One of the most frustrating aspects of today's IT-dependent manufacturing environment is the challenge of deploying and maintaining enterprise applications ranging from enterprise resource planning (ERP) and supply chain management (SCM) to customer relationship management (CRM) software. A significant proportion of new application deployments fail to achieve their original objectives, and even successful deployments can often cost far more to maintain than expected.

Depending on the complexity of the deployment, enterprise applications can take months or even years to implement, and they can consume the majority of the IT staff's time just to keep them up and running. And, most major upgrades typically require additional investments in new servers, storage and other IT infrastructure upgrades.

Manufacturers trying to keep pace with escalating competition can no longer afford the extended lag-time of lengthy application deployment cycles. They can also ill-afford the ongoing infrastructure and staff costs to simply maintain their existing applications.

These frustrations have made the manufacturing industry ripe for a new approach to applications called Software-as-a-Service (SaaS). SaaS is the latest iteration in the evolution of the application hosting business that emerged during the dot.com era. Unlike application hosting which houses traditional packaged software applications on behalf of enterprise customers at a remote data center, SaaS entails a new generation of applications that have been specifically designed to be accessible via the Internet.

Application hosting companies, or "application service providers" (ASPs), promised to save enterprise customers money on hardware, power, real estate and staff costs. While they eliminated many of the application deployment and maintenance issues, the ASPs and hosting companies were unable to substantially restructure the traditional packaged software they offered to make them easier to access and use.

In addition to being more easily accessed via the Web -- eliminating much of the dedicated network costs that past hosting arrangements entailed -- the new generation of SaaS solutions exceeds the hosted applications of the past by being easier to acquire and deploy incrementally, or "on-demand."

Most of the ASP and hosting industry pioneers disappeared because they couldn't convince enough mainstream enterprise customers to replace their home-grown or packaged applications, which undercut business models predicated on transaction or seat volume. ASPs and hosting companies couldn't generate enough revenue to offset the tremendous upfront capital investments needed to build and maintain hosting facilities.

The new generation of independent SaaS providers has been led by Salesforce.com and assortment of players aiming at nearly every segment of the enterprise software market. Fast followers include RightNow in the customer relationship management (CRM), SuccessFactors in the human resource management (HRM), Taleo in the talent management segments, as well as NetSuite and Intacct in ERP and Arena Solutions in the project lifecycle management (PLM) area. Intacct, in fact, recently announced plans that would enable Salesforce.com users to create quotes and perform other accounting functions by tapping application logic and data residing in its software service.

The emergence of the independent SaaS providers has created a major competitive challenge for the established independent software vendors (ISVs). Look no further than Microsoft chairman Bill Gates' blunt warning to his top executives in an internal memo that recently became public for a clear indication of the perceived severity of the SaaS threat.