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On-demand and on-premise markets

What do you think about the "stickiness" of the on-demand market? Is it here to stay, or is it something that will eventually fade or change? Given whatever you think, what is the future of the on-premise market and licensed software?

What do you think about the "stickiness" of the on-demand market? Is it here to stay, or is it something that will eventually fade or change? Given whatever you think, what is the future of the on-premise market and licensed software?

That is an interesting question with a couple of not-often-thought-of nuances. What those of us in the CRM "community"...

(if you can call a set of warring factions that) think is that the on-demand market is here to stay. The creation of the subscriber-based, Web-services directed "Software as a Service" a few years ago -- known then as the "Net natives" or the "application service providers" became an instant hit with the relief that a monthly subscription gave to often exorbitant license and services fees being charged by the big on-premise CRM companies like Siebel, etc. The overhead seemed to be melting away, and the fact that installation and maintenance was done at the host's site was even better. This became more and more sophisticated, and expanded well beyond the sales functionality that it was focused at during its roots, and is now a full enterprise worth of on demand services -- see NetSuite for one model or salesforce.com for another approach. This pretty much spells the long term blues for the on-premise model except in the world of highly secure government facilities at this point -- where data needs to be held by the agency holding it and can't be held through a middle man. Beyond that, the reasoning that supports licensed, on premise software becomes increasingly vague and dim and the future not real bright.

But what is interesting is that, as the on demand world services increase in complexity and availability, both the price differential (over a 3-5 year time period) between it and on-premise decreases -- though the convenience increases by manifolds. Studies have been done that show about a 25% savings improvement for on demand services over the lifecycle of an on premise upgrade (roughly 4 years.) -- which is substantial but not as dramatic as the on demand world promises.

Additionally, the on demand world itself is diverging. For example, NetSuite is becoming the on-demand competitor to SAP. Salesforce.com is focused around being not an SaaS provider but an SaaP -- services as a platform -- foundation with the creation of AppExchange -- an ecosystem of available services built on the salesforce.com platform for both desktop and mobile use. RightNow is focused around the management of the customer experience. Each of the key vendors is taking a different approach so the choices are increasingly complicated, bewildering but increasingly rich too -- all to the advantage of the customer. And if that happens to be you -- then more power to ya.

This was last published in July 2006

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