May 212008

I’ve been thinking about the software-plus-service model, where a vendor offers online (hosted) software components that integrate with the vendor’s software installed onsite at the end-user organization (i.e., the customer). Microsoft is pushing this approach in response to on-demand offerings from Google and other providers. More recently, SAP AG has jumped on the software-plus-service bandwagon as it has backed off its on-demand-only efforts. In some ways, this “hybrid” model makes sense. In other ways, it seems like it could be the worst of both worlds.In the case of SAP, the idea that some ERP components should remain onsite with the customer seems to make sense because of the security and reliability concerns I have with the on-demand-only model used for crucial enterprise applications. For example, if your hosted ERP application goes down or becomes unavailable for almost any length of time, or should it somehow expose sensitive data, this could prove disastrous. But if a hybrid approach could provide customers with even limited functionality to continue using key application components (order-entry, accounting, etc.) during a service outage, or capabilities for controlling and safeguarding crucial data (customer, financial and accounting, etc.) onsite, this would go a long way toward alleviating some of the concerns I have with organizations using on-demand ERP services.

In the case of Microsoft’s software-plus-service strategy, I have more mixed feelings. Microsoft definitely feels threatened by Google’s online productivity applications because of the danger that these applications might someday cut into sales of its cash cow, Microsoft Office. This is by no means a looming threat at this time; however, the more that end-user organizations become comfortable with on-demand software in general, the more open they are likely to become to using online word processors and spreadsheets, and so on. Microsoft Office overwhelmingly dominates when it comes to productivity applications at companies. However, keep in mind that the young college and 20-something crowd is now very comfortable with online applications of all kinds, expressing very little concern for putting even their most personal (i.e., sensitive) information out in the “cloud.” As these young men and women enter the workforce in large numbers, are they going to shift the companies that employ them to on-demand productivity applications, leaving Microsoft behind?

This question must keep Microsoft executives awake at night because it presents something of a dilemma. Microsoft can’t really just offer Office as an online-only offering, because it could cut too much into the revenue from sales and upgrades of, let’s face it, what has become for many end-user organizations an expensive and increasingly bloated software package. Thus, Microsoft is almost forced to take a hybrid approach in order to preserve the “Microsoft way.” As a result, I find it difficult not to see Microsoft’s software-plus-service initiative mainly as a stop-loss effort designed to preserve its Office monopoly.

Finally, I’d like your opinion about the software-plus-service model. Is it viable for crucial enterprise applications like ERP? What about Microsoft and Office?


  One Response to “Software-Plus-Service: Best or Worst of Both Worlds?”

  1. Software-plus-service can be an interesting opportunity for certain IT service providers. The key will be if they stop being a slave to convention.

    Too often the Software-plus-service model is reduced to simply running a commercial piece of software and tossing the reports onto the client’s desk. There’s really no executive-level involvement at all, because most of the data they collect is so low-level or technical an exec wouldn’t know what to do with it. There’s no improvement to their planning or decision making process.

    If, on the other hand, software-plus-service were to focus on how the technology resources were serving the business, a partner might be able to demonstrate a true “value-add” to the leadership team. Rather than talking nuts and bolts, they can discuss IT metrics and user trends that are either helping or hindering the achievement of business goals. There’s a big difference between meeting an SLA and finding out your network is only being used for legitimate business purposes about 40% of the time.

    Software-plus-service means the service provider must go above and beyond sitting in their NOC/SOC and pushing buttons. It means they must become active and involved with their client stakeholders and not only make sure the technology quality is optimized, but also help ensure that the resources are being used in-line with corporate goals. Even the best, properly configured and most expensive technology can be rendered useless through misuse, abuse, errors and non-compliance.

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