Software-as-a-service (SaaS) is gaining momentum. In accordance with this trend, the product lifecycle management (PLM) market is set to follow the path of customer relationship management (CRM) in an aggressive transition from large, expensive software implementations to the utilization of on-demand SaaS.
According to AMR Research, small to medium businesses (SMB) spent $2.1 billion (USD) on PLM-related products and services in 2004. This amount is projected to grow to $5.1 billion (USD) by 2008. At the same time, on-demand software sales are expected to grow at a substantially quicker pace than the traditional client/server software market. The combination of these two growth patterns going forward bodes well for PLM deployment via an on-demand model.
Moreover, the potential for on-demand applications has not gone unnoticed by the large enterprise resource planning (ERP) vendors, in particular SAP and Oracle. Though Salesforce.com has been the most successful innovator of SaaS for CRM, SAP has just released an on-demand CRM service. It is easy to speculate that if SAP is successful with this venture, PLM will be a prime candidate for its next SaaS venture. SAP's announcement comes on the heels of Oracle's acquisition of Seibel Systems and its attractive on-demand CRM offerings. Additionally, Microsoft's recent release of Dynamics CRM 3.0 appears to be off to a solid period of financial performance. With the CRM market blazing a trail for successful on-demand software, can PLM be the next application segment poised for on-demand growth? Is there a Salesforce.com equivalent in the PLM applications market?
Barriers to Adoption
In the early days of on-demand software and services, certain barriers may have hindered the potentially rapid growth of this applications delivery model, especially in enterprises with over $1 billion (USD) in annual revenues. Table 1 elaborates on these barriers.
Table 1. Barriers to On-demand Software and Services Adoption
|Information technology (IT) legacy ownership
||The IT department, fearing the unknown, wanted to maintain ownership and control of locally supported applications.
|Applications and systems security
||Whether SaaS providers could guarantee twenty-four hour a day, seven day a week availability and reliability of software applications, as well as the security of transactions, were in question.
||The need for immediate applications changes resulting from new business process changes tested an organization's ability to adapt to changing business environments.
||Uncertainty in terms of how financially secure the on-demand service provider would be in the future created doubt regarding the viability of SaaS for mission critical applications.
||Enterprises wanted to retain the ability to make sudden or radical applications changes in order to meet unique business needs quickly.
||The extent to which on-demand providers could scale the infrastructure for a large numbers of users, while maintaining satisfactory levels of service, was in question.
These early barriers prevented many enterprises from pursuing SaaS, but attitudes are changing. In spite of Salesforce.com's recent service outages, which received considerable media attention, service performance ratings and technology platform reliability have been more than satisfactory for enterprises that have ventured into the on-demand arena. Moreover, such widespread service outages may have been quelled due to the SAP on-demand CRM model's unique technology twist. SAP is deploying each CRM client on its own dedicated server, hosted by an IBM data center, in order to provide added protection from widespread system failures. This is noticeably different from the multi-tenancy approaches generally utilized by on-demand applications.
To additionally counterbalance the above-mentioned barriers, the on-demand, SaaS model has definite advantages. Some of the most commonly mentioned benefits are outlined below.
- Rapid deployment
- Global Web access
- Low cost of ownership
- Lower IT support costs
- Single source release management
- Continuous feature functionality improvements
- Consistent and centralized training and support services
- Pay-as-you-go cost models
Regardless of the size of an on-demand customer, speed of implementation is a salient factor in reducing the over all cost of deployment. While SAP's boast of its on-demand services that you can "sign up in the morning, and you are up and running in the afternoon" is a stretch, there is no denying that an individual user can become productive much more quickly than with traditional in-house models. This is the prime explanation of why CRM has been the on-demand pathfinder. This argument holds true for PLM users as well, despite the fact that an orchestrated business process approach is much more important in the world of global product development.
PLM Vendors with On-demand Capabilities
There are currently only a few software vendors offering a PLM suite in an on-demand deployment or hosted model. It should be noted that there are subtle distinctions between on-demand applications and application service provision (ASP), which is software as a service with application utility. Thus, each vendor's service offering needs to be examined regarding these subtleties. Regardless, Arena Solutions is the most recognized solution provider to meet this on-demand profile, and its success to date is worthy of mention.
Arena Solutions really looks at the software market differently than most of its competitors, seeing PLM as a set of services, not a collection of software. It thrives on the community approach to SaaS, and has made a commitment to its client base to perform quarterly release updates. This commitment is a tough act to follow for traditional client/server deployed software applications of any type.
Other notable PLM vendors offering varying degrees of on-demand solutions include UGS with its UGS Velocity Series product; PTC with its Windchill On-Demand product, hosted by IBM; IBM's Express Portfolio, delivered with partner Dassault Systemes; and Autodesk, which offers a hosted version of Streamline. These solutions are targeted squarely at the mid-market, and are more or less subsets of the full PLM suite of products available through the traditional software delivery model.
Questions concerning on-demand PLM abound. When will on-demand PLM applications become broadly adopted, both by SMB and Fortune 5,000 enterprises? Will a Salesforce.com equivalent for PLM emerge? To what extent will larger enterprises employ the SaaS, on-demand deployment model?
In this last regard, it is highly likely that more companies with an SMB profile will consider and deploy on-demand business applications going forward. The extent to which larger enterprises transition to this model will be based on the extent to which solution providers leap the barriers mentioned above, and the extent to which IT professionals let go of the old paradigm characterized by ownership and control. In the long term, there is no "hard" case for larger enterprises to justify continued IT investments in legacy applications on client/server architectures for applications like CRM or PLM. Rather, the arguments tend to be the "soft" arguments of fear and trust: fear of the unknown and thus of an uncontrolled technology environment, coupled with a lack of trust in the SaaS solution provider. No doubt, the element of fear will subside over time as more and more businesses transition to the on-demand model. Trust has to be earned, and this is the ultimate challenge facing on-demand solution providers.