FSN: Is ERP and financials ‘on demand’ actually in demand?

Is ERP and financials ‘on demand' actually in demand?

8th October 2007
Recent weeks have witnessed frenzied activity around the ‘on demand' business model for business software. Sometimes called Software as a Service (SaaS) the idea behind the concept is to provide the software for rent over the internet. The supplier takes responsibility for providing, supporting, hosting and securing the applications leaving the customer unencumbered by technology and infrastructure. Gary Simon, FSN's managing editor looks at the rapidly developing market for ‘on demand' solutions.

Originally popularised by suppliers of CRM software such as Salesforce.com the concept is clearly branching out into mainstream accounting, financials and ERP software as well as Business Intelligence. In an environment reminiscent of the heady DOT com days suppliers seem to be queuing up to announce some form of ‘on demand' provision. But unlike the DOT com era these vendors are not fly by night players. Serious contenders include the likes of SAP, CODA and Business Objects. This is in addition to more specialist and established providers of business systems over the web such as NetSuite. But is the ‘on-demand model' a fashion accessory or will it become a mainstream and accepted method of software delivery?

The notion of supplying software for rent is not new. The early introduction of mainframe computers in the 1970's led to the concept of time-sharing where expensive and relatively scarce computing power was divided up amongst customers into affordable time slices. Since then the price of computing power has fallen dramatically and the performance has increased immeasurably – good reasons one would think for keeping computing capability in house. But constant changes to hardware, operating systems and communications capability has greatly increased the burden of running systems in-house.

Mistakenly, people often think that business size is a key determinant of the suitability of the on-demand model with small businesses standing to gain the most. But this is not the case according to Craig Sullivan, VP International Products at NetSuite, one of the most established ‘on demand' suppliers. Talking to FSN last week he said, “Size of business is a red herring. Geographical distribution and business complexity are the real drivers of the ‘on demand' model. Infrastructure is costly, time consuming and complicated to maintain so organisations that need to connect different parts of their business across different regions are quick to benefit from ‘on demand' provision. Judging suitability in terms of number of employees can be very misleading.”

Complexity is the other main driver. Comprehensive and strongly integrated ERP, CRM and e-commerce capability is often out reach of many businesses, so they end up implementing point solutions or manual work arounds designed to fix a particular problem. “This is costly and inefficient. An integrated business suite provides the workflows and process support to make businesses more efficient,” he adds.

Unlike many other providers, NetSuite is a pure play vendor of ‘on demand' applications and is riding high on the rising popularity of the model. “The entry of SAP into this market simply validates what we have been doing for eight to nine years and is helping to bring our message to the masses.” But Sullivan warns that being an ‘on demand' supplier is more than simply plonking traditional ‘on premises' solutions on a server and putting up a “for rent” sign.

“You need to know how to host applications with high availability, reliability and performance. It's a different business and one wonders whether traditional suppliers who promise a conversion to an on-premises solution when the customer is ready are really committed to the ‘on demand' model. The problem for traditional suppliers is that they have to protect their existing business. They are in danger of cannibalising their other revenue streams,” Sullivan told FSN.

Jeremy Roche , CEO of CODA, the financials software house is upbeat about the prospects for the ‘on demand' model having recently announced CODA's tie up with Salesforce.com. He told FSN, “We are not getting people coming to us saying that we want financials delivered as a service but they are certainly talking about it.”

“It's very hot in the US – much more so than in Europe . I've just come back from Salesforce.com's customer event in the US . There were seven thousand people and the clamour was like religious fervour. Salesforce.com has a track record and people are asking what else can we do using this business model? There is a very high level of excitement and we ran out of enquiry forms,” he adds.

Steve Lucas, VP of ‘on demand' business at Business Objects, the Business Intelligence vendor agrees. He told FSN, “The desire for the ‘on demand' model is more user driven than any other product I have ever seen, right across the board. We were selling 10 to 20 user systems straight from the SalesForce.com conference floor.”

Business Objects is selling its complete suite of business intelligence software on demand and already claims over 50,000 subscribers. But it has also released a solution specifically designed to work with Salesforce.com datasets that provide more in-depth analysis, reporting and real-time dashboards.

“It is not cost that is driving the decision – I don't think people are saying it is because it is so cheap. It is because people can skip all of the IT related burden. They don't have to acquire hardware and infrastructure – they can get up and running with 25 pre-built reports on Salesforce data within hours.”

“On other projects we've seen quite big data warehouse projects completed in a matter of weeks without heavy IT involvement,” he adds.

According to Lucas customers are becoming less concerned about data security and confidentiality – one of the possible barriers to embracing the ‘on demand' model. “Today people move sensitive data around in email, spreadsheet attachments and PowerPoints – possibly the least secure way of sharing information. The ‘on demand' provision is probably more secure than the in-house alternative. Concerns about security are more perception than reality,” says Lucas.

Despite the heightened excitement around ‘on-demand' provision CODA's CEO is realistic about the market opportunity. “Some people seem to think that all you have to do is put your applications up on the web and customers will buy on-line immediately and be live by the afternoon. It's not quite like that and the sales effort is just as arduous as traditional sales. We try to create applications that customers want to use and satisfy real business problems. Software as a Service will stick but it is not necessarily what everyone wants. They may be interested in ‘on demand' software but really they are often simply looking for good financial software. If the solution is weak it doesn't matter whether it is delivered as a service or on-premises,” says Roche.

But Netsuite's Sullivan sees enormous growth potential. “The uptake of broadband services has been key to growth and there is plenty of pent up demand. There are barriers such as lack of awareness and “server-huggers” who have a perception of greater control in-house but the advantages of the ‘on demand' model are significant,” he says.

It takes time for a new business and economic model to establish itself but speed of deployment, reduced IT complexity and the need for fewer specialist IT resources is proving persuasive. There is significant demand for ‘on demand'!

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