Today the market for business applications delivered across the Internet as services is a healthy one, and only getting healthier as it feeds on what analysts say will be a steady diet of new subscriptions in coming years.
This burgeoning brand of software delivery is a latter-day twist on the hosted applications model that fell out of favor with the dot-com bust. Although businesses can still find plenty of vendors that will host their ERP or other applications off-site, the alluring wrinkle in the software-as-a-service (SaaS) model is that all the businesses using the application tap into the same instance of the software, a shared model that allows providers to lower the cost of ownership.
In fact, so alluring are applications delivered as a service, or on-demand, that in 2006, research firm Gartner predicted that they will account for 25% of the business software market by the year 2011. In a more recent research report, Gartner said that on-demand enterprise applications — which it defined as CRM; ERP; SCM; digital content creation and office suites; and content, communication, and collaboration tools — are expected to top $5.1 billion in sales in 2007 and continue to gain steam through 2011, when Gartner says they will produce $11.5 billion in revenue.
Of course, only time will tell which vendors will ring up those sales. The early superstars of the SaaS era, including Salesforce.com and NetSuite, are now joined by new entrants intent on cutting their slices before the pie cools off. In the ERP market, Workday Inc. and SafetyNetOnDemand have joined on-demand stalwarts such as Plexus Systems and Glovia.
Workday's pedigree would appear to bode well for the upstart. Its founder is Dave Duffield, who founded PeopleSoft two decades ago. When PeopleSoft was acquired by Oracle in 2005 after a protracted buyout struggle, Duffield decided to apply his talents to a new company dedicated to delivering core ERP functions over the Internet.
Workday emerged in late 2006 with its first application for human resources management. Since then, the company has gained approximately 25 customers and launched applications for financials and resource and revenue management in what Forrester analyst Ray Wang calls a "slow, controlled release."
SafetyNetOnDemand, meanwhile, emerged from stealth mode this fall, offering five core functions based on compliance and delivered via an SaaS model: HR, hiring, safety management, fleet management, and asset management. The vendor is targeting companies with as many as 50,000 employees in the fields of healthcare, pharmaceuticals, manufacturing, facilities management, and utilities.
The upstart offers its applications for $100 per user, per month, and plans to release additional functionality, including CRM, SCM, financials, inventory, field services, PLM, manufacturing, GRC, mobility, and others every few weeks.
A representative for SafetyNetOnDemand would not reveal whether it had signed any customers. The company is self-funded and makes its home in Wayne, PA, just a few miles from the headquarters of SAP America.
In a research note in March, Gartner Research Vice President Ben Pring wrote, "For large, established IT solution providers, the SaaS market so far hasn't appeared to have enough incremental growth potential to meaningfully contribute to revenue growth."
The vacuum, Pring went on, has created an opportunity for smaller players and upstarts to ply their offerings. Of course, such vacuums don't last long, as applications king SAP proved in September with the announcement of its Business ByDesign product, an applications suite for companies with 100 to 500 employees.
ByDesign will cover eight major functional areas: financial, customer relationship, human resources, supply chain, supplier relationship, project, compliance management, and executive management support. Analysts disagree over whether ByDesign should be considered true SaaS, since SAP will deliver the product from a database that features "isolation per tenant."
Although SAP will have its work cut out for it in pitching ByDesign to a mid-market segment that already buys its Business One and All in One products, its estimable position as the applications leader means it won't have to shout above the throngs to be heard.
Meanwhile, veteran on-demand provider NetSuite is readying its technology for vertical specialists. NetSuite, which provides mostly small and mid-sized companies with on-demand applications for accounting/ERP, CRM, and various e-commerce functions, recently introduced a product for its application development platform called SuiteBundler. Using the new offering, NetSuite's services partners can create vertically oriented applications within the NetSuite environment for companies in different industries.
SuiteBundler and similar offerings, such as Salesforce.com's force.com open development platform, represent an attack on one of on-demand's perceived shortcomings: its lack of customization. Couple that with a growing field of providers, and SaaS starts to look truly disruptive.
This article originally appeared in the December 2007 issue of Managing Automation.