Software-As-A-Service Faces Its Next Big Test - InformationWeek

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11/3/2006
06:05 PM
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Software-As-A-Service Faces Its Next Big Test

Workday, a startup founded by tech industry veteran Dave Duffield, introduces ERP applications as on-demand services.

Demand for software as a service beyond CRM has been slow to develop. An InformationWeek cover story titled "The End Of Software," a slogan later adopted by Salesforce, predicted the rise of software services as far back as October 1999. By Gartner's estimate, however, a mere 4% of ERP and supply chain management software revenues last year were generated by services.

Workday, Silicon Valley's worst-kept secret, will at least raise the profile of on-demand business software beyond CRM. Duffield, 66, started the company 18 months ago with Aneel Bhusri, who guided PeopleSoft's product strategy and business development. Today the Walnut Creek, Calif., company has 65 employees and $15 million in venture funding, plus an undisclosed stake by Duffield.

Not everyone's convinced there's a big market here, including conventional software rivals. Infor, which acquired ERP vendors Baan, Extensity, and SSA Global, offers on-demand CRM and asset management services. But CEO Jim Schaper says the company doesn't see demand for software-as-a-service versions of its financial and logistics applications.

SAP will host any of its applications for customers. But the CRM On-Demand service SAP debuted earlier this year--widely seen as an effort to head off defections to Salesforce--is the vendor's only software-as-a-service offering. Executive VP Doug Merritt won't detail SAP's plans for additional on-demand apps, saying only that the vendor is experimenting with delivery mechanisms for its products as customers ask for them.

Oracle is more aggressive, last month rolling out a new on-demand Siebel CRM app and adding on-demand versions of PeopleSoft Enterprise (HR, finance, procurement, marketing, and sales applications) to its software-as-a-service portfolio. Next week, Microsoft's Office Live service for small businesses will debut, and hosted versions of Microsoft CRM and ERP apps are in the pipeline. Ariba this week will unveil a new release of its spend management application offered in on-demand and on-premises versions.

CUSTOMIZE AND INTEGRATE

Steady GrowthVendors have addressed some of the limitations of software as a service, including the inability to customize the apps and integrate them with other on-demand or on-premises software. Forty-five percent of the 3.1 billion transactions Salesforce processed in the second quarter were conducted through Web services APIs, meaning they involved systems external to the vendor, says George Hu, Salesforce's chief marketing officer.

Salesforce and rival NetSuite recently introduced programming languages that help with customization and application integration. Kaiser Permanente plans to use Salesforce's Apex language and Web services links to integrate the Salesforce apps with its core membership, underwriting, and health care plan pricing systems over the next few months.

Software as a service "no longer means isolated data, because companies are beginning to successfully integrate on-premises data sources and software applications with data and applications hosted by their SaaS providers," according to a Gartner report. More mature integration middleware and greater use of service-oriented architectures help.

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