On Demand Business

Following is a briefing on 'On Demand Business Model'. In my view SAP is placed much ahead of this evolution. I feel with NetWeaver as a technology platform, On Demand Business Model can be enabled in a faster way for complex business solutions. And if required, it will not be difficult for SAP to operate some of the business in this model.

Briefing: The On Demand Business Model; Software Vendors Should Tread Carefully!
By Steve Banker, ARC Advisory Group
The On Demand business model has gotten a lot of publicity in the last year - IBM's commercials, SalesForce.com's successful IPO, and probably most significantly, Merrill Lynch's announcement that they would begin tracking software companies with an On Demand business model.
The On Demand business model, as we define it, involves selling a solution based on monthly service charges. One instance of software is hosted centrally by the software vendor, most customers use Internet browsers to access their application.
Merrill Lynch argued that the traditional way of measuring software companies, growth in software license, was becoming increasingly less relevant in this mature industry and that new methods of measuring software vendors were needed. It would, be easy to conclude that the On Demand business model can save best of breed software suppliers.
Be careful! One of the markets ARC is studying is Location-based Business Solutions. These are GPS based solutions that help companies track and manage fleets or people in real time. Where historically trucks would have a GPS enabled "black" box in the cab, now suppliers have created On Demand services based on hosted applications and users in the field with GPS-enabled Nextel cell phones. Two years ago, many companies paid about $50 per month per vehicle. Last year a number of companies were charging about $25 per month per vehicle (or user). And this year some vendors are selling stripped down tracking for as little as $15 per month per node.
In short, instead of the On Demand model providing a stable and predictable long term stream of cash, it is providing, in at least this market, brutal cost competition and customers as fickle as the mobile phone users who switch whenever a new plan offers better savings.
Where does the On Demand model offer some protection for vendors? For vendors who have services where content changes all the time. For example, Vastera’s service is constantly being updated with changing customs regulations; Management Dynamics services continuously changes as ocean freight assessorial charges change. These types of services offer the promise of strong customer retention. Services based on connectivity also offer strong lock-in. So for example, by using Lean Logistics as a TMS solution, you are automatically linked to hundreds of carriers and do not have to manage integrating to carriers on an ongoing basis.