On-demand software was expected to take the business world by storm, but instead it's slowly rippling across the corporate landscape.
There's a lot to like about on-demand software, particularly from the standpoint of a smaller business. On-demand is a way to buy application functions -- rather than the application itself -- from a vendor.
Business employees access this software over a network through a browser or thin-client computer and use it when they need it, paying only for the time and applications they use. (Thin-client computing trims the "fat" of processing, applications and storage away from the end-user PC and bulks it up onto centralized servers.)
Small businesses, in particular, like the approach because it's often cheaper and easier to use more complex applications like customer relationship management (CRM) in this way. A small company typically can't afford to buy and support this sort of application themselves.
But market confusion abounds -- both in what on-demand is and who the vendors are that deliver the service. There are a number of software service models that might look like on-demand -- hosting and application service provisioning (ASP), for example.
But the difference with on-demand is "multitenancy." It means that multiple customers can access the same software and applications.
An individual customer can customize or uniquely configure their own interfaces to view the on-demand software, but they can't make changes to the software source code.
On-demand vendors maintain these and that's the key to rapid and economical product development, bug fixes and upgrades to the software.
On-demand entered the market with a bang a few years ago with lots of hype and slow business adoption. It has since found a niche in CRM, content management, collaboration and e-commerce applications. Recent research suggests there's a flood of companies wanting in the next year to ride the on-demand wave.
Nucleus Research Inc. of Wellesley, Mass., in its recently released report -- "Benchmarking: On-demand Solutions" -- observes that 64 per cent of 198 respondents to a Web survey say they plan to consider implementing a new on-demand solution in the next 12 months. Already 51 per cent of these same organizations say they use on-demand solutions.
The appeal of on-demand lies in ease of management and the ability of customers to rapidly deploy the software, according to Rebecca Wettemann, a vice-president at Nucleus.
For smaller companies, on-demand gives them the same applications and IT support that only bigger companies might afford. Larger businesses using on-demand see the ability to quickly add users and focus in-house IT staff on key business goals, rather than application support, as the core value.
The Nucleus report notes that while early marketing pitches for on-demand focused on lower initial and continuing costs, only 9 per cent of companies surveyed say low total cost of ownership was the primary reason for choosing on-demand.
Other factors weigh more heavily. One in four companies say it's the ability to rapidly implement on-demand software that is the primary motivator, while one in five survey respondents say ease of use is the reason.
But misunderstanding and confusion, as is the case with most new IT concepts, appear to be inhibiting an on-demand explosion. Nucleus reports that while many vendors compete within the on-demand market, not all of them offer true on-demand solutions.
"Vendors who offer hosting are [often] positioning themselves as on-demand," Ms. Wettemann says. "Not that hosting is bad, but it's not multitenancy."
Even more alarming is a lack of understanding by customers of what is an on-demand provider. The Nucleus survey shows 10 per cent of respondents unable to name a vendor associated with on-demand.
Three of the most often identified on-demand vendors -- IBM, Microsoft and SAP -- don't currently deliver multitenancy products.
The greatest inhibitor to adoption of on-demand by customers, according to the Nucleus survey, is reluctance by some to outsource IT functions and processes. A total of 27 per cent of survey respondents say they will not adopt on-demand because it doesn't fit within the business culture.
Ms. Wettemann interprets that to mean that such companies as a rule simply will not consider offloading IT to third parties.
And as with most IT offerings where customers are asked to entrust others with their information and important business tools, security concerns remain.
Ms. Wettemann admits these issues are often raised by prospective customers, who may not believe their data are secure and protected if it happens to reside on the outside.
The fact is that 16 per cent of customers surveyed say they avoid on-demand products because of security concerns.
Hand-in-hand with security is the issue of vendor viability. That's a usual concern with emerging technology services and ideas, but time seems to have diminished this particular customer fear. According to the survey, only 11 per cent of respondents say they have vendor viability concerns.
"If we had done this survey two years ago, [vendor viability] would have accounted for the lion's share of concern," Ms. Wettemann says.
"It's the sign of a rapidly evolving marketing. I think it's good news. There is a lot of competition and very interesting innovation going on in the on-demand marketplace."
Dan McLean is editor-in-chief of publisher ITWorldCanada.com.
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