Saturday, June 05, 2004

Is it "Utility Computing" or "Software as Services" or "Software Rental" or ... ?

China Sourcing Alert    
Friday, June 4, 2004
Dateline: Qingdao, China
Is it "Utility Computing" or "Software as Services" or "Software Rental" or ... ?
Well, whatever it is, it seems to be a hot topic these days.  According to IDC, growth in "subscription" sales will outpace that of packaged software -- and even companies like Siebel are getting religion (see ).  IDC predicts that sales of software sold through subscription licensing will grow at 16.6% annually from 2003 through 2008 to reach $43 billion, while sales of perpetual licenses will see a slight drop each year.  Siebel, in response to the competitive threat from, has even launched verticalized editions of their CRM OnDemand offering ( ). 
Many players have entered this space, including NetSuite, WebSideStory, RightNow, BlueTie, Employease, Salesnet, Atomz, CrownPeak and numerous others ( ; this URL links to a superb feature titled, "The Second Coming of ASPs?"), including Malaysia-based Entellium ( ) -- and they're challenging the likes of Oracle, PeopleSoft and SAP, although I suspect each with follow Siebel's lead and provide their own offerings (and to a limited extent, they already have).
Since there is less up-front revenue and less customization required for an implementation, systems integrators (SIs) in China (or anywhere, for that matter) may be reluctant to enter this space.  This might be shortsighted, however.  The best way for U.S. software vendors (ISVs) to enter the domestic market in China may be through a utility computing model.  For one thing, pirating becomes a moot point.  This provides opportunities for China's SIs to work with U.S. utility computing software vendors to help the U.S. firms penetrate the domestic market in China.  But it also may provide opportunities for China's SIs to enter the systems solutions market in the States without the same level of expertise required for many/most packaged applications.  (I say, "may" because I'm not sure about this.  I think the waters need to be tested.)
Also, some of the U.S. players are offering partners 30-50% margins on their solutions over the life of the customer contract.  Now this doesn't sound too bad at all!!  There's also room for adding value through consulting and maintenance.  Finally, many U.S. vendors offer low or no-cost training and certification; many will also mentor new partners through the first couple of sales opportunities.  (See .)  However, vendors are looking for partners with an established customer base and reputation, with a nod toward SIs with experience selling and supporting packaged solutions or consulting services.  And (as always) the more verticals experience, the better.
Bottom line:  Utility computing is one of the hottest IT areas, with real muscle as demonstrated by (among others).  The subject has even garnered a lot of interest by development-oriented academia and industry researchers (and I will be covering this aspect of utility computing futures in China Sourcing Monitor).  China's SIs should investigate the opportunities in this space, being fully aware that the win-win deals will help U.S. vendors enter the domestic market in China and in return, the SI gets free training, quick certification and at least several laser-guided shots at opportunities in the States.  And, for my part, I'll ask Marc Benioff (the CEO of and a first degree connection of mine on LinkedIn) what he thinks about the opportunities for China's SIs -- but I can't really ask this until after their IPO.
David Scott Lewis
President & Principal Analyst
IT E-Strategies, Inc. (access to blog content in China) (AvantGo channel)
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