On-demand spells ‘end of software’

If CRM vendor Saleforce.com Inc. has its way, client-server-based applications will be diminished, as on-demand business models gain momentum.

And we can count on this happening sooner rather than later, says Phil Robinson, senior vice-president for marketing at San Francisco, Calif.-based Salesforce.com. Robinson was speaking at a recent CRM event held in Toronto.

He said the success of Web-based on-demand services would not be restricted to the customer relationship management (CRM) space, but would extend to other business process apps as well. That’s because such services are relatively low-cost, less risky and uncomplicated.

“We believe this is the end of software,” he said, predicting a move away from client-server as a dominant model for delivery of computing technology. “In a short (period) of time, all technology will be delivered (via) the on-demand service approach.” Salesforce.com is counting on its newest on-demand platform – dubbed AppExchange – to move this trend forward.

AppExchange is a Web-based application-sharing service that offers customers a host of pre-built business applications including sales, marketing, productivity tools, customer service, finance, administration and human resources.

Using the service, companies can browse through some 70 applications and test drive the ones they want. Once satisfied, they can install the applications through the on-demand AppExchange system.

Although Salesforce.com does not intend to expand its core business beyond CRM at the moment, AppExhange will enable its partners to broaden their portfolio by using the same on-demand model for delivering their applications, said Robinson.

Salesforce.com currently enjoys market leadership in the on-demand CRM space with over 49 per cent market share, based on statistics from analyst firm IDC. Worldwide, the company has close to 17,000 customers and a subscriber base of over 300,000.

With Salesforce.com’s success in demonstrating demand for enterprise software sold as a hosted, managed service, top-tier ERP vendors like Oracle Corp. and SAP AG have been under pressure to come up with similar offerings. Oracle will become the owner of Siebel’s CRM OnDemand service once its Siebel acquisition closes. Microsoft Corp. has begun offering a monthly subscription licensing option for partners wanting to offer its Microsoft Dynamics CRM software as a hosted, managed service.

Business software giant SAP AG will move into the on-demand CRM market sometime next year, but getting the product right has proved tricky, according to SAP’s products and technology group head, Shai Agassi.

SAP has been participating in test projects and working with customers for some time to craft its CRM strategy, which will likely be offered with both hosted and on-premise options, Agassi said in a discussion with the press at SAP’s annual gathering of industry analysts, in Las Vegas. But the company plans to take its time perfecting the offering, and intends to launch quietly when the software is ready for release.

“We won’t do the kind of announcement Siebel has done,” Agassi said, referring to Siebel Systems Inc.’s dramatic cannonball into the hosted CRM market in late 2003. Siebel’s then CEO, Tom Siebel, predicted the company would dominate the on-demand market within a year. But with Siebel’s current subscriber base of 44,000, it continues to trail Salesforce.com’s over 300,000 subscribers.

SAP was rumored to be planning an on-demand software announcement at its Sapphire user show earlier this year, but the event came and went with no news. Executives later confirmed that SAP was developing a new hosted product slated for 2005. Agassi, however, said next year is a more likely launch target.

“We will come out with a product when we come up with a product that meets the needs of small businesses,” Agassi said. “We have plans that will be clarified when we are ready to clarify them.”

SAP already has a product aimed at mid-market businesses, Business One, a suite it acquired in 2002. But with licensing prices starting at US$3,750 per user, Business One, may not be fit for smaller businesses. SAP sees a market for an even simpler sales, service and marketing offering for customers with little or no IT support seeking a product that’s intuitive and easily managed. That’s what SAP is working to build.

Hosting will be an option for SAP’s new CRM offering but it isn’t the magic bullet for reducing complexity, in SAP’s view. While Salesforce.com has thrived in targeting the sales force automation market, enabling the entire range of ERP functionality is riskier — some companies, even smaller ones, will never be willing to trust their core operational processes to an outsourced provider, Agassi argued.

If a CRM provider has a catastrophe, companies can survive a few days without access to their sales systems. Losing access to accounting and order processing systems would be crippling, he said.

“People will take more risk with edge process than core processes,” Agassi said.

The hosted applications market already includes several companies offering ERP suites, including NetSuite Inc., which has a customer base of around 8,000 organizations. NetSuite has short, scheduled windows of downtime for system maintenance but has not experienced major outages, according to CEO Zach Nelson.

“Over the last 12 months we delivered at 99.9 percent availability,” Nelson said. “These applications are far more available than internally hosted applications.”

For its part, Salesforce.com said it has invested $50 million on its two identical production data centres, ensuring that service is always available for its customers, said Robinson.

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