On-Demand Software Goes Mainstream in 2006

The platform tries to resolve the "state of diminishing returns" that business users face in having to access disconnected applications, Web sites and services that they need to use to perform their jobs every day, he said.

The platform can provide instant links to key service providers such as United Parcel Service, Federal Express or the U.S. Postal Service for shipping, local dining guides, travel reservation services and suppliers of all kinds.

These days, individual employees have more responsibility than ever for handling travel arrangements, conferencing and shipping rather than referring them a central office or administrator, Grady noted.

Read more here about why Software as a Service is emerging as a long-term rival to software that is installed on premises.

The Rearden platform is designed to give organizations better control over their service expenditures and help maintain relationships with preferred suppliers, thus improving employee productivity, he said.

Software industry entrepreneurs and venture capitalists are both strongly interested in SaaS in terms of the business value and potential return on investment it offers, said Drew Clark, co-founder and director of strategy with IBMs Venture Capital Group.

SaaS is appealing to entrepreneurs because "they dont have to go out and hire a direct sales force. They dont have to hire technical marketers to go out to demonstrate the product," because they can do that from the hosted facility, he said.

As a result, Clark said the industry has reached "an inflection point in how software is delivered and consumed using the software- as-a-service capability," he said.

This is also reflected in VCs investment decisions. "Several of our VC friends have told us recently that they really are only investing in new companies that bring their innovation forward as a service model," Clark said.

SaaS and open-source software is a powerful combination because it allows new ventures to leverage the large community of open-source developers and the on-demand delivery model to bring new products to the market "at a very low cost."

Click here to read about why RightNow Technologies CEO Greg Gianforte claims that the combination of on-demand and open-source software is a good deal.

The combination is "dramatically driving down the cost of being able to get to your first beta or your first customer," he said.

Clark cited the estimates of Joe Krause, founder of Excite Inc. and now the founder and CEO of the JotSpot Wiki workgroup collaboration service, who was able to launch his latest venture for only about $100,000, 30 times less than what it cost him to launch Excite.

These savings are passed on to software buyers in terms of lower license fees and because they dont have to invest in the IT resources to support the on-demand applications, he noted.

Certainly, for small and midsize businesses "2006 will be a huge year for the acceptance" of SaaS, Clark said. This wont necessarily be true for large enterprises, however.

"They have a lot of other issues, such as legacy integration and customization that might take a little bit longer to resolve," he said.

Next Page: Gaining customer acceptance.

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