As general manager in charge of e-Business Hosting Services for IBM Corp.'s mammoth Global Services group, IBM veteran Jim Corgel has had the perfect perch from which to see the building interest among corporate IT shops to have software delivered as a service. Corgel is convinced the trend is in its early days and will grow to become commonplace in terms of how corporate users obtain key applications and larger solutions.
And he is not the only one at IBM who has noticed. His boss, IBM Chairman Sam Palmisano, in his letter to shareholders in the company's annual report pegged application hosting as one of the company's three or four most strategically important areas. Since 2001, Corgel's team has turned the company's application and infrastructure hosting business into a US$1 billion business by the end of 2003. Corgel sat down with InfoWorld Editor At large Ed Scannell to discuss his views on this trend and what sort of opportunity it represents for the company and its network of business partners.
IW: How quickly are corporate users catching on to the idea of software as a service?
Corgel: Well the vast majority of our business comes from users who need to get an application up and running fast, and must have it be secure and reliable. Once they have that in place they can branch off into all the attributes of software as a service. Based on feedback from users we are pretty excited about the prospect of it here. If you look at the chairman's letter in our annual report, he talks about some key business areas and mentioned our (Web and application hosting) market as a strategic area.
IW: Do you see the success of Salesforce.com as a certain validation of your strategy?
Corgel: I think Salesforce.com (Inc.) is just one validation point of the software-as-a-service opportunity. If you recall, IBM announced last fall a partnership with Siebel (Systems Inc.) for CRM On Demand. And now Siebel is into it with both feet. Software.com has been referenced a lot by the market and is obviously a player. There is a growing cadre of change agents that are out there, particularly aimed at the upper end of the mid-market, telling users that they do not have to hire a lot of people, invest a lot up front, or be encumbered by licenses charges for software. You can just sit down with a service provider like IBM and an application provider like an Intacct or Demand Tech and get what you need delivered as a service.
IW: For large ISVs like Siebel, for example, what opportunity do they see in software as a service compared to the traditional software licensing model?
Corgel: We see software as a service giving companies like Siebel and SAP (AG) another way to provide business value for their customers, particularly SMBs. When a customer can get Siebel at $70 per user per month, that is quick time to business value, a very attractive proposition, compared with the alternative of large up-front investments in owning and managing IT infrastructure, and longer time to deployment.
IW: What categories of software are you making available as a service?
Corgel: We have organized our go-to-market strategy around (vertical) industries, and so we have relationships with companies like Demand Tech, which has consumer demand management software for merchandising optimization. We see it as a great way for retailers and manufacturers to forecast consumer demand on hundreds and thousands of items simultaneously, as well as to execute the strategy that would meet any kind of sales target they are trying to hit. It is all about things like pricing optimization and having the right products on the right shelves at the right time, and at the right price. Another example is Intacct that does accounting on demand. Their primary channel is through CPA firms where the back end is securely hosted by e-business hosted services. That gives them the sort of scalability they want, particularly at tax time and depending on what each client tells them is their busy time during the year. It allows an accounting firm to charge a monthly fee to their clients, and it allows Intacct to manage their IT needs through an On Demand hosting service from us. I think more and more users are amazed when you say no down payment or upfront cost and we can do things in days and (a) week that used to take weeks and months.
IW: Are you positioning this as an alternative to subscription-based pricing?
Corgel: You could lump them into the same category. They are variations on the theme. Subscription makes me think of something like The Mobile Travel Guide that would come out every summer. Now they are an online portal. When they launched their site on The Today Show, we were able to get ready for the spike in (Web) traffic. And sure enough, right after the show it was like 10 times the normal traffic. It is a good example of what a three-person IT shop running Linux on zSeries (mainframe) can do. So the worries of managing spikes in traffic on a hosted environment can be answered. And the fact that a traditional paper magazine or book we used to buy annually is now online, well they have transformed their business with no down payment or upfront costs.
IW: What are some of the other opportunities for software as a service?
Corgel: One that is very hot right now in the financial area is e-mail archiving. A company called Zantas, they offer e-communications management solutions. But to me that is just very fast e-mail archiving. Zantas runs on top of Tivoli and DB2. To me this is purpose built. So this thing with retailers where you are saying I need a new set of rules for price optimization, I am getting killed with extra inventory, or you can't get it there fast enough. Well here is the intellectual property from a key partner. Here is a set of virtual infrastructure services that it will ride on top from IBM.
IW: Where is IBM's focus with delivering software as a service over the short term? Corporate accounts or SMBs?
Corgel: Well, we try to leave no opportunity unturned (laughs). A lot of my background is among SMBs so I drive a fair portion of my team toward what I consider to be a large untapped opportunity there. My goal is to be there first with the most. The thing that drives me regarding SMBs is they keep telling us they want to do more on the Internet, to connect more with key partners, and do more applications, but they don't have the IT staff. But with this hosting services opportunity, we think they can do all that.
IW: You are talking more about the Ms (midsize businesses) than the Ses (small businesses) in this case?
Corgel: Yes, the Ms are vastly untapped. They are saying they know they have to move on from just doing simple data access, and want to get more integrated with the Web. We all know the folklore of mid-cap companies taking traditional products around the world to bigger markets, but they can't afford three things: They can't afford to be down so they need reliability, they can't afford the people investment up front, and they often can't afford the sort of speed they need. So this hosted service provision seems to be appealing to many of them.
IW: If software as a service continues to grow, how much will it impact IBM's software leasing business?
Corgel: I think the leasing industry, like every part of our industry, morphs towards the opportunity. So we have a flexible hosting services suite of offerings where IBM Global Financing can play a key role. They can play a lead role in building, especially for the Fortune 200, and provide the right kind of economic relationship. We have virtualized infrastructure and network management tools that can be shared across multiple users securely and reliably.