On-demand software is changing the entire software ecosystem

Apps on tap create a new market opportunity

Call it what you will - On-Demand Software, Software as a Service (SaaS), Hosted Software, Agile Enterprise, Business-on-Demand, or the Adaptive Infrastructure -- it's changing the nature of IT. The idea is very simple; rather than buying, implementing, maintaining, and then upgrading software in-house, you gain access to solutions that are developed, hosted, and maintained by third parties and you pay only for what you need. It sounds too good to be true.

The rise of on-demand means the rise of a new ecosystem that works in a very different way from a traditional software ecosystem. While SaaS is far from a new idea, the economic climate and the rapid development of new tools have combined to make today's providers more successful than their predecessors.

Nearly every established software vendor is being forced to determine how to revamp its software to the SaaS movement. This is far from being a small challenge. It is new territory for all involved. While the majority of subscriptions will typically span several years, software vendors will need to concern themselves not just with the initial sale, but the ongoing software renewals. This also creates a new culture for vendors where customer service, user adoption, and easier implementations will become critical standards.

Last week SAP unveiled Business ByDesign, an on-demand business software solution specifically addressing the market of prospective fast-growing midsize customers. The software solution is designed around four key principles, completeness, ease-of-use, adaptability, and significantly cutting cost of ownership. SAP is also offering a personalised trial for invited customers at $149 per month. What have you got to lose?

"This unveiling is a promising start for SAP, which is firming up the go-to-market model with wide reseller support, demonstrating needed application scalability for midsize companies that intend to grow and solidifying linkages between existing applications and the new solution," said Henry Morris, senior vice president for worldwide software and services at IDC.

The indirect channel is key to the SMB market and the eventual success or failure of the on-demand market. SAP is looking to build its base to more than 100,000 customers by 2010 using Business ByDesign to attract companies with between 100 and 500 employees.

There is a huge market opportunity here, because the on-demand model removes geographical boundaries and vendors and their partners will be able to service remotely and build global practices at much lower costs. It's not surprising that on-demand is creating so much interest plus heated debate and a broad spectrum of opinion regarding its likely impact on both users and vendors.

Len Rust is publisher of The Rust Report

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