What’s the hottest trend in the all-too-trendoid on-demand market? It turns out, once you look carefully at the model, pure-play on-demand is just a little too restrictive for many customers. These customers see on-demand as a nice stop-gap measure for solving an immediate cash flow or time-to-solution problem, but sometimes a mix of on-demand and on-premise looks like an even better idea.
I call it the non-demand model of software as a service, though you might more accurately use the term hybrid on-demand. Whatever the term, the net effect is that more and more vendors have stopped demanding that customers adopt a stringently pure on-demand model –- all off-premise, with no customizations –- in order to reap the benefits of their on-demand offering.
The number of vendors who are opening up their on-demand models to be non-demand is growing. Non-demand was at the core of SAP’s recent CRM On Demand offering, and many smaller companies are embracing the model as well.
Everdream, an early-stage vendor of on-demand desktop and PC management software, has a decidedly non-demand deployment model: Customers can choose from a continuum of service models that starts with a mix of on-premise and on-demand and ends with a complete managed-service option.
Edge Dynamics, a channel commerce-management vendor to the pharmaceutical industry, is another example of a company turning toward non-demand. Edge recently came out with a hybrid on-demand offering that makes it easy for a customer to move back and forth between on-demand and on-premise.
Rapid Commoditization Helps Customers
What this trend points to is how quickly the on-demand market is evolving away from its trendy self toward being just another software delivery model. Sure, there are enormous benefits for customers and vendors, but, at the end of the day, the competitiveness of one on-demand offering versus another can only go as far as the innovation each product set provides. On-demand, by itself, can no longer be a competitive differentiator, once everyone has an on-demand offering.
Which is exactly where the market is heading: On-demand is being rapidly commoditized. And that’s great for customers, though not so good for vendors who have based virtually all their competitive differentiation on their on-demand offering. (You know who you are, Salesforce.com.)
How far can we go with non-demand? The on-demand side of every hybrid offering will continue unabated, largely because the economics of on-demand are so compelling. On-demand fundamentally shifts the economics of software license and maintenance costs away from big, one-time deals that mess up customers budgets and vendors’ quarterly reporting.
The incremental payment model that is implicit in on-demand provides a stable revenue stream for vendors and a stable cost structure for customers. As long as CFOs have a say in running things, that annuity model is going to play a major role in the future of enterprise software.
The other reason that the on-demand flame will keep burning is that venture capitalists also love the annuity side of on-demand: Nothing like a steady, predictable income to make investors smile. They also love the fact that Salesforce.com is one of the very few software industry IPOs of recent vintage that has made its investors a pile of money. In fact, the two reasons combined have basically put the VC community on record as not willing to fund anything that doesn’t have an on-demand model in the business plan.
Financial models aside, the non-demand side of on-demand will continue to grow as well. Though we are all beholden to the CFOs in this industry, everyone’s real focus is on pleasing customers -– or at least it should be. And for customers, the choice of a hybrid on-demand model is exactly what they’ve been looking for.
Not everyone is ready for the total surrender of their data and business processes to a vendor operating outside the firewall. Call them control freaks, call them pragmatic -– non-demand is about the ultimate in customer choice, and for that reason alone, it’s here to stay.