom network, says Laird, such as network provisioning, network management, and network restoration.

In the 1980s, MCI built an automated network-restoration system, because no such commercial apps existed. The system was so successful it enabled MCI to achieve the lowest FCC-reported outages in its industry, Laird says, a record that the company says it continues to hold today.

Commercial potential

When none of the available packaged software will do, a little creativity can  lower the cost and overhead of building and maintaining proprietary apps. One method is to collaborate with competitors to build vertical software that can eventually be licensed.

“The marketplace and economies of scale are forcing competitors to work together more often,” Lutchen says. As an example, he cites a client in the entertainment industry that is partnering with a competitor, venture capitalists, and a software company to develop a royalty information system. Off-the shelf royalty systems have been tough to implement, he says, because each contract is different, incurring complicated tracking and payment processes. Together, these partners are working on a system that will account for such wide variations.