Getting apps online
In 2005, IBM will be accelerating its efforts, in the form of technical and sales resources, to promote software as a service with application partners, Buell Duncan, the company's general manager of developer and independent software vendor relations, said in December. As part of its broader plan to recruit ISV partners, IBM is seeking out companies that build their applications on Big Blue's software and hardware infrastructure and that have their hosted services run from IBM data centres.
The packaged online-application plan calls for a number of providers, including online financial application provider Intacct, customer management software maker Siebel, and online expense management service company Concur, to certify that their respective offerings work well together without custom coding.
"The objective is to preconfigure a suite of horizontal and vertical on-demand building blocks and make it easier for customers to take advantage of the on-demand model," said Robert Jurkowski, CEO of hosted business application provider Intacct. Customers will gain streamlined purchasing and unified support through the arrangement, he said.
Tackling the issue of integration between different hosted services would help address a long-standing hurdle to adoption of software services, an idea touted since the advent of the Web but only now commonplace. That maturity -- and growing competition from hosted online outfits -- is prompting more ISVs to rework their applications to work over the Internet.
Siebel, for example, initially dismissed the idea but then partnered with IBM to create Siebel CRM OnDemand, where the applications run in IBM's data centres. Meanwhile, upstart competitor Salesforce.com, which went public last year, now has 12,000 customers.
Oracle, too, has boosted its investment in software as a service. The sector still represents only a small portion of Oracle's overall revenue, but it's important to the company's long-term plans to derive more revenue from subscription-like fees, such as maintenance and services, rather than from licence sales.
"Oracle is doing it because they see the growth rate in enterprise applications slowing," said Kucharvy. Software services "is a means of shifting their revenue model from upfront licences to ongoing annuity sales".
Why now?
The on-demand purchasing model has long offered several advantages to customers, particularly smaller organisations, say analysts.
Rather than purchase a licence and spend months installing software, a hosted offering lets people get started immediately with applications delivered via a Web browser. The purchasing model is different as well, with customers paying a monthly fee for a specified number of users. This is particularly attractive to smaller companies wary of large up-front costs, said analysts.
But several technology changes have made the business more commercially viable since an initial wave of so-called application service providers launched in the mid-1990s. Many ASPs went out of business or, like Corio, were unprofitable.
Virtualisation software lets a data centre operator partition off dedicated portions of a single large server to separate customers. Also, software companies are increasingly building their applications in a more modular form around standardised protocols, such as Web services, which greatly simplifies the task of moving data between different applications.
The services themselves are getting more mature as well, with better management tools and even the option to have applications run in-house while being remotely managed by a third-party service provider.
A preconfigured combination of different applications, as envisioned by IBM and some of its partners, will help drive the market for hosted applications from one-off purchases for an individual department to broader usage, said analysts.
"It's becoming less and less one-item shopping," said Counse Broders, an analyst at Current Analysis. "Providers are combining elements into a broader solution."
