On-demand vendors: do as I say, not as I do

One of the ironies of the on-demand application space is that many of the leading names operate their own data centers. This seems somewhat illogical, if not downright hypocritical. On the one hand, they ask their customers to rely on a third party to provide mission-critical business applications. But instead of doing likewise with their own infrastructure, they host in-house.

Greg Gianforte, CEO of on-demand CRM vendor RightNow Technologies gave an interesting perspective on this last week when asked whether his company was a prospect for using Sun's Grid service, which offers its computing horsepower at per-processor-per-hour rates:

He tried turning over his servers to a managed hosting company seven years ago, he said, and the move was a "miserable failure" that has since been reversed. Managed hosting companies want control over computers, but RightNow needs to be the boss in order to keep its equipment running around the clock. "We need control to get that kind of reliability," Gianforte said.

A while back, Talkback contributor Paul C. of South49 commented on a post of mine that using a managed services provider to host on-demand services — even one with proven on-demand expertise — was a bit like using "training wheels for the beginner."

With so many companies, both big and small, entering the on-demand space, there's certainly a need for those 'training wheels' — SAP, for example, hosts its newly launched on-demand CRM offering at IBM. Resource-strapped startups can get help too, from on-demand hosting specialist Opsource, which offers a six-month free beta service. Learning how to manage an on-demand data center at the same time as introducing a new product creates too much overhead, says Opsource's CEO Treb Ryan:

"To be very good at this at the same time as writing the software and developing the customer base is very hard. These companies are getting tripped up by things that are mission critical but they're not really core to the development of the software."

But Paul C's point was that companies would move hosting back in-house once they'd found their feet. His comment was in response to a blog posting I'd written about Jamcracker's Service Delivery Network (JSDN), an initiative to bring together on-demand hosting providers, vendors and solution providers:

"JSDN is simply trying to be a coagulator of these services for those who cannot do it on their own," he wrote. "Hence the need for the training wheels. There's nothing wrong with it — you gotta start somewhere! But I haven't seen a training-wheeled bike win any bike races lately."

Certainly the evidence to date is that the largest and most successful on-demand application providers typically choose to operate their own data centers rather than using a managed service. They simply don't trust third party providers to offer the quality, pricing and capabilities they demand. That's fair enough. But it's difficult to square with their advice to customers that it's better to outsource applications, no matter how large or complex the requirement. Their own behavior seems to imply that outsourcing only makes sense when you don't have the expertise in-house. Once you've acquired that expertise, the message is, bring the operations in-house.