Why the Largest Companies are now looking seriously at On-Demand Software as a Service

Yesterday I read an blog post by Dan Farber, one of several excellent technology bloggers at ZDNet. The post concerned SAP's informal announcement that they are moving into the on-demand application business. So let's take a quick inventory: Oracle Chairman and CEO owns a controlling stake in NetSuite; PeopleSoft founder Dave Duffield starts a new company with on-demand business applications, called Workday; and now SAP is less than a year away from delivering a new busines application in the SaaS space. So the 3 largest business application vendors in the world are now all solidly moving in the direction of on-demand software. (I am using the terms on-demand and SaaS, software as a service, interchangeably here.)

Why? When the big dogs get into the fight, you know there has to be a tasty bone in there somewhere. As I mentioned in a comment to the blog above, the history of computing over the last 25 years is the history of management attempting to free themselves, and the enterprise, from the grips of the IT Department. Distributed computing for example attempts to put information back into the functional departments, replacing the old paradigm of the IT Department controlling all data input and output.

Of course, the companies that adopt NetSuite for the most part have not had these problems. Most companies of 250 employees and less have simply gotten by with the software that they could afford. Most have a very small IT group, if any at all. So these companies adopt NetSuite, at least in part, because they cannot afford the IT staff necessary to run on-site applications.

So what's interesting is that Large companies are now following the same path to on-demand software. They mostly have liberated their information from the clutches of the IT department; now they want to liberate the P/L from the cost of a bloated and no longer necessary IT department.