What's behind on-demand software's rise

Corporate IT is being drawn to the concept of software delivered as a service and its promise of less maintenance and lower operational costs. Vendors are responding with innovations and commitments to offer the model of hosted application services.

Software-as-a-service is a model of delivering software over the Internet, eliminating the need for companies to buy, build, manage and maintain infrastructure and applications. The concept has its roots in the application service provider (ASP) revolution that fizzled in the late 1990s, but it is now white-hot with its promised IT benefits and is putting pressure on vendors of traditional shrink-wrapped software.

Two recent surveys show that corporations are betting that software-as-a-service is a part of their future.

Network World - Corporate IT is being drawn to the concept of software delivered as a service and its promise of less maintenance and lower operational costs. Vendors are responding with innovations and commitments to offer the model of hosted application services.

Software-as-a-service is a model of delivering software over the Internet, eliminating the need for companies to buy, build, manage and maintain infrastructure and applications. The concept has its roots in the application service provider (ASP) revolution that fizzled in the late 1990s, but it is now white-hot with its promised IT benefits and is putting pressure on vendors of traditional shrink-wrapped software.

Two recent surveys show that corporations are betting that software-as-a-service is a part of their future.

A survey released in November by AMR Research shows that more than 78% of 500 respondents across major vertical industries and company sizes are currently using or considering software-as-a-service. Only 18% said they have no plans to consider software-as-a-service.

In an October survey of 118 IT professionals by Cutter Consortium, an IT advisory firm, 65% of respondents said they were using or considering software-as-a-service, while 35% said they are not considering it. Of the 34% who are considering adopting software-as-a-service, 82% said they plan to do it in the next six to 12 months.

The most popular applications under consideration are CRM, salesforce automation, ERP, human resources management and supply chain management.

"Users are saying I would be nutty not to at least give [software-as-a-service] strong consideration going forward," says Bill Gannon, vice president of consulting for AMR. "Whether they do it is another item, but upwards of 60% of customers are saying to get on my short list, software-as-a-service is one of the key criteria I am looking for. What they are saying is they recognize all the promised benefits of decreased cycle time, faster time to value, lower cost per user, lower [total cost of ownership], not to mention the change in the economic model from a capitalized expenditure to a manageable [monthly] expense."

Users who have made the jump are satisfied not only with the applications but with the concept.

"We don't want to invest in a lot of software. We have in the past and now it is shelfware because it did not work for a variety of reasons," says Ed Barrett, vice president of marketing for CareRehab, a medical device manufacturer in McLean, Va., with some 80 salespeople spread across the country. He says ROI has been faster because the upfront costs are lower. "In our case we only need to improve inventory management by 5% and we pay for the application."

Barrett also says CareRehab is not interested in its five-person IT staff being high-tech experts, and he uses himself as an example: "I am the primary administrator of the system and I'm a marketing guy. It is unusual for me to have the capabilities to help manage our sales and inventory and be a marketing guy."

CareRehab uses software from Salesforce.com, an online CRM-centric platform CareRehab has customized to handle its need to track inventory, which is scattered in clinics across the country.