Some Tech is Still Alive and Well - Part 1!

OK, well not all of it. But amidst the gloom of layoffs and down-sizing here in the Valley there are still some tech sectors doing well.

One such includes the companies who build and deploy on-demand software, often called "SAAS" (software-as-a-service) vendors. In this context, "on-demand" literally means that - these companies provide software-based services to their customers on a pay-as-you go, use-just-as-much-as-you-need basis.

This is a fundamentally different model to the traditional old-style software vendors such as Oracle, the former PeopleSoft, the former Siebel, SAP, Microsoft (for enterprise level applications) and the like. Those guys still rely heavily on selling you a very expensive (hundreds of thousands of dollars or more) one-time license for the right to use their software application "in perpetuity" and then charging you, directly or through partners, a significant fee to implement the application and then charging you 18 - 22% or more each year thereafter to maintain and support the software. While this last item technically is optional, woe betide you if you don't sign up because sooner or later your mission-critical app will stop working and then you're hosed (and Mr. Ellison will gladly charge you a fee equal to all the years maintenance you missed if you want to go back).

So what's your TCO (Total Cost of Ownership) over 5 years? $500,000? $1,000,000? At least twice the cost of the original humongous license fee! Yikes! No wonder about the yachts. At least they don't demand my firstborn as well ... yet.

How does the on-demand model work? Well, typically it's a per-user, per month fee. Salesforce.com, the pioneer of this model, charges you from just $69 per person per month for their entry level package. Their application enables sales people in a company to manage and track their entire customer and opportunity pipeline through to closed deals, and customer support people to track, manage, service and support them. Got 50 sales and customer support people using this - and that makes you a pretty good sized business? Then its less than $3,500 a month. What's your TCO here for 5 years? $200,000 or so. You may have some implementation costs upfront but its usually around process design and definition - far, far less than the perpetual license guys.

Appirio, which sells a plug-in to the Salesforce platform for time tracking and professional services project management, charges just $20 per user per month for that. Let's see ... the cost of maybe one latte at SBUX a week. OK, its on top of SF.com's charges - but you get even more!! How cool is that!

Oh yes, hidden costs too. For the perpetual guys you'll need at least one, maybe more, dedicated in-house IT people to support it. For on-demand, typically no-one. No-one.

Remember I said "former Peoplesoft, former Siebel". OK, they succumbed to Larry's voracious appetite. But in reality the business models were broken.

In Part 2 of this I'll talk more about how all this is changing the landscape here in the Valley and around the world and what it may mean to you. Stay tuned!