Understanding the Difference between On-Premise and On-Demand Software

It’s difficult to touch, feel or smell enterprise software. It in a package, but definitely not one that has a bar code and a price on it. When we ask "what does it do," we’re asked in return "what do we need it to do?" Sometimes, the same question applies when one asks "how much does it cost." This sales approach, combined with zero marginal cost for the provider, results in the software industry being fraught with idiosyncrasies. In such an industry, one of the tools all of us use to understand the ethereal notion of enterprise software is the analogy. While analogies can never prove a point, they help frame our view and make software more concrete in our minds.

Analogies can expand or restrict our view of a situation. In this image, do you see the people or the goblet?

Below we have taken a look at some of our favorite (hopefully humorous) analogies for On-Demand and On-Premise software. Yet there is a more serious point - your approach to solving business problems with technology is often about how you frame the question.

The past several years on-demand software has empowered line of business owners to sucessfully deploy siloed applications. Yet for CIOs, today the question is not how you wrestle back control, but how to embrace on-demand, allow lines of business to pursue their efforts, and manage the overall adoption of the technology in the business.

With that, we hope you enjoy some of our favorite entertaining analogies that frame the difference between on-demand and on-premise. In addition, we welcome you to add to our list.

Enterprises choosing on-premise software are like teenagers getting married. It’s not what you thought it was going to be, there are all sorts of unexpected costs and divorce (think "upgrades" or "migrations") are both painful and inevitable. That’s why teenagers should focus on dating (on-demand)?

People try to compare on-Premise and on-demand to buying vs. leasing a car - as if either preference were equally valid. This analogy would be true if, when buying a car, you needed to take a special class that cost twice the price of the car, and every 3-4 years the car's engine would require rebuilding while in motion; while when leasing a car, gas and insurance were included.

But isn’t it true that at some scale, its just more cost effective to buy software and manage it yourself? Sure, I think that was right under the headline of Wal-mart buying old nuclear reactors to provide power to their stores.

Long term contracts, uncertain performance and costly upgrades? Hmmmm, you're talking about either on-premise software, or the New York Knicks.

Security, quality control, our large size, the need to customize things for our unique needs and the cost of buying things each month… those are the top reasons for using on-premise software... or deciding to buy seeds and grow all our own food.

IT Management & Governance In an On-Demand Model

The IT landscape for Salesforce.com customers is quickly growing complex. With over 400 applications on the AppExchange today – with projections of 1,000 by late 2007 – and the upcoming Winter '07 release and the Apex programming language, sound IT management and governance practices are essential. In the past, a single application such as SFA or Service & Support was manageable for a line-of-business leader or an aspiring IT professional. They could gather requirements, build a business case, sell internally and then implement. With the increasingly complex platform now offered by Salesforce.com, where customers have access to applications, extensions, API’s, partners and the platform itself, determining the tradeoffs among building, buying, and partnering requires a thoughtful and collaborative approach among the business, IT, and the Salesforce.com community.

Some Appirio customers have recently completed extensive application and server rationalization exercises as part of the launch of an on-demand strategy. Inventory analysis is a great first step towards on-demand portfolio management, and uncovers a number of obvious opportunities to migrate on-premise applications to the on-demand model. Many traditional project and portfolio management principles apply, but in the on-demand world there are four key strategies for CIO’s to apply:

• Centralize the Approval Process. All new IT project requests should flow through a single, cross-functional, company-wide approval process with common selection criteria. In the past, on-demand software vendors have thrived by working around traditional IT, which creates redundant projects, additional costs, and inefficient use of resources. Under this decentralized model, many departments (often including IT) are finding, promoting, and implementing siloed on-demand applications that solve a specific problem for that particular department, but perpetuate vendor bloat, cost creep and integration headaches. Further, many existing Salesforce.com customers and their IT departments may not be aware of the capabilities and benefits of the AppExchange platform. To take advantage of the benefits of a true on-demand platform, CIOs must have the business, IT, Salesforce.com teams in sync. The CIO should be aware of all projects currently in queue, and knowledgeable of the end-to-end platform capabilities. This linkage is essential to driving adoption, integrating the user experience, ensuring corporate buy-in, and keeping costs down.
• Apply Early Adopter Factors. Let’s face it, we are in “early adopter” territory: standardizing an on-demand platform for a company with thousands of users, hundreds of legacy applications, complex business models and an “on-premise” mentality.. Along with the benefits of the on-demand model, there are inherent risks, with few end-to-end enterprise class success stories today. The development methodologies and assets are far from mature, and for every ten integration challenges, there are twenty solutions presented. Based on the evolving nature of on-demand platforms and applications, CIOs are well advised to estimate timelines somewhat longer than rollouts of a single application, and to anticipate increased costs associated with training, development, integration and data cleansing and migration.
• Keep Up with the Upgrade Roadmap and Partner Ecosystem. Remember that when you use on-demand vendors, your software is automatically upgraded with each new release. New partners and applications appear on the AppExchange every day. In short order, enterprise customers can expect features that they were planning on building to show up in new releases, and will notice applications that they were expecting to buy to show up on the AppExchange or other marketplaces. CIOs making the platform decision should demand early visibility not only into traditional product roadmaps, but also ISV and SI applications. Specifically, power users and CIOs should find out which applications are actually being used - particularly in large deployments of more than 1,000 seats - and how they are scaling in terms of volume, security, integration, and usability. This information, and the ability to talk directly with other companies making similar investments, will have a direct impact on a CIO’s make, buy, or partner decisions.
• Salesforce.com is Not Just for Sales. Education, awareness, and sponsorship are critical. While it seems obvious to those of us who ”get” on-demand vendors like Salesforce.com, most executives, functional leaders, and even salespeople, do not understand the future direction and capabilities of the AppExchange platform. The notion of building an application development platform using an on-demand model is new for most people, and it takes awhile to fully appreciate the profoundness of this change for typical IT operations. To really drive platform adoption across the enterprise, the executive team needs to consistently educate and drive awareness thru sponsorship and active, visible pilots that demonstrate value to end users and the business.

The principles of IT management and governance still apply in the on-demand model, but with some unique challenges. Despite tradeoffs and risks, the benefits will often outweigh the costs, even for large, complex enterprises. Soon, more CIOs will make the leap from on-premise to on-demand, and pave the way for even wider adoption.

Widgets, Widgets Everywhere

We’ve written before regarding the impact of user adoption on realizing value from IT investments, particularly in applications like CRM. Salesforce.com provides a very good CRM user experience - with lots of built-in flexibility - right out of the box. But with Salesforce's robust web services interfaces, the "very good" becomes great. Sales Sleuth, the free Yahoo! Widget from Appirio, allows sales teams to access their Salesforce.com data instantly, using a desktop widget.

What is a Widget?

Webster’s dictionary offers "an unnamed article considered for purposes of hypothetical example." Today, with the explosion of widgets from Yahoo!, Google, and the Mac on users' desktops, widgets are no longer hypothetical.

Today widgets are portable plugins, easily installed on a desktop or in a browser, directly usable without technical knowledge. Users can even connect widgets together to create mini- applications.

What changed to create the recent surge in interest for widgets? In Business 2.0, Om Malik describes the consumer impact in “Suddenly Everything's Coming up Widgets:"

Consider a typical MySpace user's page, studded with widgets that pull from video goliath YouTube or photo services such as Slide. Everyone's a winner here: MySpace, because it becomes stickier; YouTube and Slide, because they get the traffic; and the user, because he or she gets it all on one page.

For enterprises, widgets mean:

• Increased employee performance, by enhancing usability for a population with very specific user experience needs
• A measure of how well your web services strategy is working - widgets are the perfect test for leveraging your investment in web services
• Leveraging the consumerization of the web - allowing employees to bring insights from the larger web/consumer world to your business

Salesforce.com provides businesses the opportunity to experience cutting edge trends like widgets in a safe, pragmatic and useful way. Here at Appirio, we will provide more widget examples, and post them to AppExchange.

Best of all - widgets are fun - so users want to use them! We have been getting a lot of feedback from our customers - who tell us that sales managers are watching Opportunities close via their Opportunity Knocks widget. We've also been hearing from Salesforce.com sales reps and SEs, who are starting to use Appirio's widgets in their sales demos!