Purchasing business applications as hosted services is an option again, after the whole concept faltered a few years ago. Today these services are mainly being delivered by a small number of niche vendors. Will they remain in their niche or will hosting go mainstream, forcing change on the established vendors who deliver their business applications as licensed software?
Oracle's Larry Ellison seems to think so. He has high hopes of his independent NetSuite venture, which he believes will be big. He is just not sure how big. NetSuite is a supplier of hosted business applications, 60 per cent owned by Ellison. They offer a hosted business suite which includes customer relationship management (CRM), enterprise resource planning (ERP) and ecommerce capabilities. It's a hosted combination they consider unique.
Salesforce.com is better known. It too offers hosted business applications but its starting point, as the name suggests, is sales force automation (SFA), including all the CRM capabilities to support sales and marketing departments. Salesforce.com built its product from day one to be sold as a hosted application. Others have migrated from a licensed software model.
Today, RightNow Technologies earns 90 per cent of its revenue from selling hosted contact centre solutions, largely abandoning an earlier licensed software model. It provides the different components that contact centres require for multi-channel customer communications, including internet chat and self service as well as traditional voice communications. Recent inclusion of a CRM engine at the back end has bought them into direct competition with the traditional vendors in this market.
Another vendor is Streamdoor which offers a hosted IP contact centre solution. It has a close partnership with Cisco, on whose technology the offering is mainly based. This is traditional call centre stuff, inbound and outbound dialling, call recording, unified messaging and so on. One thing that makes Streamdoor different is that it is a Europe-based venture, housed in London, U.K..
This raises the question - does geographic location matter when considering hosted solutions? This is one of the objections often raised. NetSuite, Salesforce.com and RightNow all host out of the U.S. but do not see a problem with selling their solutions in Europe. They can do this because of the huge bandwidth available to transatlantic IP traffic. The networks developed during the late 1990s mean the geographic location of a hosted solution should not effect where it is sold. The limiting factor is often a prospect's own internal IP network rather than the global one.
The hosted model supported by all these vendors has been most successful in the mid-market and for departmental deployments in enterprises. One of the problems with earlier attempts to deliver hosted applications was the cost of the platform on which they were running. This was because each hosted customer would have their own instance of an application running on its own hardware.
These days most support a multi-tenancy model, which allows them to host multiple customers on the same box, keeping hardware costs down. This is another concern that prospects raise, the idea of storing sensitive data on the same server as another organisation is anathema to them. But in reality the technology used is mature and quite capable of keeping customers isolated from each other.
The vendors who have traditionally supplied business applications to the mid-market are keeping a close eye on these upstarts. Some, like Onyx and Pivotal, are offering limited hosted solutions, either themselves or via partners. Others, like FrontRange, have announced their intention to do so. However, all of them, including one of the largest, Sage, are more worried about a threat from another upstart supplying business applications for the mid-market.
In the last 18 months, Microsoft has turned its guns on its own ISVs and built or acquired a range of applications for the mid-market. Microsoft has great expectations for its Business Solutions unit but is cagey about hosting. Microsoft remains strongly focused on selling and delivering licensed solutions and, while it has some hosting partners for its email and portal products, hosting business applications is something it has not announced plans for in Europe.
Another group of vendors observing the hosted applications market with interest is the enterprise application vendors. They too, traditionally supply their products as licensed solutions and some of their products would be hard to adapt for a hosted environment. They are all keen to get into the mid-market as they have seen their enterprise revenues dry up in the last few years. Some are looking at a hosted model.
SAP has released mySAP All-in-One, a reworked version of its business suite for enterprises, aimed at the mid-market. Some of its partners are offering this as a hosted solution.
Siebel is having another crack at the mid-market with Siebel OnDemand. This is a new product to be hosted and supplied by partners. Globally it is working with IBM, calling into question IBM's ISV neutrality. In the U.K. Siebel is also working with BT, which has also announced availability of its own version of Siebel OnDemand, which sits alongside its own hosted call centre solution, Contact Central OnDemand.
With Larry Ellison owning 60 per cent of NetSuite, you would think there would be little need for him to offer Oracle's E-Business Suite as a hosted solution. In fact, Oracle does have some hosted offerings. If NetSuite is as successful as he hopes, Ellison will have an interesting conflict of interests.
The availability of hosted applications offers customers a choice they did not have before. Early successes for some of the vendors are making the traditional licensed vendors take note. But as end user scepticism about outsourcing the management of sensitive business applications remains, the jury is still out – hosting business applications is yet to go mainstream.
A leading, user-facing analyst house known for its focus on the 'big picture', Quocirca is made up of a small, elite team of experts in technology and its business implications: Clive Longbottom, Mark Boulding, Dale Vile, Jon Collins and Bob Tarzey. Their series of columns for silicon.com seek to demystify the latest jargon and business thinking. For a full summary of the consultancy's activities see www.quocirca.com, or reach the company's founding directors by emailing email@example.com.