Customized Outsourcing: The Latest on Rentable Software
By Debra D'Agostino
Rent vs. buy isn't only a question for lightweight or non-critical apps anymore. Sometimes it makes sense to let someone else take care of your crown jewels.
Software as a service can take some pressure off the IT department.
At one time or another, we've all been presented with the confounding choice of whether we should rent or buy. Whether it's a home, a car, or even a tuxedo, the questions remain pretty much the same. Can I afford to buy it? How much will I use it? What kind of financing is available? ADVERTISEMENT The idea of renting software has been alternately embraced and reviled for decades. Most recently, the hype around application service providers, or ASPs, proved to be built largely on empty promises.
Alas, stymied by unreliable service, confusing price structures, and applications that weren't easily configurable, companies struggled to make hosted software fit their needs in the late 1990s.
But now a new age of outsourced everything—along with better bandwidth and a more mature market—is making software by subscription, or software as a service (SaaS), a viable option. In fact, Gartner Inc. predicts that renting will be the software model of choice by 2008, with more than 50 percent of all software purchases being made on a subscription rather than license basis.
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"The reality is, it's becoming a standard way of how people are doing business," says Gartner Vice President Joanne Correia.
For small companies, software by subscription is a no-brainer, says Dana Stiffler, a senior analyst with AMR Research Inc. "It's ideal for companies that don't have the staff or the up-front investment, so you can let your people focus on your business instead of running the applications." This was the case for Platform Learning, a small New York City-based firm that provides tutoring services for school-age children throughout the U.S. Platform needed to overhaul its paper-based order-fulfillment system in order to get educational materials to its 50,000 students more quickly, but it lacked the capital and in-house resources to buy the necessary software, says CIO Joe Sorisi.
Renting the software gave the company a no-hassle solution to its problem, and shortened the fulfillment process by three days. "Now we can get curriculum expedited to meet demand," he says. "That increases customer satisfaction, which will help us get new business." Gartner's Correia agrees, adding that firms don't want to pay up-front costs with no guarantee of success. "Companies are no longer saying, 'Here's a million dollars for a license, and I am going to absorb all the risk,'" she says.
But it's not just the up-front costs that are driving people to rent. Stiffler says that companies are fed up with paying maintenance fees. According to an AMR survey of several hundred executives, nearly one-quarter feel their vendor's upgrades for traditional software licenses don't deliver enough value to justify the costs, which have risen as much as 25 percent in the past year.
But there are still hurdles for software as a service. For example, it could end up costing you more money in the long run if you don't do a thorough cost analysis and project it out over several years.
And while the challenges of customization have largely been addressed, there are still major difficulties in integrating hosted applications, both with each other and with in-house software.
Open Sky agreement to give boost to outsourcing
U.S., India open skies agreement to help outsourcing
Agreement gives U.S. airlines access to more Indian cities
By John Ribeiro, IDG News Service
April 07, 2005
An open skies agreement between the U.S. and India is expected to lower costs and improve efficiency for Indian outsourcing companies and U.S. companies with offshore software development in India, according to industry sources. The agreement gives U.S. airlines access to more Indian cities.
The open skies agreement will remove current flight availability constraints, as more airlines are likely to establish routes between U.S. and Indian cities, according to Marc Hebert, executive vice president of Sierra Atlantic, a Fremont, California-based provider of outsourced IT services, which has an offshore software development center in Hyderabad in south India.
Currently, traveling to Hyderabad from San Francisco often requires passengers to stop over in Singapore and then travel to Chennai in India, and take a domestic flight to Hyderabad, Hebert said. "A whole day is spent on getting from Singapore to Hyderabad," he added.
A formal open skies agreement between the U.S. and India is expected to be signed this month during a visit to India by U.S. Transportation Secretary Norman Mineta. Mineta announced in January that the U.S. and India had initiated an open skies aviation agreement that will lead to more flights, lower fares, and stronger economic ties between the two countries.
The existing aviation agreement between the U.S. and India restricts the number of airlines that can fly between the two countries, cities that can be served and the frequency of service and pricing, according to a statement in January from the U.S. Department of Transportation. Open skies agreements permit unrestricted service by the airlines of each side to, from and beyond the other's territory, without restrictions on how often carriers fly, the kind of aircraft they use and the prices they charge, the statement added.
Sierra Atlantic spends about $1 million on international travel each year, with about 80 percent of that in travel between India and the U.S., according to Hebert. If the new open skies agreement between the U.S. and India is effective in increasing the supply of flights, fares are also likely to come down by 20 percent, according to Hebert.
Indian software development and services outsourcing companies also expect an improvement in productivity, and quicker response time to customer requirements as a result of the open skies policy. The U.S. is the largest market for Indian software development and services outsourcers. In the fiscal year to March 31, 2004, about 70 percent of the revenues of these companies came from the U.S., according to the National Association of Software and Service Companies in Delhi.
"Travel is very important to our business, both from a business development perspective and from an execution standpoint," said Ramakrishnan Ramamurthy, general manager for enterprise application services in the Wipro Technologies division of Wipro, a software development and services outsourcer in Bangalore.
Because of difficulty getting seats on flights to the U.S., companies are often forced to send staff, including senior managers, on circuitous routes, which add to cost and time spent on travel. " We are losing on productivity, man hours and top management time," Ramamurthy said.
Although U.S. services companies and Indian outsourcing companies are moving work offshore to India with an eye to cutting costs and tapping into local talent, a lot of the work for customers in the U.S. still requires it be done by Indian staff traveling to that country.
"About 10,000 of our staff are itinerant, which means that they have to be ready to travel across the globe at any point of time," said Ramamurthy. "That is about 25 percent of our staff." Companies like Wipro still send their staff from India to the U.S. for business development, and for the requirement definition and implementation stages of outsourced projects. "These are activities that you would prefer to do face-to-face with clients," Ramamurthy said.
As companies like Wipro get into IT consulting, the number of people required to travel to the U.S. has also increased, according to Ramamurthy.
Sierra Atlantic has about 100 staff in the U.S. on projects, but at any given point of time, it also has about 50 to 100 of its Indian staff in the U.S., according to Hebert. "We tend to keep our more senior architects and experienced managers in the U.S., but larger projects that involve quite a bit of staff get executed by bringing people over from India," Hebert said