The 1990s saw the emergence of a new breed of companies unlocking the power the Internet and Web browsers to provide distributed access to centrally-managed third-party enterprise applications. These so-called application service providers (ASPs) were met with mixed success, and more often than not failed.
The story certainly has changed! Today, there is a new generation of vendors leveraging the Internet to deliver enterprise applications – alternately referred to as On Demand providers, or simply Software as a Service (SaaS). Unlike the ASPs of the 90s, today’s On Demand vendors focus on proprietary applications which they host in a multi-tenant environment – meaning thousands of customers are hosted on the same hardware stack with a single instance of the application.
One thing is clear – with the recent success of companies like Salesforce.com (a pioneer in the SaaS market) and growing customer interest, the On Demand model is here to stay. In fact, Gartner recently estimated SaaS delivery of enterprise application software will grow at a 22% compound annual growth rate and total $11.5 billion in 2011.
Growth in the On Demand model is being driven by a number of macro trends, including:
Globalization – the growing number of geographically distributed businesses makes it increasingly difficult and expensive for companies to implement client/server solutions;
Improved Technology Standards – with the emergence of XML, WSDL, SOAP and other Web services standards, thin client offerings from On Demand vendors are increasingly matching the capabilities of traditional client/server applications;
Maturation of the Internet – increasing reliability and bandwidth expansion has provided the backbone necessary for growth in the market, and;
Growth of Outsourcing – companies are increasingly willing to outsource non-core business processes to specialists, as they continue to focus on improving worker productivity and business efficiency.
In addition to these macros trends, growth is being driven by the tremendous value provided by the On Demand model. Customer benefits include:
Lower Total Cost of Ownership (TCO) – in the On Demand model, customers avoid large, up-front capital expense as well as ongoing expenses associated with supporting, maintaining and upgrading premise-based solutions. Users benefit from the scale vendors garner in a multi-tenant environment, enabling small- and mid-sized businesses to gain access to powerful applications and bandwidth capabilities that were historically reserved for the Fortune 500.
Ease of Deployment – with purchased hardware and software, the buyer assumes the majority of integration and implementation risk. Poorly managed deployments can lead to system crashes, security risks and cost overruns, greatly increasing the TCO of the project. In the On Demand model, the vendor is responsible for making the application available to the customer, and deployment is typically a matter of days or weeks, not months – providing a faster time to value. In addition, upgrades and bug fixes are administered centrally by the provider and are transparent to the user.
Ease of use – with simple Web-based user interfaces, On Demand applications are typically easy and intuitive to use; they provide a consumer-like experience within a robust business application, with minimal (if any) training requirements.
Aligned Interest – in the purchase model, vendors place value on customer acquisition, as perpetual licenses and hardware sales are typically paid upfront. In the On Demand model, the threat of cancellation (churn) motivates vendors to maintain superior levels of service and product quality, as the recurring nature of the revenue stream increases the net present value of a lost customer - and consequently, the pain if a customer leaves! In addition, with 100% of the service requirements on the back of the provider, the vendor becomes the sole source of accountability (read “blame”) if a problem arises.
Since its inception in 1991, Premiere Global has been a leader in providing communications software and applications in the On Demand model. Starting with various telephony-related platform-based services and growing into a globally redundant, enterprise class platform providing robust business process improvement solutions, our business has been built “in the cloud,” with significant On Demand roots and deep domain expertise.
We continue to see tremendous growth opportunities as our customers worldwide benefit from the value, relevance and returns on investment our On Demand solutions provide.
In my next post, I will talk about our initiatives intended to make Premiere Global look more like the On Demand provider we truly are…
Tags: COS, PGi Investor Relations
