Software Leasing – Calling for a leap of faith

Oracle and BT Ignite are to join forces to lease the software giant’s e-business products throughout Europe. The agreement will help Oracle to realise a more application service provider (ASP) type approach to its customer base and reach out to potential businesses that would not otherwise have the budget or expertise to implement such systems.

The E-Business Suite Online Any Place programme will take advantage of BT Ignite’s European network of data centres. Companies that wish to take advantage of the agreement will not have to configure a single piece of software, and Oracle claims that customers will be able to go live within 10 days.

It promises to take a great deal of pressure off small companies and large enterprises alike, which would traditionally have to shell out huge amounts of money for the required expertise needed to install and maintain such systems.

“European organisations no longer have to rely as heavily on implementation consultants, search for scarce IT staff or manage software upgrades and integration,” says Sergio Giacoletto (above right), executive vice president, Europe, Middle East and Africa, at Oracle. “They can access all their business systems via the Internet.”

But this brings to light a very important consideration. As the scenario means that all the software and functionality will be accessed remotely via the Internet, it calls into question the reliability of such a set up.

The Internet has come on in leaps and bounds over the last five years in terms of speed and reliability, but questions still remain over whether mission-critical systems and services should rely on it 100%.

And this could be one of the reasons why the scheme has failed to gain any real ground in the US. Launched in June this year, a similar initiative based on the other side of the pond has failed to take hold in the way Oracle would perhaps have envisioned.

A dose of the web jitters
A mere 125 customers have signed up to the American programme so far. Oracle said these customers range from a small gourmet restaurant to 22,000 users at the Bank of Montreal. This shows the wide reaching appeal of such an idea, but the numbers involved also prove that people are still nervous.

Although this could be seen as 125 contracts that Oracle would not have otherwise got, the question remains: why is the number of takers so low?

After all, what could be better than an e-business infrastructure that you don’t need to worry about? No configuration, upgrade and installation worries. And no more recruitment problems.

One can only assume the reason is that delivering something as mission-critical as customer relationship management and e-business remotely does not satisfy everybody in the enterprise market.

Those that are willing to forsake the potential reliability issues will pay monthly fees to have their software and support handled by Oracle with hosting, hardware maintenance and delivery made through BT Ignite and its European network of 22 data centres. Giacoletto says he expects most of the company’s software to be rented within three to five years.

“Oracle’s ‘Any Place’ strategy of enabling customers to have their business applications managed and hosted at a location that suits them fits tightly with our own business strategy and vision of the future success of the hosting model,” commented Vernon Irvin, president of BT Ignite content hosting.

Oracle and BT Ignite hope to sign their first customers in Europe with one- or two-year licence terms. European pricing is unknown, but in the US such applications cost between $300 and $700 (#210 and #490) per user per month.

The announcement casts a shadow of doubt over the future of the dedicated Application Service Provider. The ASP model has been touted as offering savings for businesses and opportunities for software companies.

Research firm IDC expects many existing ASPs to go to the wall this year as big players such as SAP, Siebel and Oracle establish themselves in the market. Analyst Gartner has predicted that two in five will go out of business this year.

Despite this, the analyst believes that by 2010 the market will grow to the point where practically all software will be rented rather than bought.

But the sector has seriously disappointed so far. Research firm Datamonitor, for example, expects the model to generate only £266m in European revenues this year.

ASP failings
A report from IDC claims that ASPs have failed to provide the right combination of applications, services and infrastructure.

Corporates are reluctant to rent one-size-fits-all software that is less customisable. Research from Ernst & Young suggests that users don’t trust ASPs with their data and business processes, and don’t have faith in their ability to avoid downtime during upgrades and repairs.

As an example of its reliability, Oracle said that each client has a dedicated server and that no customers had complained of a drop-off caused by the side effects of the Nimda virus.

In a different approach to the same issue, JD Edwards and IBM have collaborated to offer a low-cost and relatively low-end e-business server. It is designed to fit into small to medium sized enterprises with little or no configuration and provide users with a plug-and-play approach to the notoriously complex world of CRM and e-business.

Ultimately, it comes down to the wishes of the customer. Trusting both the Internet and a third-party software provider to look after critical business needs will produce a few sweaty palms throughout the industry.

But, if the analysts are proved right, and virtually all software is rented within the next five to 10 years, network managers are faced with the decision of when it’s the right time to jump on the bandwagon.

Either organisations get in there early and so have time to bed systems in and work out any potential problems, or they wait and see what happens, learning from the mistakes of others and entering the market only when they are sure of every eventuality.

David Rae is news editor on Network News.

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