As we discussed originally while looking at Web 2.0 software-as-a-service business models, we saw how hosted software is not a competitive offering for mid- to large companies over 500 employees. New research by Quocirca and Forrester now comes to a similar conclusion, and they add that there is a grey zone between 250 and 500 employees where it’s not clear the value in hosted services. Quocirca concludes saying that hosted services are rarely cheaper than in-house services, overseeing the 5.7 million businesses in the US under 500 employees. I am still to read both research reports to understand the full details.
Additionally, these studies seem to use current pricing models, such as the one from salesforce.com, but miss some of the points raised by Mark: the utility of hosted software goes well beyond cost (the focus of Quocirca and Forrester research) and includes less tangible things such as training time, added security, and productivity (as already commented by Steve Garnett, of salesforce.com, when asked about these two research reports). Also, as we discussed while comparing the Web 2.0 to the “old economy”, it will become necessary for hosted software providers that want to remain in the market to start providing free services, adding premium services, leveraging information lock-in and enhancing the value of the intangible benefits such as usability, ease of upgrade, automatic security/patch management, etc.