In a previous article, I discussed the impact of vendor lock-in for software system customers.

The premise was that, due to the structure of the licensing agreement as well as the cost of shifting to another soluton, customers are effectively locked into a product. The questions posed were these: what will be the disrupting technology? Will it be "cloud" tehcnologies?

Recently we met with a company that had a large ERP system implementation. The senior executive was frustrated with the system due to high costs and perceived lack of flexibility. In addition to licensing costs, the system had per-seat costs and maintenance fees. Whenever he needed an additional capability, he needed to license another module. Any customization incurred additional costs and delays.

There was also substantial infrastructure investment in servers and staffing to support this software package.

Despite all this investment in time and effort, he felt that he was not getting the information he needed (for example, what factors would increase revenue).

However, the executive frankly stated that there would not be a major change because no person would put their career on the line recommending it. The sunk costs and the major disruption in changing systems was just too high of risk and the benefits too hard to quantify.

Effectively, he was locked in to the vendor.

My sense of it is that software as a service (SAAS) and cloud technologies have the ability to disrupt this model in much the same manner as personal computers disrupted the mainframe and minicomputer markets. Companies like Salesforce are already starting to do this in the CRM market.

In a "cloud" or SAAS environment, the pricing structure changes dramatically. Typically, the upfront licensing charges disappear and are replaced by a montlhy usage fee. Whether the cost savings are truly there over the long term is a question - it almost becomes a lease vs. buy analysis. Some of the newer pricing models, like fixed cost pricing or metered pricing should further tip the advantage away from the traditional models.

The substantial savings are in infrastructure. Servers and IT staff with their associated maintenance costs - backups, database licenses, disaster recovery, security costs - mount up quickly in a traditional environment.

Another often neglected area. system upgrades, are now handled in a timely manner by the software provider. Timely upgrades allow a customer to take advantage of the latest features of the software. In many cases, system enhancements are based on customer suggestions. In our experience, the SAAS model allows us to rapidly deploy enhancements (sometimes in a manner of days!) to customers.

From our (admittedly biased!) perspective, if the software meets your functional needs for a new installation, the SAAS approach offers many advantages and may very well be a "game-changer" - for both cost and flexibility.

Norm Plummer, President - Haeiwacom, Inc.

Haeiwacom provides real-time track and trace solutions for manufacturing and service applications. Consisting of process control, warehouse management and document management modules, the Haeiwacom solutions are delivered as software as a service resulting in cost savings and straightforward, practical implementations.

Web: www.haeiwacom.com