You may recall last month’s column referring to the ‘Live Era’ software phenomenon being introduced by Microsoft. Well, as 2006 gets under way, such is the potential of the on-demand delivery method for business software, this whole sector deserves further investigation – particularly for mid-sized companies that are looking for faster and easier application deployment, investment savings (up to 50 percent or more), and fewer headaches all round.
One of the leading proponents of the on-demand delivery method is Greg Gianforte, entrepreneur and founder of Montana-based RightNow Technologies – recently named top five worldwide software on-demand vendor by global ICT analyst IDC.
In New Zealand outsourcing specialist Datamail is the RightNow agent – and local customers include such heavyweights as Telecom, Vodafone, the Automobile Association, NZ Post, Air New Zealand, the Immigration Service and Victoria University. Its products are focused on customer service and include customer relationship management solutions, as well as sales force and marketing automation applications.
But first little history. The first generation of on-demand software came under the heading of ‘asp’ (application service provider) in the 1990s, which essentially involved “third party host company taking someone else’s software and running it on their behalf”, in the words of Gianforte.
This middleman approach offered no economies of scale as it was based on using one rack of hardware per customer (ie ‘single tenancy’) and largely fell from grace over time.
Today’s second generation on-demand (‘multi-tenancy hosted delivery’) product has been built from the ground up, says Gianforte. “It’s new kind of software built from scratch for multi-tenancy, and it gives the ability of software for thousands of customers to share the same rack of hardware, and therefore eliminate IT infrastructure costs.”
It also means that the software development and delivery to customers is now totally integrated.
The traditional model involved companies buying software packages and then taking six months to year getting everything operational – including buying the hardware, database, IT consultant and training staff.
To demonstrate the deployment speed of the new on-demand delivery model, Gianforte points to 1600-seat implementation of RightNow customer service software in major company in the US that had the new system up and running in just 45 days. So the ease and speed with which the new model is deployed (weeks instead of months) is major plus.
“The second major benefit is that it reduces the cost of ownership of business applications by up to 80 percent, according to Gartner Group report,” says Gianforte. “It actually costs less to host on behalf than to provide technology support for client going it alone.”
The third benefit centres on closer partnerships between vendor and customer – in RightNow’s case, working with 15 major airlines around the world has fostered greater understanding of business best practice. It’s something the old model, where consultant left the customer with customised software and maintained distance, could never offer.
Gianforte is adamant that this new on-demand model is the way the enterprise software market is going. Today’s on-demand vendors may only represent small percentage of the software marketplace, but according to Gianforte, IDC is predicting worldwide growth in the order of 40 to 50 percent by 2008. His advice to companies looking to expand is to switch to this new model.
“The drivers for growth in this new multiple-tenancy hosted environment are going to be education and the desire of clients to achieve better business value and more efficient interaction with their customers.”
Gianforte says the on-demand model caters for today’s changed business strategies. “Last century companies built better products to gain better market position. But the world market has become very flat as products and services commoditised. The only long-term strategy that counts now is the quality of service.”
The on-demand model is ideal for medium-sized businesses in New Zealand that traditionally have not been able to afford the sophisticated business solutions utilised by larger companies – and Gianforte says these companies can now access this type of software and therefore compete with the ‘big boys’ more competitively.
He understands how IT professionals may have to rethink their roles in light of the new delivery method, but they have plenty of time to adjust.
“It could take up to 10 years to come into effect. Things don’t change overnight. But it is the future of the software industry,” he says. “In five to seven years’ time the majority of enterprise service applications will be delivered on this model.”
• Glenn Baker is regular contributor to Management.