On demand is like religion these days. Many vendors are so focused on proselytizing the model that they neglect to sell their application.
The reality is that on-demand isn't for everyone. There are financial, security and business considerations that keep many enterprises from leveraging the advantages that a software-as-a-service (SaaS) or an on-demand model can offer.
And while an on-premise, license-based model can seem old-fashioned to those who have joined the on-demand faith, the pay-once, in-house method offers business value and comfort to many CIOs.
What is the right strategy? Go hybrid. That's the conclusion many established software vendors are coming to. Offering both on-premise and on-demand solutions enables vendors to best meet the immediate and long-term business needs of their customers - and avoids the religious fervor that can sidetrack many sales efforts.
The Decision to "Go" Hybrid
For established software vendors, the transition to a pure on-demand model can be daunting. The financial, engineering and customer service issues aren't anything to be taken lightly. (Read Ray Lane's list of "to-dos" for transitioning from product to service in this SandHill.com article.)
But even vendors that aren't looking to make the transition are likely getting inquiries from their customers about how or when a SaaS version of their product will be available.
That was the case for Callidus. Some of our customers and prospects began asking about on-demand versions of our products. We were skeptical initially but began to investigate the possibility of SaaS.
In just a few short months, we had our on-demand offering ready for market. We had looked at what the product would involve, began pilot work with customers and by leveraging the same code, we launched our hybrid strategy.
At Callidus, the product side was possible because we leveraged virtualization technology in our operating system. The technology is sophisticated enough to enable us to offer a multi-tenant operating system. It works reliably, economically and had enabled us to offer a hybrid product without the hassle of engineering two separate offerings.
One reason for our rapid deployment was the creation of an on-demand team. The team was composed of architects, data center experts, service professionals, dedicated sales and marketing people. This team gave on-demand a center in the organization and gave members the freedom to focus on specifically on the on-demand product, rather that it just being another project added to their plate.
The Customer Perspective
While some customers prefer on demand or on premise strictly for religious reasons, the vast majority of customers choose a particular software solution based on current business needs, resource allocation and corporate objectives.
These factors can change with the weather. That's why buyers can rationalize any purchase decision based on their needs - and that's why many customers choose both on-demand and on-premise solutions, depending on the situation.
What it comes down to for many customers is a rent vs. buy decision. When you go on-demand, it is like renting, and in the long run, it may cost more money. Some buyers are not comfortable with that.
Additionally, some buyers are concerned about security. "I'm not willing to trust my data center to an on-demand vendor. If something goes wrong, it's my fault," says the CIO.
Looking at it differently, on-demand offerings enable customers to entrust their data to vendors who know the software inside and out. They don't have to train their own people, it is all provided.
On-demand isn't really just a service model. As vendors, the SaaS option allows us to more closely match a customer's costs with his or her risks.
In a license situation, the customer pays 100 percent up front and no more once the project is implemented and live. The downside is that if the project fails, all the risk was taken up front and all the money is paid and the business is receiving no value.
One advantage for software vendors is that with on-demand, we can ensure a successful implementation for customers. In a purely on premise model, it has always been difficult to sell the product and make sure that it is implemented successfully. For on-demand customers, these old days are really long gone.
In the SaaS model, customers pay and get software monthly. The flexibility matches cost to risk and allows the customer to leave at any time if unhappy. Of course, this breaks new ground for old-fashioned software vendors who now must work tirelessly to ensure their customers are satisfied.
Advantages of the Hybrid Model
A hybrid approach allows software vendors to offer the best of both worlds - and very often, we can offer them to the same customer. Consider this recent case study.
A customer approached us recently who needed to put in a new compensation system. But at the same time, another project had overdrawn internal resources which would result in the company delaying deployment for a full year. The business owners were not happy about having to wait.
Instead of postponing the implementation, we were able to offer our on-demand product immediately and a transition to an on-premise solution in a year when resources become available and internal IT can take over.
A hybrid strategy offers several benefits to customers.