Changing of the Guard

Computerworld - As you were thumbing through last week's issue, or scanning the news stories on our Web site, you may well have glossed over a story that the more I think about it, the more I'm convinced is one you really should have read.
I'm referring to Thomas Hoffman's story titled "School System Uses Governance Apps to Stretch IT Staff" . No, I'm not kidding. Yes, you need to care what the public school system in Chicago is doing with IT governance and portfolio management. Why? Because the school system is taking a hosted-applications approach to the problem, and that's saving it $200,000 a year.
Yeah, I know, $200k is a rounding error in your IT budget. The point is, those savings scale, big time. And if you haven't already done so, you need to start thinking about how you're going to offload some of those overpriced business apps that you're paying a fortune to maintain in-house.
Last week, I had an intriguing discussion with Greg Gianforte, founder and CEO of RightNow Technologies, an on-demand CRM vendor that does 40% of its business with companies with revenue of more than $1 billion. You can go to RightNow's Web site (www.rightnow.com) and read the testimonials from market research firms and from large corporations that are saving obscene amounts of money by taking the hosted-applications route. But just to give you an idea, Audiovox says it saved more than $2.7 million over three years, with an independently audited ROI of 1,989%. Talk about reducing your overhead.
So when savings of this magnitude are at stake, why isn't the on-demand, software-as-a-service model more widely adopted than it is? Gianforte makes a very compelling argument that it all has to do with the fact that it's nearly impossible for traditional "on-premise" software vendors to offer the hosted option. These are the reasons he gives:

• The software has to be rewritten for "multitenancy" so that hundreds or thousands of clients can share a common IT infrastructure.


• "The whole ecosystem consists of systems integrators that are parasites that feed on the complexity of the applications." For traditional software vendors to really embrace this model, they'd have to alienate their existing partners.


• The on-demand approach is a pay-as-you-go model. The difficulty here is that "when you're used to getting all of your money upfront, it's hard to make the transition to this model and keep Wall Street happy."


• When you get paid along the way, if you're not making the customer happy, you don't get the renewal. "I'd hate to think what SAP's or Siebel's renewal rates would be if it was dependent on the success of their deployments."