There is clear evidence that traditional, massive, lumbering costly enterprise software applications are on their way out, just like the dinosaurs, argues Richard Firth, Chairman and CEO of MIP Holdings. Firth says that the inexorable trend is toward more nimble and far more cost-effective ASPs.
How many senior corporate executives have you met recently who are genuinely thrilled with their latest big software implementation? I`ll bet that the answer is very few, whether it`s here, in the US or in Europe.
They`ll tell you that these big packages, bought when budgets were flush, are not delivering the promised benefits. They`ll also tell you stories about the various different suites of products that they bought, none of which work together, nor work as advertised. The tears will run down their faces as they detail cost and time over-runs.
The global software industry is in crisis as a result and that`s not just my opinion. Read the analysts` reports of dissatisfaction among customers of companies like Siebel. Look at the published figures. Siebel`s revenues are down 22% year-on-year. Its core software revenues look even worse - down 34%.
PeopleSoft`s revenues - down 8%. Oracle`s software revenue from applications - down 31%. It`s a bloodbath out there, with more and more clients saying enough!
By way of contrast, the ASPs are booming - and by ASP let`s be clear what I mean: application service providers that develop, run and maintain business software for monthly or annual fees. That definition needs to be emphasised because there are still too many fly-by-night operators styling themselves as ASPs, when all they really do is retail product.
Among the big names are Salesforce.com, NetLedger, RightNow Technologies, Onyx Software, Salesnet, UpShot and Workscape, and, of course, MIP/Progress here in SA. We`ve all come through the post dot-com debacle and emerged the stronger for it. Most of us, if not all, are expecting either double or triple digit revenue growth this year. The figures tell a very clear story: customers are fed-up with dinosaur-like systems that cost many millions up front and simply don`t deliver.
By contrast, you don`t have to look too closely at the ASP model to see why it is so attractive.
First of all, it has a low set-up cost. The monthly fee is much easier to carry, compared with the initial multimillion-rand licensing fees needed for the big systems. It sits in the income statement as a normal, reasonable, operating expense.
Hosted software also has a very low pain component when it comes to implementation. Most ASP software is specialised, focusing on just a single area of the business, like the financials or sales. Therefore, implementation does not disrupt the entire organisation for months on end as a result, unlike traditional ERP.
The ASP route also avoids leaving you with shelfware - software that someone thought might be a good idea, but didn`t deliver, even though you paid for it all up front. To put it another way, if the ASP is not delivering, for whatever reason, it`s easy enough to get rid of - and at a much lower cost.
Because the software is hosted by the ASP, you also place much lower demands on your IT staff. In fact, in some instances, it`s possible to by-pass them completely. Again, there is a significant cost benefit here and you also do not need dozens of expensive consultants hanging around, trying to make all the bits talk to each other. In addition, the ASP looks after all the issues like upgrades and new releases.
The ASP may be run onsite or offsite. Some IT companies actually place the solution onsite to run and manage on an ASP basis. This removes issues relating to telecoms.
What are the downsides to hosted software? The two issues that come up most frequently are security and integration, but are they really a problem? A recent study by the Yankee Group says that while companies are right to worry about the security of their data, they did not find a single instance of data being compromised by a hosted provider. Integration certainly used to be a problem, but this has been overcome through Web-based services and XML, in particular.
Hosted software is a no-brainer. It`s smaller, easier, cheaper, more effective. Most important of all, it`s driven by what the customer wants. One or two of the very big players are beginning to understand this, like IBM, with its focus on services and what they call "utility" computing. The dinosaurs have been dead for 65 million years. They were simply far, far too big and unwieldy. It won`t be long before they`re joined by the dinosaurs of the ERP world.
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