This Year’s Model
Even Michael Conlon, a University of Florida technology strategist whose large IT operation has made a point of doing everything itself, is thinking about making the shift in certain areas. E-mail, application monitoring, and HR functions could all be candidates. “You identify things that are commodity, not core, to the business, and [that are] well-defined. If they can be executed off campus, that’s fine.”
One explanation for the sudden openness to the on-demand model has to do with licensing. Customers are tired of the “Costco” style of software purchasing, as Merrill Lynch’s Maynard terms it. “I can’t eat that many cheese nips in my lifetime. A four-gallon drum of licorice; that’s how we buy enterprise software,” he says. Paying for what you consume rather than paying up front for a lifetime of usage fits better with today’s downsized IT budgets.
According to Grand Central’s Minor, botched deployments provide even greater motivation to make the on-demand switch. He points to Avis, which recently sunk $100 million in an ERP system that never saw the light of day. “The pay-and-pray model of enterprise software is over,” Minor says. “Instead, it’s going to be delivered as utility, where you’ll pay for successful delivery like you pay for your phone calls.” Rather than the “big bang” theory of utility computing promoted by IBM, where enterprise datacenters suddenly become self-healing and self-managing, the on-demand model is more like utility computing, one enterprise application at a time.
Poor visibility is another factor for moving to an on-demand model, suggests Todd Johnson, president of Jamcracker, which began as an aggregator of hosted IT services such as VPN and backup and currently provides platform technology for companies in the on-demand business. Today, enterprises are lucky if they can see beyond the next quarter, he says. The risks of an 18-month global Siebel rollout are enormous compared with a Salesforce.com deployment, which, even if sophisticated, should take no more than 90 days — and with zero investment in software licensing or hardware.
Mercury Interactive, which has been offering a hosted version of its application-monitoring solution for years, is in a unique position to observe customer reaction to the on-demand model. “We’re not as religious as some. We offer a choice,” says Christopher Lochhead, Mercury’s chief marketing officer. During the sell cycle, he notes, customers like the idea that they can switch from hosted to internal deployment. But in fact, very few do. Today, Mercury delivers application management as a hosted service to between 3,000 and 4,000 customers, approximately half the installed base for that solution. “When the customer looks us in the eye and says, ‘Hey, what’s the best way to deploy your technology?,’ we lead with the hosted offering.”
Objections and Opportunities
Not everyone is biting, of course. Topping the list of doubts is whether hosted offerings can be properly integrated with internal enterprise apps, and skepticism over the efficacy of adapting on-demand solutions to unique business processes. And some IT managers bristle at relying on an outside host’s ability to run its datacenter impeccably, not to mention maintain a solvent business. Total dependence on a browser-based UI is another sticking point (see “Can the Browser Meet the Demands of On-Demand?”).