The interest in what used to be called “hosted” logistics software solutions is growing.

Over the past few years, this concept has gone by a variety of terms: hosted solutions, ASP (application service provider), and recently, with a big push from IBM, “on-demand” software.

Of course, these concepts could apply to any supply chain or other category of software. In practice, my experience in the supply chain area is that the greatest interest by far is in logistics-related categories: transportation management, international trade logistics, supply chain visibility.
A few months ago, we spoke with Yankee Group analyst John Fontanella on this trend as part of our audio Viewpoint series – you may also enjoy listening to that interview.

In a traditional software purchase, a company buys a perpetual license to the product upfront, generally pays a maintenance fee on that software, and deploys the software on computer platforms within their own enterprise, being responsible for the general technical support of the application.

The “on-demand” model in its purest form actually offers the reverse of all of that. In reality, however, there are several separate dimensions to an “on-demand” solution, each of which can be a separate business driver of the interest in this approach (click here for a graphic of the framework):

Deployment Model: Will the software be installed at your site (the traditional approach), or hosted at the software provider or other third-party?

Pricing Model: Will the software license be purchased upfront (the traditional model), or will it be paid for as it is used on a subscription/ transaction basis?

Operating Model: Will the business department or function using the software be managed internally, or through use of a third party/ outsourcer? For example: use of a 3PL to manage the transportation function.

In my conversations with many companies on this topic over the past few years, it is clear that when they speak of the desire for a “hosted” solution, the reason behind that can vary substantially, and can impact their choices along this framework. For example, one company looking for a hosted transportation solution really just wanted to pay on a subscription basis, due to limited capital availability. They ultimately acquired TMS software on subscription, but deployed the software internally in the traditional way. Others are fine with licensing the software upfront, but do want to have some other party host and manage the application. That said, there is clearly growing interest in the full “on-demand” model, meaning a hosted solution paid for on a subscription or transaction basis.

So what’s happening here? Several factors I think. Certainly the ability to avoid a large upfront capital outlay, and better match savings with costs, is one factor. Second, in many cases on-demand solutions can be deployed more quickly, accelerating time-to-value. A less discussed factor is that many IT departments seem to be OK with the business using hosted solutions that might not align with various technical standards or with ultimate plans to go with the ERP module in that area – there is something less “intrusive” in the hosted model.

You can download a nice overview of this whole topic by clicking here.

Of course, we heard a lot about “ASPs” in the dot.com bubble, and many of those companies are long gone by now. But “on-demand” seems to have some legs, and the tens of millions IBM is spending to promote the concept generally to CXOs is certainly helping the cause.

Why do you think we are seeing growing interest in “on-demand’ software? Why does it seem to be mostly focused on the logistics/transportation area, and not other supply chain categories? Is this the wave of the future, and if so, what does it mean to end users and vendors?

Let us know your thoughts.