On-Demand Software
Microsoft targets small business with a new scheme for pay-as-you-go software
In October, Bill Gates, Microsoft’s chairman and chief software architect provided a glimpse into the software giant’s strategy for the future. In a widely circulated memo, Gates indicated that Microsoft will shift its focus from packaged software to the software as a service (SaaS), or “on-demand,” model. Instead of buying software outright and installing it on desktops or servers, businesses would rent applications on a per user, per month basis.
For small businesses, the on-demand model promises to reduce costs and complexity while at the same time increase the level of software functionality available to them. There are no packaged applications or hardware to buy upfront, and no dedicated personnel needed to install and maintain software. What’s more, the system, says Gates, will unleash a “services wave” of applications and that will “dramatically change the nature and cost of solutions deliverable to enterprises or small businesses.”
In this case—as with the Web a decade ago—the revolution started without Microsoft; other companies have been selling on-demand software for years. But a push by the world’s most powerful software maker will certainly accelerate the trend. And, it is noteworthy that the immediate target the new Microsoft Office Live on-demand “platform” is small business. Pre-release (beta) versions of e-mail, project management, collaboration and website design and analytics programs will be available in early 2006. Microsoft aims to offer some services to small businesses for free; the basic version of Microsoft Office Live, will be supported paid for by advertisers and will allow small businesses to establish a domain name, complete with a hosted web site with 30 megabytes of storage, among other services.
So how does on-demand software stack up? Ask Bill Eldridge, chairman and CEO of Globalink Trade Consulting, a 15-employee consulting company with revenues of $3 million in Washington, D.C. Eldridge, a 32-year IBM veteran, realized that in his new career he could no longer rely on headquarters staff to handle non-core functions. “When you have your own company, changing the toilet paper is your job,” he says.
| A Software-on-Demand Sampler | ||
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Here are a few places to get started in your search for on-demand applications. |
To write the employee handbook, Eldridge first called an HR expert whom he knows. The friend quoted a price—$1,000—to create a basic manual; additional consulting work would cost more. “I really needed an easier, and more affordable way,” Eldridge says.
That’s when he discovered SmartOnline Inc., a 12-year old company that offers an on-demand solution for HR. The Durham, N.C.-based company started as a traditional vendor, providing shrink-wrapped HR and business applications for the small business market. In 1999—after the Internet proved itself as a reliable platform—SmartOnline became an on-demand provider. Today the company has more than 70 employees and offers small businesses a variety of applications, including forms for business plans, templates for Small Business Administration-backed loans and contracts, and programs for accounting, HR management and marketing plans. (The company also offers “for fee” services such as business plan writing and evaluation.)
Tom Furr, SmartOnline’s COO, says the time is right for on-demand software to really take off, particularly for the small business market. Unlike an earlier concept, the application service provider (ASP), the on-demand model does not require downloading software to their own computers. Installation, maintenance and upgrades are done automatically by the vendor and are accessed when workers access the programs via a standard Web browser.
Pricing is also more in line with what small business can afford because customers typically pay for only those applications that they use. Smart Online, for example, charges a flat fee of $49.95 per month for its suite of applications. That permits access for five employees; each additional employee costs $5.00 per month. For vendors, on-demand software offers its own advantages, chief among them are recurring monthly revenues and one version of software that all customers use, making support less expensive.
“There’s a lot of activity in the on-demand space for all sizes of end user companies and all kinds of software vendors,” says Laurie McCabe, a senior analyst in the SMB (small and medium-size business) solutions practice with research firm AMI Partners in New York. McCabe says that small businesses are particularly well-suited for on-demand solutions because they have sophisticated IT needs but lack dedicated IT staffs and big budgets. According to AMI data, IT spending by small businesses (companies with just under 10 employees, on average) adds up to $75 billion annually. But small businesses are difficult and costly to reach through resellers and consultants, so vendors such as Microsoft see on-demand as a cost-effective alternative.
Eldridge says he gets a higher level of support from with on-demand software. His monthly SmartOnline subscription gives him unlimited access to live experts. “I had a question about a bonus plan, so I sent off a note to an HR specialist,” he recalls. “Within a day, I received a two-page dissertation discussing the pros and cons.” Eldridge estimates that the same advice would have cost him from $500 to $1,000 if he had hired a consultant.
One factor holding back on-demand, says McCabe, is finding the right vendors with the right solutions (see box for a sample). There are dozens of vendors, however. “If you have the energy, you can do searching on the Internet, and chances are good you’ll find a good provider,” she says. With Microsoft blessing the concept, software as a service isn’t destined to remain obscure for too much longer. Furr says it’s going to be as big a leap forward as GUI, the graphical user interface made famous by the Apple Macintosh in 1984 (and later replicated as Microsoft Windows). “It really introduces a new ease of use to computers,” he says. “GUIs have now spread to cell phones, PDAs and laptops to the point that point and click is standard.” Software as a service promises to create the same paradigm shift in how small companies access, use and pay for software.
