You Don't Have To Be Locked In

Software services may be a smart alternative, but for how long?

by Mary Hayes Weier

Greg Gianforte, CEO of RightNow Technologies, likens the large software companies to dinosaurs. "Consolidation is an inevitable step in a mature and declining market," he says. "The second world is one of software as a service, which is at the very beginning of its growth curve."
Nice try, but perhaps a bit premature, considering software from the major vendors is entrenched in every large U.S. company. Still, Gianforte, whose RightNow is among the software-as-a-service highfliers, has a point: It's hard to find a CIO who doesn't have at least some interest in alternatives to the applications albatross.

They're there. Open source software is increasingly attractive. Google is pushing a Web-based application model that has Microsoft worried. And software-as-a-service vendors such as RightNow and Salesforce.com, hundred-million-dollar companies in their own right, are growing 40% to 60% a year.

Case in point: Aon, the $10 billion-a-year insurance company, has rolled out Salesforce to more than 5,000 employees worldwide. "The software option wasn't a positive one for us," says Phil Clement, head of Aon's sales systems.

Every major software vendor has a software-as-a-service play, or one in the works. SAP said last week that it's prepping a software service for midsize companies that will cost considerably less than packaged software. Potential customers will be able to test it on the Web before committing.

As software as a service gets more popular, the leading providers will become obvious takeover candidates. IDC predicted last month that it's likely Salesforce.com will be acquired sometime this year.

When that consolidation wave hits, who will be the dinosaurs then?