While leasing business software over the Web may be the latest fad, packaged boxes are not about to disappear anytime soon.
Popularized by Salesforce.com, delivering software-as-a-service (SaaS) makes it a breeze for companies to use applications such as customer relationship management (CRM) and enterprise resource planning (ERP).
That is because companies do not need to own expensive hardware to house their applications, or fumble over disparate systems. Instead applications are hosted on the Internet with service providers such as Salesforce.com, NetSuite and RightNow, and accessed through a Web browser for a subscription fee.
Interestingly, Sun Microsystems had this vision more than 20 years ago, when it proclaimed that "the network is the computer". However, it is only in the last few years that the idea started to take root, with the entry of Salesforce on-demand CRM and online office productivity applications from startup Writely, which Google acquired in March this year.
Detractors who think this new software delivery model is still untested might be right in some instances, but the SaaS wave seems unstoppable. According to analyst firm IDC, worldwide spending on SaaS will balloon over the next few years, registering a compound annual growth rate of 21 percent to top US$10.7 billion in 2009.
Jeffrey Kaplan, managing director of THINKStrategies, a U.S.-based consultancy, said the future of software lies in the SaaS model, because it is easier for users to adopt and utilize software. Compared to the traditional packaged software model, SaaS has the prospect of greater return-on-investment, while reducing the total cost of ownership, he told ZDNet Asia in an e-mail interview.
According to NetSuite CEO Zach Nelson, SaaS offers a good value proposition. He said: "When an on-premise application and on-demand application equally meet the requirements of a business, that business will choose the on-demand every time, because of the reduced cost and increased capabilities of a Web-based application."
But there will always be a segment of customers who prefer packaged applications, and in many situations, packaged applications still make sense, Kaplan noted. "Most organizations will use a mix of packaged apps and SaaS, and many ISVs will have a portfolio of both," he said.
When the cost and effort required to install and maintain an application is negligible, Kaplan added, packaged software will appeal to companies, more so than SaaS. It also makes sense when an organization needs a highly-customized solution that meets its business requirements.
On-demand vendors like Salesforce and NetSuite, in a bid to dispel skepticism that SaaS offerings do not tout the sophistication and customization provided by packaged software, have plugged gaps in their product lineup.
NetSuite has addressed the difficulties in melding on-demand software with mission-critical enterprise applications, a common bugbear among large businesses.
Nelson said: "We facilitate communication between NetSuite and legacy or third-party systems via standard Web services. We also facilitate business process management via our SuiteScript capability for customized business process automation."
Salesforce, too, has its AppExchange platform which, coupled with a deluge of third-party applications, will provide the integration points to legacy systems.
Small and midsize businesses (SMB) have been most receptive to SaaS, forming the largest group of users for on-demand software providers.
Skyline Apac, a Singapore-based distributor of computing peripherals, jumped on the on-demand bandwagon with NetSuite last year. The company has 10 employees.
Felix Chin, director of Skyline Apac, told ZDNet Asia: "We were using Quickbooks which isn't really an ERP solution. With on-demand, our employees can centrally manage inventory and sales over the Web."