Living, Breathing, On Demand IT

On Demand. Organic computing. Utility computing. It all adds up to one
thing: a big shift under way in the technology industry to make systems more
nimble and cost-effective. While internetnews.com has covered the trend for
the past few years, the terms to describe the trend have grown, too.

In this installment of our ongoing series of executive summaries called
In Focus, we’ll provide a summary of the trend and
what it could mean to you and your enterprise.

1. Overview:

What Is On Demand Computing?

IBM helped add currency to the term On Demand, which it describes as part of
its business transformation approach to helping customers. HP uses the term
Adaptive Enterprise. Sun’s version is N1. In general, the term encompasses a
utility-style approach that offers computing services that a customer can
use “by the drink.” But it’s also more than that.

While the term and its meaning may be shifting all the time, one trend is
constant: On Demand computing, as well as software On Demand, are trends
that are gaining currency in the IT industry. The term and trend is at least
two years old and growing in importance. But why?

When Forrester Research introduced Organic IT as a major coverage area in
2002, the firm called it the “third major revolution in data center
architecture, after the mainframe and client/server.”

Since then, the firm said, “eight major vendors — CA, Dell, EMC, HP, IBM,
Microsoft, Sun and Veritas — have announced initiatives under various names
that aim at Organic IT and more, along with countless smaller vendors.”

Organic IT, or On Demand computing, can “deliver big IT cost savings —
and business gains,” wrote Forrester analyst Frank Gillett. After all, if
you’re only using only what you need, or improving utilization on existing
infrastructure, what’s not to like?

And another attractive feature of the trend is that it doesn’t require
you to rip out existing investments or infrastructure. But the challenge,
added Gillett, is to “get past the confusion of ideas and offerings” in the
market in order to buy computing systems only as you need them. Doing so
will help decision makers stay ahead of the shift to a next-generation data
center architecture.

Indeed, some would argue that the over-investment in IT by major
enterprises during the late 1990s, especially during the run up to the year
2000 rollover, has spurred the trend to just “buy it as you need it” in the
IT industry.

The same could be said for the software industry, which is also spreading
the term On Demand as more people shift to software as a service.

After all, software makers and customers alike are realizing that gone
are the days when software providers would back up a truck to the company’s
front door and “dump as much software as possible,” as Louis Blatt, chief
technology strategist for enterprise software company Computer Associates explained
a year ago when the company was unveiling its On Demand product lines.

Recently, ChainLink Research said the shift to On Demand software is a
“fundamental, permanent shift in software economics.” The firm recently
released a major study about On Demand software and concluded: “The
emergence of on-demand software is not an isolated trend. It is a
fundamental, market-altering shift in how software is built, bought,
delivered and used.”

ChainLink said it defines the term in the software industry to mean three
things:

1. Pay as you go
2. Instant Deployment
3. Single Instance

That would be no surprise to Salesforce.com , which is
building a growing business selling customers individually tailored customer
relationship management software, either by the seat or by subscription.
Since its IPO last spring, the company has become a bellwether for how
similar software by subscription plays will fare in the marketplace.

Next Page: Definitions from the Field

(In Focus: On Demand, continued from page 1)

2.Definitions from the Field:

internetnews.com asked a few tech executives for their take on On Demand:

John Lutz, vice president, IBM’s On Demand Division

How Do You Describe On Demand Computing?

We’re flattered that so many now use the term [On Demand], including some of
our competitors.

Some see it as utility computing, others see outsourcing, yet others see
business process re-engineering, and still others see a financing play,
where people only pay for what they use. What I contend is that they’re not
all wrong, just a part of the story.

On Demand really starts with the client and client’s business needs. So
our definition starts with the state of being there for businesses to help
them be more flexible in their marketplace. When you talk to financial
services firms, for example, they may be using it to get multi-channel
services rolled out and coordinated. Others might be interested in
exploring how their back-end system can link into another trading partner’s
supply chain system.

If you look at [the term] in the context of Nicholas Carr’s “IT Doesn’t
Matter> [controversy],
On Demand actually means getting real value out of IT.

One example is the Mayo Clinic, where, in addition to its BlueGene
project, which maps protein data, it also has an industry-specific
agenda that ties together patient care records, with advanced digital
records … and matches it with genetic data on disease. It’s a huge process
issue. Every industry has its own [IT] challenges, RFID in retail for
example.

So it’s a way to build a map from the code to the [customer’s] business
process. That’s a big part of the challenge, infrastructure that supports
the business.

Michael Topolovac, CEO, Arena Solutions, On Demand Software

How do you define On Demand software?

On demand is a growing movement of enterprise software companies that deploy
Web-native applications through an Internet browser, with no additional
hardware, software or IT staff requirements. Because on-demand software is
not subject to the inherent disadvantages of client/server applications —
lack of security, reliability and availability — on-demand software vendors
are able to focus their full attention on rapid software innovation, and
customers can focus their full attention on their core business.

On demand represents a profound paradigm shift in the software delivery
model. In fact, we’re starting to see traditional client/server software
vendors scramble to come up with their own Web-based offerings. This is
really just a “Fake Free Hosting” scenario; however, hosted
client/server applications still embody the same high costs, complexities
and limitations of typical client/server deployments — passing costs,
complexities and limitations such as compromised security and availability
onto customers. Client/server applications, hosted or not, simply can’t
offer the same ROI as true on-demand software.

Halsey Minor, founder, CEO, Grand Central Communications, (integration
services on demand)

Why is this an important trend in the IT industry?

[As a major investor in CRM on-demand specialist Salesforce.com, Minor
recently contributed $50 million of his own finances to create an on-demand
venture capital fund.]

It used to be that you could buy a capability in only one flavor — called
software. Now you can buy it in two flavors — software or service. I think
the big question that every CEO or CIO is asking is — with this very
limited budget and with about 63 percent already fixed —
How do we get maximum business value from a very finite budget? What people
have started to say to themselves is, for a commodity infrastructure, ‘we
shouldn’t be building it ourselves.’

The question is: If we’re delivering a standards-based solution — and
really the only way you’re going to differentiate yourself is by building a
unique set of processes — why would you be in the business of running
commodity infrastructure? Why would anybody be in the business of buying an
Oracle database and running it, or buying hardware and software which goes
bad all the time, run commodity infrastructure? Do you think anybody gets
any competitive advantage by buying and running enterprise CRM internally?

Can you create a use case where somebody should spend 10 times the money
and take on way more risk to do it because they’re going to get a
competitive advantage? No. You take on so much more risk to take on these
enterprise projects.

With every passing day, I’m seeing more and more people
coming to the conclusion that they’re going to be strategic about making
internal investment. There are things they need to invest in because they’re
unique to them. But there are also non-proprietary commodities. Nobody is
screwing together their own PCs; they just call Dell.

We’re in the commodity business. Every day we think about how some brilliant
engineer at Microsoft or IBM can give us a new standard that we can
implement that solves more customer problems. At the end of the day, what
people are really going to want is if there is no differentiation between
software and service, service wins because you don’t have to deal with it.
We operationalize it. If it all goes to zero in value, there is still value
in managing and running it.

That’s what we’re driving toward: the commoditization of something that
is being commoditized anyway. We’re living in a world where more and more
companies are waking up and saying: “Do we really, really have to build
expertise in integration?”

3. Future Forward

The bottom line with On Demand computing — whether in the data
center-as-utility sense, or software by subscription version — is that it is
already disrupting the traditional client/server licensing model, industry
players say.

If you are an enterprise computing customer, or vendor — this has profound
implications. Customers will expect to pay less for their computing needs,
and providers will have to make sure their cost of producing those goods are
scaled down to reflect that change.

“Client/server vendors will continue to suffer from a much higher cost of
business, including higher development, customer support and sales costs,
and those costs will always be passed on to the customer,” said Arena’s
Topolovac. “On demand is an intrinsically more economically viable business
model, and therefore a more attractive ‘software as service’ offering for
customers.”

Clint Boulton contributed to this story