Interest in software as a service, or on-demand computing as it is often called, is growing but many businesses are still wary and face difficult decisions about what applications to use it for and which suppliers to choose.
Software as a service (SaaS) isn't a brand new concept and has evolved through hosted software and application service providers, but it is only in the last couple of years that on-demand has started to make any great waves in the enterprise market.
A recent poll of IT directors by ZDNet.co.uk's sister site silicon.com found half of businesses are still cool on SaaS, which is either very low priority or not on their radar at all. But it is gaining ground in customer-relationship management, where analyst Gartner predicts SaaS will account for 14 percent of the total market this year.
The choice of vendors for SaaS products is essentially split between two camps. On the one hand there are the on-demand pure-play start-ups, such as NetSuite and Salesforce.com, with their sales force automation and CRM tools, and on the other there are the traditional big vendors such as Microsoft, Oracle and SAP, which have been slow to bring out their own SaaS offerings.
SAP launched its own Business ByDesign on-demand product this week but Rebecca Wetteman, vice president at analyst house Nucleus Research, questioned how different it is to SAP's traditional software delivery model, which she described as "painful, time-consuming and costly" for chief information officers.
Wetteman said: "SAP doesn't understand on-demand and has missed the opportunity."
Microsoft and Oracle both seem to be making a better fist of it — the latter with its Siebel on-demand offering.
Salesforce.com is the high-profile poster boy for SaaS, in no short measure due to the evangelism of its outspoken chief executive, Marc Benioff.
Lindsey Armstrong, co-European president for Salesforce.com, said SaaS can provide quick wins and fast return on investment for under-pressure chief information officers.
Armstrong said: "The way you build applications normally is you spec them and then there is silence for two years. SaaS is more flexible; you can establish a beachhead and it is not big-bang technology."
Armstrong admitted some chief information officers are wary of the on-demand model but said this fear of losing control is an "emotional" response.
Having made its name in sales force automation, which still accounts for around 85 percent of revenue, Salesforce.com is now making a play to become an on-demand platform that customers and partners can build their own applications on — essentially the same play Microsoft made with the Windows operating system.
Wetteman said: "Salesforce.com started under the radar of the IT department with small pockets of deployments. It is now looking to be a platform player, but they need the ears and heart of the CIO."
Fortis Investments, the global asset-management arm of the Fortis group, is one company that has made a move into SaaS, ditching Siebel tools for its sales people in favour of Salesforce.com about three years ago. But Sara Mathijs, business-development project manager at Fortis, said the move to on-demand was initially met with some internal resistance.
Mathijs said: "It took some time to get accepted because it was on-demand. The idea of outsourcing your data was frightening and, at the time, Salesforce.com was a young company and didn't have a track record."
But Fortis Investment now has 160 Salesforce.com seats and is looking to expand that to 200. A possible merger with ABN Amro, as part of the Royal Bank of Scotland bid consortium, could lead to an even bigger rollout, as ABN Amro currently uses Microsoft.
Mathijs said return on investment is difficult to quantify but claimed there is now less data pollution, more transparency and better cross-selling in the sales department as a result of the switch to on-demand tools.
Wetteman said interest in SaaS is generally growing despite concerns about customisation and integration — making the software fit with unique business processes and integrating it with existing legacy systems.
Wetteman said: "Large companies looking to consolidate the delivery of business applications are looking at SaaS. We see more and more adoption."