Interview: On demand model reaches tipping point

Mark Suster

IT Week: How much IT industry backing is there for the hosted software model?

Mark Suster: Silicon Valley now fully accepts [proprietary] enterprise software is a relic of the past. You will not get a business plan funded in the Valley at the moment unless you are working on a hosted or open source business model. Traditional business applications companies simply won't get VC funding.

But has it gained that same acceptance amongst customers?

The tipping point for the hosted model comes as users realise the network has reached a level of maturity where it is always on. When they see there is reliability and they can access applications and data in sufficient volumes on demand then they will back the hosted model. It is the same model as the utility sector. There are places in the world where people can't rely on water and electricity and then you need local supply. But as soon as there is reliable supply people move towards a networked approach.

Have we reached that tipping point in the UK?

Between 1999 and today the network in the UK has become reliable. When it was still dial up people were reluctant to go hosted, but with broadband now so pervasive we have crossed the tipping point in the UK. It was crossed eighteen months in the US and is coming up fast in Germany and France.

But there are still concerns about reliability. What damage has the recent high profile outages at Salesforce.com done to the market?

If salesforce.com had those outages in 2002 it could have been the death of the company. But now acceptance of hosted applications is so broad that it is just seen as a bump in the road. If you look at Microsoft Live [Microsoft's recently launched hosted offering] you see the extent of the acceptance of what is happening.

But why would anyone hand over business critical data to a hosted provider when concerns about security continue to grow?

Security is a big issue and there are companies saying "should I put this data in the network?" But when you point out to that their current processes involve emailing or even faxing information around they realise it can be more secure to have data in a hosted app provided by a company that has security certification and handles data as its core business.

Do you have evidence you can offer enhanced security?

If you look at a bank like BNP Paribas, which is using our software to manage the upgrades of all its French banks you can see the model has come of age. When they came to us they knew it was sensitive data and demanded we prove we were as secure as their internal department, which we did. We have been audited by the Met, the Irish government and the MoD for security. When you have the approval of organisations like that, which take security very seriously, the rest of the market will follow.

But many firms continue to feel more secure owning their applications.

If the cost was the same people might see advantages in continuing to own their applications. But when you can realise cost of ownership savings of up to 90 percent then the simple fact that your competitors will adopt this model means firms won't have a choice.

Do firms understand these cost savings?

The big problem is that firms look at hosted, see that it may cost £20,000 and think we can do it in house with a server that costs £2,000 and low cost products like Microsoft Sharepoint. But that approach fails to include the development costs, the back up costs, the security costs, the operational and maintenance costs, not to mention the effect on productivity if it is not 100 percent right. When firms do the TCO calculations properly the cost benefits of the hosted model become very apparent.