Software as Service Is Evolving Slowly But Surely
Not long ago the dot-com collapse wiped out the first wave of hosted enterprise software providers from the late 1990s, when the term application service provider
(ASP) was born. If it seems that it has taken a long time for companies to regroup and refine the formula since then, that is because it has. A new study from Summit Strategies explains the difficult, sometimes halting and often reluctant transformation from packaged software to on-demand software services, and explores why many of the offerings have not been accepted to nearly the extent originally predicted by analysts and investors five years ago. The report is the premiere entry in a series of papers Summit plans on the on-demand and hosted software markets.
Although the preliminary report focuses primarily on traditional software vendors, author Phil Wainewright, contributing analyst for Summit, says that the success of on-demand providers like Salesforce.com showed the industry how to focus its offerings. "The market they were targeting had a basic requirement for a certain set of functionality that they fulfilled very well. They were successful for very traditional reasons: They identified what the market needed, and they delivered it," Wainewright says. That experience stands in stark contrast to other early attempts to provide CRM and back-office functionality online, which often arbitrarily limited functionality compared with the packaged feature set, and provided no long-term cost advantage.
Wainewright notes that vendors like Oracle, PeopleSoft, SAP, and Siebel have realized many of their biggest online service successes providing stopgap measures to firms engaged in mergers, rapid growth, or office moves. This represents the digital equivalent of running a hotel for business travelers--a model far different from the typical enterprise software contract. "It's going to be very difficult for the traditional software vendors to adjust and still make enough money to stay in business," Wainewright says. Fortunately, they will have time to make the transition--he does not expect the full impact of the on-demand service model to be felt for as many as 10 years.
Many of the adjustments to the model have involved refining the message as well as the target user. Wainewright notes in the report that despite the early promises that ASPs would deliver functionality anywhere, to any device, many hosted and on-demand applications remain tied to a very Microsoft-centric view of the world, requiring a Windows PC and Internet Explorer browser: "The point is not to avoid Windows; the point is to avoid having to distribute and maintain a local Windows application."
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