\Trade-Offs Get Easier To Make

So make no mistake, the likes of Microsoft, Oracle, and SAP still dominate apps, bringing value from integrated suites to decades of enterprise and industry insight. With core ERP, there's scant enterprise interest in the cloud, where latency can cause problems for transaction-intensive apps.

But if there's a common thread to the adoption of alternative IT models, it's that the down economy made it easier to swallow the trade-offs that kept IT from new models in the past.

Sony Pictures Entertainment is in the process of implementing subscription-based HR, applicant tracking, travel and expense, and payroll software services from Workday. "We tried, for over a year and a half, to put together a project to implement HR," says Andy Schlei, the company's VP of IT. "And each time we got to the approval point, given our current situation, we were told we had to find a less-expensive way to do it." The IT team estimated Workday would take seven months to implement--half the time it would take to do on-site HR apps--at a third of the cost. "It's the first time we're taking a major, global platform and putting it in the cloud," Schlei says.

There's still plenty of work for Sony Pictures' IT team to do, like integrating Workday's online software with Sony Pictures' on-site identity management system. And as Sony Pictures looks to more cloud options, including using the Amazon Elastic Compute Cloud for on-demand IT infrastructure, it wants to avoid creating a new kind of complexity. "We've worked over the last 10 years or so to untangle a spaghetti of siloed apps and have been very successful at delivering lower costs," Schlei says. "We don't want to create a new spaghetti tangle of this software-as-a-service thing."

Sony Pictures also solved the "exit strategy" concern. Its contract calls for Workday to periodically send copies of any code it implements for Sony Pictures, and all the data it holds for the company, to an escrow company. Should Sony Pictures ever decide it needs to part company with Workday, or if Workday goes out of business, it will get that data and code from the escrow company.

Big Vendors Turn The Corner

It's not just we here at InformationWeek who see a major shift in CIOs' openness to new IT operating models. Established IT vendors do as well, shown by the attention they're giving to them.

Look at what Microsoft has done the past year. It plans to offer Microsoft Office--one of the most successful and widely installed software programs in business--as an online app, with a free scaled-down consumer version. After saying in January it would slow data center investments, it shifted gears and this summer opened two $500 million facilities, in Chicago and Dublin. Both are aimed at delivering apps online, either as multitenant versions on shared servers and upgraded along with everyone else's, or as single-tenant versions in the traditional hosting model.

IBM just announced it will sell a Web-based version of Lotus Notes--called Lotus Live iNotes--to businesses for $3 per user a month based on an annual contract, or $3.75 month to month. That service comes with 1 GB of storage, mobile device support, and antispam and antivirus functions.

While CIOs are taking Google more seriously as an e-mail alternative, Google Apps has been a tough sell to big business so far, says Richard Payling, VP of global outsourcing at Capgemini, which Google tapped in 2007 to provide enterprise customers with consulting, migration, and help-desk services. Capgemini has closed more than $100 million in contracts for Google Apps service in Europe but not one deal in the United States. Payling blames the slow economy in part, as U.S. companies put off changes of any sort. Google doesn't have a big sales force, so Dave Girouard, VP of enterprise, holds about 10 CIO meetings a quarter, typically with a CIO customer. Google says 1 million businesses use its apps, though only a few are in the league of JohnsonDiversey or Avago.

Oracle and SAP are building their own online models around ERP.

Oracle is offering Oracle Database and enterprise Linux hosting through Amazon's EC2, and its application team gradually has been adapting some software to subscription services. It offers Oracle On Demand CRM and Oracle Beehive, its collaboration software, as a service. Executives are considering offering many of its apps designed for midsize companies, including JD Edwards, as hosted subscription services. Those details are being worked out, says Oracle VP Mark Keever.

SAP is developing software services as an option for some apps that tie into its core ERP system. It has acquired SaaS companies including Frictionless Commerce, for sourcing of suppliers and contractors; Clear Standards, for compliance management; and SkyData Systems, a maker of SaaS CRM applications for mobile phones. And SAP recently was showing off a prototype of a business process modeling application, called Gravity, for use with Google's Wave, an online, open source platform for collaboration and document sharing. The demo showed how people could use Gravity online to craft how business processes would look after a merger, then shift the models to SAP on-premises business process modeling software for refinement.

We Energies uses the Frictionless software service to source contract workers. When it upgrades to the next version, in October, that will happen over a weekend. We Energies, which subscribed to Frictionless before the SAP acquisition, would like more data flowing between the e-sourcing system and its SAP ERP, and it has considered bringing Frictionless on premises to mitigate some of that pain. "But now we're thinking, maybe not," says Gail DeVeau, the company's director of supply chain. "If we do that, then we'll have all that IT maintenance. It's very important right now to keep costs down."

A Strategy, Not A Tactic

What's most striking about the alternative models is where they're driving IT teams to think differently about their role and the value they provide.

U.S. federal CIO Vivek Kundra is among the leaders pushing that kind of rethinking today. Government IT needs to "get away from a model of investing heavily in infrastructure where it doesn't yield value," Kundra said during a presentation at the InformationWeek 500 conference in September. A day after that conference, Kundra announced the launch of Apps.gov, a government Web site that agencies can use to buy and deploy cloud computing applications. "Why should the government pay for and build infrastructure that is available for free?" Kundra said.

Google, meanwhile, is creating a cloud to provide government agencies with access to Google Apps in an environment that abides by government security and policy requirements. Kundra's test will be whether he can move such a massive organization--$76 billion in IT spending, across myriad missions--toward a new way of provisioning IT. The goal, he says, is to start "thinking more horizontally rather than vertically across all these silos." Of that government IT budget, $19 billion goes to infrastructure maintenance.

Hoag, the top IT official at JohnsonDiversey, dares to use that overused phrase "paradigm shift" to describe the changes happening in the software industry and how they're helping IT organizations let go of the tactical issues of technology. "We want to become more strategic and transformational as an IT organization and focus on our internal business and customers," he says.

While Hoag is open to alternative options, he's not a zealot one way or another. JohnsonDiversey is using Oracle CRM On Demand, but that's integrated with the company's on-premises ERP systems from Oracle and JD Edwards. Its HR system is hosted but on dedicated servers, not in a multitenant cloud. While he has embraced Gmail on desktops and smartphones, the company keeps Office software on employee PCs and Lotus QuickPlace for its official document storage. By comparison, the functionality of Google Apps and Sites is limited. However, Hoag is eager to replicate the best elements of its Gmail experience--particularly upgrading the entire company in one day.

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