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Application outsourcing represents a danger

Application outsourcing represents a danger

Vendors are touting applications outsourcing as the next big thing in the enterprise resource planning (ERP) space but resellers know they'll have to play it smart to get a share of the spoils.

Theoretically, applications outsourcing enables users to lease their software instead of buying it, with maintenance being carried out by a third party. However, resellers and systems integrators spoken to by ARN are not convinced it will be a boon for everyone in the channel.

"For a software author like an Oracle or SAP, I can see the logic in applications outsourcing," Tim Bedford, managing director of ERP systems integrator FocalPoint Solutions, said. "In the past, they have had to cast a margin on to a reseller or third-party implementer and this will enable them to save paying that margin or pay less."

Last week, Oracle formally announced that it is pilot testing its long-hinted-at ERP applications hosting service. Under the plan Oracle, together with Hewlett-Packard and Sun Microsystems, will establish and maintain data centres where Oracle will run its own Oracle ERP applications and rent the software out on a subscription basis to businesses of all sizes.

All a business will need to get access to the applications is a Java-compliant Web browser.

Bedford warns that if Oracle can make a success of ERP applications outsourcing, the practice may penetrate other sectors of the market.

"If Oracle is already considering it, it may filter to other database companies like Sybase and Informix and then to vendors like Microsoft, who could also end up outsourcing their operating systems," Bedford said.

"It means the channel won't necessarily make the same money so they'll need to be smarter in the services they provide to ensure their customers don't abandon their current models."

But while Ian Buckley, client services manager at Baan reseller IMB Business Systems, acknowledges fewer resellers are likely to benefit if applications outsourcing becomes a trend, he argues that those who do will have many opportunities to cash in.

"I think it has the potential to be big in the small and medium business space," Buckley said. "There is the opportunity for not only resellers in that area, but also customers to take advantage of higher-end software than they can presently access.

"And since the larger vendors probably won't be able to provide adequate bureau support to all of these customers, that responsibility is likely to go to their resellers, although there may only be a few of them."

Doubtful take off

However, Richard Kulkarni, sales director of ERP systems integration firm JBA International, is doubtful applications outsourcing will take off in Australia.

"Vendors appear to be going back to the old days of the bureau system [where they handled the processing of applications packages on a central host machine]," Kulkarni said.

"We have a bureau in the US doing it with companies in a vertical market but they are not competitors, whereas in Australia the market is too small and people are reluctant because they don't want competitors in the same type of environment as themselves."

Merv Langby, senior consultant at International Data Corporation (IDC), does not expect the applications market to develop any signs of even early maturity for at least the next 12 months, he warns that when it does, those in the channel who choose to get involved will have to be keenly focused.

"Applications outsourcing will only be for serious players," he said. "Those who get in to it basically because they've got some spare room on a processor will just be fantasising."


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