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If everything could be hosted!

Today the buzz world in IT segment is “hosting” and “SaaS” where the clients can convert their CAPEX into OPEX and can use the application on a ‘pay as you use’ basis. Every vendor and service provider is joining the bandwagon to provide these services. The market segment for hosted services is huge, as the market says and there are sufficient buyers of the same. However, the segment, the type, the service, the criticality, the business type and the long term plan should be considered before weighing this option. Though it is a quick solution to implement, the acceptance of the processes, scalability and fitment is sometimes in question. It is widely known that plain-vanilla hosting is a low-margin, commodity business and unless you are the product company, you would not do it! The concept of S+S (Software + Service) as propagated by Microsoft takes a step beyond SaaS to describe the importance of System Integrators and ISVs in this emerging (if not already emerged) ecosystem.

Typically in any business there are ‘critical’, ‘essential’ and ‘critically-essential’ aspects. Each business function can fit into one of them and in case there is any business function that is not fitting into any one of them, then it’s not the business in which the company should be. Typically the company can relinquish control over the applications that are under the ‘essential’ category. These are important for running the business, but may not be directly linked to criticality of business operations. Office Productivity applications, communication systems (email & communicator), content sharing are universal themes. Besides this certain functions around Supplier & vendor interaction, Customer relationship management, Human resources, recruitments, leave management can be on hosted applications depending on the criticality of these functions in the organization.

A logistics firm managing the cross-docking, warehousing and delivery aspects can’t have Supplier & vendor interaction in a hosted environment as it’s not essential, it’s critically essential. They can however have their HRM function on a hosted application including running the payroll. What this points out to is the fact that “One size fits all” is no longer the mantra in organizations who want a Tier-1 ERP/CRM package. The decision points are too complex to be generalized but can vary from business functions, criticality, stage in business cycle, dependencies on environment and not to forget the ‘context’.

I would like to talk about the ‘context’ aspect more. Today there should not be classification of an organization by size, number of employees, vertical and revenue alone – the added dimensions are its growth strategy, operational plan and geographical spread.

  • Growth Strategy – a company that is growing inorganically can’t afford to have on-premises installation by rolling out of the parent company ERP/CRM platform. This would be expensive, time consuming and lack sponsorship in the initial years of eth acquisition or merger as the business priorities would be towards assimilating the cultures before assimilating the systems. The true benefit of the ERP/CRM would be achieved when the organizational harmonization is complete. However, in this time organization would be looking at either a quick fix hosted solution to meet over the immediate business needs or can be looking at a leaner ERP/CRM system which can integrate with the Hub (Parent Company) in an industry standard “Hub & Spoke” Model. System Integrators can play a major role here in understanding the business realities and suggesting suitable option to such clients.
  • Operation Plan – a company’s operational plan can help in deciding the application landscape as well. In today’s world there are companies that focus only on their core competencies and outsource all their other functions. The outsourcing partners who are providing such services can look at hosted solutions for servicing their end clients. The company that is outsourcing the operations would in this case like to retain the ownership of critical and critically essential services by having in-premises installation
  • Geographical Spread - Companies are today spreading their operations across the globe and doing so they are always faced with new and even more challenging country laws, legal requirements, compliance needs, tax structures, labor laws, economic variables, best practices and reporting needs. This has led to focus on “Thinking Global and Acting Local” philosophy. The needs of the country in which the operation is being spread can’t be overlooked. The parent companies also want to have some business return before pulling the company into the corporate ERP/CRM systems. This makes the case stronger for an application which can be hosted and the company pays as per use. The other option is again to have a leaner application which can be implemented faster and then integrated back with the Hub system.

Microsoft has been investing hugely in the hosting space with CRM and business productivity applications already being rolled out and communicated to the partners through its annual partner event. I had a chance to look at an article which was an extract taken from Ovum's Straight Talk service at - http://www.ovum.com/news/euronews.asp?id=7155

There were 2 paragraphs which were very relevant with above discussions.

One of the new enterprise subscription suites that Microsoft announced this week is aimed at “deskless” workers that have only sporadic computer access. The Deskless Worker Suite has two components. One, called Exchange Online Deskless Worker, is based on Exchange Server and provides email (via the Outlook Web Access online email client), calendar, global address lists and malware filters. The other, called SharePoint Online Deskless Worker, is based on SharePoint Server and provides access to portal and team sites and search functionality so that employees can find information on such things as benefits, training programs and company policies. Customers can subscribe to both services for $3 per user per month, or to either one alone. The other new subscription offering, called the Business Productivity Online Suite, allows employers to provide new capabilities to information workers without paying large upfront fees for traditional software licenses. This offering includes Exchange Online, SharePoint Online, Office Communications Online (for instant messaging and presence capabilities) and Office Live Meeting for web- and video-conferencing. This suite will be priced at $15 per user per month, though Microsoft will also offer the components individually.

Microsoft says it is committed to helping partners succeed; after all, it depends on them for some 96% of its revenues. To that end, it describes a number of ways in which partners can leverage the new model: they can address new customers with large populations of deskless workers (such as nurses, flight attendants and factory workers); they can sell new subscription services to existing customers; and they can increase sales velocity by leveraging the fact that online solutions can be deployed instantly, avoiding the weeks or months it could take to build and run a pilot solution Key to partners' success, however, will be their ability to provide some additional value on top of the plain-vanilla hosted solution - perhaps by helping customers migrate from other platforms or, often, by customizing the subscription services for the particular industries they serve

The need of the day is that the partners in the ecosystem take this up as an opportunity to use the experience in their on-premise installations and gain from the service revenues that can come in with this new paradigm. Although with this strategy Microsoft themselves are treading into Partner’s territory, I am sure it would still ensure benefit in the long run if the partners see the opportunity across the ‘critical’, ‘essential’ and ‘critically-essential’ aspects of any business and where they can have a play.

Comments

Very informative article. My argument is that Microsoft's new hosted offering will not be attractive to small businesses because it is "plain vanilla" hosting. it will require implementation, configuration and ongoing management on the part of the users. This is not what small businesses want.

Thanks Pankaj for your appreciation. I agree that Microsoft can't attract small businesses untill and unless there is a 'vertical' flavour to the hosted offering and there the real business & real value is in terms of offering these microvertical specific solutions.

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