On-demand Software To Cause Radical Changes to the Enterprise Software Industry

ChainLink Research cites fundamental, permanent shift in software economics as disruptive technology restructures the market

ChainLink Research cites fundamental, permanent shift in software economics as disruptive technology restructures the market

Cambridge, MA — October 25, 2004 — The enterprise software industry will undergo a radical shift as new on-demand software services dramatically restructure the economics of developing, delivering and supporting business software, reducing the total cost of ownership by over 50 percent.

Those are among the findings of a study concluded recently by ChainLink Research, a supply chain technology research organization. Over the next three to five years, the growth of on-demand software will drive an evolution in how enterprise software is developed, delivered, and supported, recasting the vendor landscape and the relative power positions of today's providers, according to Bill McBeath, chief research officer at ChainLink.

The emergence of on-demand software is not an isolated trend, it is a fundamental, market-altering shift in how software is built, bought, delivered and used, noted McBeath. It has already taken hold in the [customer relationship management (CRM)] market and quietly, but pervasively, in the transportation management software market, he said. We see adoption emerging also in [product lifecycle management (PLM), enterprise resource planning (ERP)] and overall supply chain markets. The economics make widespread adoption of on-demand inevitable.

The trends and opportunities revealed by the study are good news for business software consumers, said McBeath. On-demand is driving down the cost of business software, and the risks assumed by the user, McBeath predicted. It will also create healthier, more efficient software companies with much more predictable financial performance.

Study's Findings Confirm Dramatic Impact of On Demand

The research report revealed widely divergent viewpoints over what is meant by on demand. To bring clarity, ChainLink Research established three simple criteria for determining the degree to which a software offering is on demand:
* Pay-as-you-go
* Instant deployment
* Single instance

In addition to describing these criteria in detail, the report investigates a number of issues and factors, and provides useful guidelines for companies to consider in developing on-demand strategies. Among the areas covered are the economic impact model, expected adoption rates, the impact on software vendors, the impact on IT organizations, and the impact on end users.

The study interviewed global firms that today have deployed an on-demand software solution. Companies interviewed ranged in size from $250 million to over $4 billion in revenues. Among those interviewed was Mitsui O.S.K Lines (MOL), one of the world's largest marine transportation companies.

MOL implemented an on-demand solution for pricing, rating, and customer contract management. As with many enterprises, MOL's internal IT resources are finite and consumed with a large backlog of projects. An on demand approach was the only way to get this project done quickly, so that we could maintain our competitive edge, said John Gurrad, vice president, business planning and e-commerce for MOL. Besides, we're not in the software business; we run ships. It was a better decision to bring in an expert to build and operate this technology for us, so we can focus on our customers, and on improving and excelling at what we do in our core business.