Monday, May 21, 2007

Everest Software Balances Hosted and On-Demand

The public debate between on-premise and on-demand (hosted) software has largely been won by the on-demand side, particularly where small businesses are concerned. Faster, cheaper and easier deployment seems an overwhelming advantage, even though on-demand long-term costs may be higher, integration more difficult, and functionality not quite as rich as for on-premise systems.

And yet—plenty of on-premise software is still sold. In fact, although I haven’t seen actual figures, I suspect on-premise continues to hold a larger share of the market. Small businesses are reluctant to make a change, so they’re likely to stick with their existing systems and incremental upgrades as long as possible. In addition, many small business owners (and here I speak from personal experience) prefer to have as much control as possible over their business operations, and find the notion of such heavy reliance on a remote system to be distasteful.

Everest Software produced a good white paper summarizing the issues, “On-Demand vs. On-Premise Software Deployment”, available here (registration required). Everest provides enterprise management software (everything from CRM to ecommerce to inventory and accounting) for small businesses. It offers both on-premise and on-demand options, so its paper is free to present a balanced view of the choices.

I have just two factual quibbles with the paper. One is it assumes on-premise systems have richer user interfaces: although this was true in early implementations, today technologies such as AJAX allow even purely browser-based hosted system to provide pretty much the same interface as systems that install local software. The other is the statement, repeated twice, that “after a period of three to five years, many businesses achieve a lower total cost of ownership with On-Premise software deployments (exclusive of personnel costs).” This might be literally correct, but personnel costs can’t really be excluded. Once you count them in, on-demand systems are very likely cheaper in the long run as well as the short run for many small businesses.

In any event, long-run total cost of ownership is unlikely to be a key issue for most small businesses. Capital tends to be scarce at such firms, so the smaller up-front investment of on-demand is a more compelling consideration. Again, I suspect the real obstacles to on-demand are the emotional one of control and the practical one of integration. Of those, integration is really the key. This won’t be solved by publishing APIs, as some hosted vendors seem to hope, because most small businesses lack the technical resources needed to take advantage of APIs. We’ll see whether simpler integration capabilities become available, similar to “mash up” features now available on some consumer Web sites. If I were a hosted software developer, that’s where I’d put my energy.

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