Microsoft Revises Licenses To Support ERP App Hosting

Scott Jenkins, CEO of the EBS Group, Lenexa, Kan., an Oracle applications partner, agrees that it's key to have more than one arrow in the quiver.

Partners wanting to jump into hosting will have to foot the bill for data centers or align with an existing secure data center, but in return will get a way to ease the price of entry into applications for small and midsize companies, Jenkins noted.

Conversely, "with the prices we're seeing from some of the online hosted guys, you can also make a pretty attractive three-year ROI case for owning your software vs. a continual subscription where there can be increases that end up nickel-and-diming you to death," he said. The advent of this latest wave of hosted solutions and the battle over who in the delivery chain will do the hosting exacerbates some already tense disagreements between vendors and partners as to who owns the customer relationship.

Microsoft, which built its huge base on an indirect sales model, needs to include partners who want a piece of the pie. But it also needs to contend with SaaS juggernauts like Mountain View, Calif.-based Google on the consumer side and San Francisco-based Salesforce.com and San Mateo, Calif.-based NetSuite in business applications.

Those companies have become media darlings over the past few years and, in Google's case, have built up a market capitalization that makes it a formidable competitor. Google has geared up a business push with free online productivity applications, for example. And Salesforce.com under Marc Benioff and NetSuite helmed by Zach Nelson may control their own data centers, but they're also aggressively reaching out to VARs and ISVs as well.

Both of the latter companies recently launched full application development environments for solution providers in an attempt to build out their ecosystems and offer the types of customization and verticalization that have already taken root in the world of on-premises software.

Some industry watchers maintain that ERP applications and data are so critical that many companies of all sizes remain wary of trusting them to servers and storage units outside their control. It doesn't matter if those servers are from their IT service providers or vendors.

"The nature of ERP is it's your most critical business processes and data, and many companies are legitimately uncomfortable about having that out of their sight," Shepherd said.

On the flip side, small companies that may be on the way up may see hosted solutions as a way to get their IT infrastructures to grow with them on a pay-as-you go basis.

"We have companies who install it on their network but as the business grows, we can turn on the tap of the data center and move the database, literally copy it to our data center and the next day it's hosted," Sage's Downing said.

NetSuite's Nelson maintains, naturally, that it no longer makes sense to keep ERP applications in-house. These applications, he said, are distributed from the get-go.

"Distribution businesses, manufacturing businesses and supply chains all involve multiple locations, so building those core processes on a Web-based application is much more efficient and simpler than using a piece of client-server software that was never designed to be easily accessed from outside a firewall," he said.

One thing is certain: With Microsoft pushing a partner-hosted ERP model for the midmarket, and pitching its self-hosted Live offerings to very small businesses; with SAP weighing hosted versions of Business One; with Oracle continuing its OnDemand push; and with Salesforce.com and NetSuite continuing to trumpet pure SaaS models, the options will expand further before they contract.