Subscribe and you can thrive

Listen to this article

00:00
00:00

Greg Gianforte, a serial entrepreneur with a software engineering heritage, cannot lose the habit of writing computer code.

Today, he is chief executive of RightNow Techno-logies, a business he founded in 1997 to exploit the booming market for Customer Relationship Management programs.

RightNow is still in the CRM space with features designed by Mr Gianforte but the nature of its business has changed completely as users discovered a new way to harness powerful commercial applications for a fraction of the cost and effort associated with IT projects.

The vast majority – 86 per cent – of RightNow’s 1,300 customers now access their CRM software online, with the application itself lodged back at the supplier’s own data centre.

Allowing the vendor to host the software while the user logs into relevant subsets of it slashes the cost of applications that were previously in the realm of corporate IT departments.

A business can subscribe to RightNow for as little as $99 a month. Users are renting space in a large application and leaving the supplier to run the system, a move that RightNow says eliminates four-fifths of the ownership costs. Four years ago, half of RightNow’s users still had it in house on their own servers.

This shift in software usage is not confined to smaller enterprises. A growing number of large organisations has spotted the potential for offloading an internal chore. In the process, they are raising questions about the nature and value of IT departments.

Boston research group AMR says global revenue for online software rental companies is growing at 22 per cent a year and will reach just under $4bn by 2009. The traditional corporate software licence market is showing growth of just 7 per cent.

As ever in technology, clear language falls victim to marketing departments desperate to create a new identity for a simple service.

Online software rental enjoyed a false start in the 1990s, when it was known as Application Service Provider software. Suppliers like to call it On Demand software. The highest profile player is Salesforce.com.

But a constellation of new entrants are finding that customers are happy to let someone else worry about software, while they pursue core business interests.

Californian @Road operates a central system for mobile workers to log in with location and customer information. The service is priced per employee and IT novices access sophisticated tracking facilities with a PC and internet connection.

Monthly rental rates can be anywhere between $40 and $150,000 or more, but chief executive Krish Panu believes that, whatever the price, the big attraction is that @Road is an operational cost, not a capital outlay. “You pay by the month and see an immediate return on investment. There’s no expensive capital expenditure or implementation risk,” he says.

The model does mean relinquishing control of maintenance. But for smaller companies a short wait for a software upgrade is not critical.

Security is invariably better at the vendor’s site than at the customer’s and the pooling of revenue from multiple small contracts generates a higher level of technology than any SME can reproduce by itself.

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web.