Microsoft Revises Licenses To Support ERP App Hosting

"We were in the hosting market before the market was ready," said Craig Downing, vice president and general manager for Sage Software's AccPac line, Pleasanton, Calif. "We kind of made it up as we went along, at a time when CFOs wouldn't use their credit cards online much less put their general ledger or accounts payable stuff up there."

The market and the technology have now caught up with the idea of hosted mission-critical business apps, Downing maintained.

"The infrastructure is there in terms of broadband, storage, security, server virtualization, data center pricing, and here in Silicon Valley you have a [venture capital] model that understands service [which] it didn't get five or six years ago," he said.

Sage, like Salesforce.com and NetSuite, hosts its own applications as an option for customers, but unlike those pure-play SaaS players, it also sells licenses for on-premise use. It launched a partner-hosting model in 2002 but revoked it within a few years.

"We've been there, done that," Downing said of partner-hosted implementations. "We had programs that allowed organizations that satisfied our infrastructure standards to host our applications and to be honest, we repealed them. It wasn't that the idea was flawed, but we ran into a problem convincing ourselves and our clients that the standards in data centers we didn't control directly would be up to snuff."

Today, Sage's VAR partners receive margin on product sales and can generate consulting dollars for needs assessment, customization and implementation, but hosted solutions run on Sage's own infrastructure.

VARs say that Microsoft's "choice" message for delivering ERP software applications resonates with them and, more important, with their customers. "It really is all about customer choice," said Andy Vabulas, CEO of IBIS, an Atlanta-based Microsoft partner.

Vabulas and other solution providers say that the choice of a Microsoft- or partner-hosted ERP offering comes in very handy when faced with a Salesforce.com or NetSuite proposal on a customer's shortlist.

Jim Shepherd, senior vice president for AMR Research, has watched the hosted business apps tide ebb and flow for years. "There was a fair amount of hosting back in the 1980s when they called these MRP systems, and then again in the short ASP boom-and-bust. Now we're back again," Shepherd said.

For Microsoft, the key is including partners in what has mostly been a vendor-customer duet. For customers, the beauty of Microsoft's menu of options is that accounts can start out hosted and then move their applications in-house or vice versa.

"What'll happen is that the active resellers and consulting types will simply have these [hosted] options in their pocket, so if they run into situations where they compete against a hosted solution or a SaaS vendor, they can do that too, they have the pricing, they have the solution," Shepherd said.

"In many cases, I suspect customers will end up buying software the way they've always bought it, but having the option will be important," he added. "That's why Microsoft, Oracle, SAP are coming to the table."