Enterprise apps: on-demand or on-premises?

There's room for more than one business model

As the number of vendors touting hosted applications grows and the sophistication of their offerings increases, the choice between hosted solutions and on-premises solutions is no longer just a debate between competing vendors. It’s become a real internal discussion within the enterprise.

Salesforce.com’s technology gets kudos from every industry analyst I speak to. It even won “Best CRM Application” in InfoWorld’s 2005 Technology of the Year Awards. Its Customforce.com platform allows companies to create custom applications uniquely suited to their own industries and workflows. In addition, its On-Demand Marketplace allows customers to work with third-party vendors to enhance the Salesforce.com horizontal solution.

Not to be outdone, Siebel has recently ramped up its own hosted applications, announcing four industry-specific solutions that it plans to serve up as part of its on-demand service. Referring to Salesforce.com, Bruce Cleveland, senior vice president and general manager of Siebel’s OnDemand and SMB business unit, says the enterprise will not accept “plain-vanilla” applications.

Salesforce.com CEO Marc Benioff counters that customers “can’t be forced into awkward Siebel-shaped vertical templates.” According to Benioff, a company like ADP doesn’t want the “business services edition” of a CRM package. Rather, ADP wants the “ADP edition” — in other words, an application custom-tailored for ADP. 

Dan Starr, chief marketing officer at Salesnet, another hosted CRM company, says they’re both right. “You need a hybrid solution. Industry-specific, prebaked, but customizable.”

Both Starr and Benioff agree that the ability to get running quickly is a great part of the attractiveness of hosted applications. If this is true, however, the question to ask is how much time it will take to customize an application to suit your needs.

Denis Pombriant, principal analyst at Beagle Research, doubts whether most companies truly have the expertise to customize applications for their own industries. “If it is not your core business, what are you doing it for?” he asks.

Because Siebel can supply both on-premises and on-demand solutions, it can offer another alternative: Install on-premise at headquarters and use the hosted application for remote locations where there are fewer IT resources available. If both applications are built on the same code base and have the same UI, this makes a lot of sense.

Perhaps another indicator of the growth of the hosted applications market is the success of a company called OpSource. OpSource sells its software-as-a-service engine to software vendors that want to offer hosted versions of their applications. Business is booming, says OpSource CEO Treb Ryan.

It’s fun to watch the players maneuver as the competition heats up. As recently as last year, Siebel executives were dismissive of Salesforce.com, acting surprised that anyone would even bring it up in the same sentence as Siebel. Now that Siebel believes it has something to offer that Salesforce.com doesn’t, Cleveland calls Salesforce a “formidable competitor.” The reason? Siebel wants to increase Salesforce’s stature before Siebel knocks it down.

Obviously, you can’t rely on marketing claims. One thing is for sure: Due diligence requires that, no matter the size of your company, you should consider software as a service as a legitimate alternative to software as a package.

Copyright © 2005 IDG Communications, Inc.

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