On-Demand: Look Before You Leap

By John McCormick Print this article Print

Hosted applications can save companies time and money—but challenges also wait.

Many software industry watchers say software as a service, where applications are hosted by a vendor and available to customers via the Internet, will become this year an even more accepted form of information processing.

The Cutter Consortium, a research and training group, reported toward the end of January that about a third of all organizations are using on-demand applications, and that 43% are considering it. That statistic mirrors a number put out a few weeks earlier by market research company Forrester, which said 45% of Global 2000 companies were interested in the software as a service model.

There's already an impressive list of big companies using hosted applications, which, according to various reports, includes Air Products and Chemicals, Avis, Coldwell Banker, Dow Chemical, Hyatt, PerkinElmer, SunTrust, Volvo and Yamaha. All are looking to tap into the benefits of the hosted applications model, which promises to drastically trim hardware requirements, eliminate software development costs, and allow companies to forget about the need to push software upgrades out to their workers. There's also the low entry cost, the ability to pay as you go, and the quick setup. And while customer relationship management was one of the first big on-demand packages to gain acceptance, today any number of applications, from enterprise resource planning, to business intelligence, to security software, are available.

But while the advantages can be significant, says Jeffrey Kaplan, "there are unique twists CIOs need to be aware of." Kaplan is managing director of ThinkStrategies, a consultancy that advises both corporate computer users and software vendors.

Perhaps the biggest concern is service reliability. Indeed, it's only been a year since Salesforce.com suffered a string of outages. Granted, by March the company had bolstered its information-technology infrastructure and there were no further incidents, but over the course of a six-week period as many as 350,000 Salesforce.com subscribers were affected.

Then there's the customization issue. While some software as a service companies are offering tools that allow customers to tailor applications to their business needs, there are limits on what most clients can do with the software.

There's the integration issue. Most companies these days are looking to mix and match applications like never before. Yet hosted applications can't possibly have all the hooks needed to link up with the wide variety of software resident in organizations. The ability to do integration efforts "is minor," says Gartner analyst Scott Nelson.

There's the upgrade issue. Just because an on-demand vendor makes an upgrade available doesn't mean people are ready for it. Many times, workers will log on and see an unfamiliar screen of an enhanced application for which they haven't been trained. And, of course, the first thing they'll do is call the company help desk, which is usually unprepared to take the call.

There's the security issue that comes from transmitting sensitive data through a third party.

Then there's a whole other set of concerns that emerge as contracts come up for review. Companies that wanted to test the concept or look at software as a service as a temporary or stopgap measure may find they're more locked in than they thought. And that's especially true for customer relationship management applications. As Forrester analyst Liz Herbert notes, salespeople might be one of the hardest groups to migrate from one software setup to the next. And the chances of a company convincing them to go back to an old model or to move to yet a third platform will be almost zero.

These challenges should in no way be seen as an indictment of software as a service. Quite the contrary. The model makes sense for any number of businesses—and doubly so for many mid-market companies. But in any major information-technology move, it's important to check out all the angles. And that's even more vital when a company is about to entrust its mission-critical business applications to an outsider.

As Kaplan reminds: "There will always be things people don't expect."

This article was originally published on 2007-02-01
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