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Article
On Demand Hits Its Stride

Last year, we predicted a migration path for the types of On-Demand applications that would be attractive to adopt. Some, obviously, have already happened--CRM, Supply Management, and Transportation Management--and it looks like the markets are now believing and buying!


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Introduction

By now, we have all heard about On-Demand: a name for the Me generation (which is every generation).  However, even now, not that much is understood about what makes a system On-Demand, what constitutes a real On-Demand Service Provider and what are the serious pricing models and long term impacts on the technology market.

We frequently discuss these issues [1], but technology buyers are learning rapidly, the market is evolving quickly, and providers are maturing. So, the subject merits review here again. 

If you still don’t take this market seriously, witness the demise of Seibel, the so-called unstoppable CRM solution.  How could the On-Demand solution, Salesforce.com, only one tenth the size of Seibel, unseat this firm?  Maybe it’s the over 350,000 subscribers who have gotten onboard in the last five years.

License revenue as a percent of total sales in the software industry continues to drop. Although it’s hard to discern from traditional technology companies’ financial statements, (they don’t provide these services on-demand or they don’t report them) services in general are on the rise. There are a couple of reasons for this: “Fix what I bought,” is one. The other is the On-Demand phenomena. The firms who offer these approaches continue to grow in subscribers, services, transaction and revenues.

Encarta, Hoovers, your cell phone, for example, all are based on this model and work swimmingly well! Ask your kids.  Encarta costs only $4.95 a month! This leads us to think about the financial implications of On-Demand for service providers. Lurking, and not so hidden, is its impact on price. The fundamental question everyone must ask is, “how low will it—can it—go?”

And can old line companies restructure their operating costs, as customers make the transition to these On-Demand services. If software companies continue to rely on old models of making products, supporting products and selling products, you have to wonder if they can make it.

Last year, we predicted a migration path for the types of On-Demand applications that would be attractive to adopt.  Some, obviously, have already happened--CRM, Supply Management, and Transportation Management. (Many of the vendors in the e markets, though, are not On-Demand, it must be said.), and it looks like the markets are now believing and buying!

Not Child's Play

Yes, your kids know all about On-Demand, but this stuff is not child’s play!

Vendors like GT-Nexus tell us about huge expansions in their transaction bases as well as the many services beyond basic technology they can provide their customers (Read The Data Detectives).  There are large value propositions for their customers. 

Accuship talks about the sophisticated infrastructure that must be in place such as physical and data security, audit, and scalability architecture to support the customers’ expanding transaction and connectivity base. (Figure 4)

Figure 4

A Revolution!

Cynicism abounds in the technology markets, with the kings of large corporations removed from their subjects, their customers. We hear about their yacht races and their great wealth, but for customers waiting for value, it might feel like a replay of ‘taxation without representation’. Gone are the days of PeopleSoft’s Account professionals [2] .

On-Demand realigns values between the customer and services firms. Since the service firm, ‘does not go away’, and with low upfront costs, the chance at break-evens and ROI earlier in the game are real.

One of the most clever and thoughtful documents we saw this year coming out of the On-Demand market was from Ketera. In full flair and with a bit of levity, yet addressing the proclaimed grievances of users everywhere, we provide it within this article.

            ............................................................................................................................. "The customer bill of Rights." View larger version.

                                                                            

The Product Paradigm Regained

Software is the only industry that gets to sell products at outrageous prices—all up front—frequently with the promise of later product delivery and even later returns!

Imagine buying a television, but you get only a few components of the television—the sound works but not the picture. That’s in the next release.  And you won’t get that unless you spend 12-20% a year in support costs.  Oh, and did we mention the installation team moves in to install the TV for a few months to get it working?

Yet, this is what the software industry expects its customers to accept. On-Demand’s goal is to declare its independence from the old empires and retrieve the concept of a PRODUCT.

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[1] To learn more: On-Demand Now Research Report

[2] The role of these professionals was not sales, but only to ensure customer issues were being addressed.

 

 

 




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