Web-Based Software Services Take Hold
A year ago, Mark Rose, general manager of procurement at Chevron Corp.,
used the oil company's own software and paid outsourcer Electronic Data
Systems Corp. millions of dollars a year to manage its catalogs of
products and services from suppliers.
But when that system became too costly and ineffective, Mr. Rose turned
to new software that he hadn't considered much before: a Web-based
service.
To negotiate prices with suppliers, Chevron, San Ramon, Calif., used to
have a complex process that involved sending emails back and forth with
attached spreadsheets. At the time, Mr. Rose says, he didn't consider
Web-based services because he worried that sending information over the
Web could open the oil giant up to security troubles.
But then he found a new service from Ketera Technologies Inc., Santa
Clara, Calif., one of many Web-software start-ups that have attracted
attention over the past 12 months. Using Ketera's software, Chevron's
suppliers could input and make changes to pricing through the Ketera Web
site, and Mr. Rose's staff could approve them and make tweaks on the Web
site.
"We're an energy company, not a software company," says Mr. Rose. "If we
can free ourselves up to dabble less in software and more in oil we'll
be in good shape." He adds he's now spending about a third of what he
previously spent, but declined to give exact figures.
Like Chevron, businesses are turning to companies like Ketera that
provide what is known as "software as a service." The sector sprouted up
eight years ago, when former Oracle Corp. executive Marc Benioff
launched Salesforce.com Inc., a start-up that let companies manage sales
leads through a Web site. While companies typically had organized their
relationships with customers using customized software installed on
computers, Mr. Benioff's idea was to offer a no-frills online service
that let companies make only minor tweaks. Such Web-based software
required less investment in on-premise software and hardware, got up and
running more quickly, and was easier to use.
Early on, that attracted mostly small businesses that weren't previously
using any software at all and could easily justify trying this new
approach. But larger companies stayed away, having invested in the late
1990s in traditional software from the likes of Oracle and SAP AG.
Now that's changing, partly because of an accounting quirk. Companies
are starting to get rid of their old software at a time when
capital-expenditure budgets are tight. Traditional software and the
hardware to run it are considered a capital expenditure. But Web-based
services are typically sold as a subscription, which means corporate
buyers can account for them as a maintenance expense, which falls into a
different bucket.
As a result, companies are turning to start-ups such as Ketera, LucidEra
Inc. and Workday Inc. that are offering Web-based services for tasks
like controlling spending and managing employees. Meanwhile, a handful
of older software-as-a-service companies such as Taleo Corp. and
RightNow Technologies Inc. have gone public; another, NetSuite Inc., is
widely expected to try to do so.
Big software makers like SAP and Oracle are themselves ramping up
efforts in the area. Google Inc. is even getting involved, with
Web-based word-processing and spreadsheet services for businesses.
Research firm Gartner Inc. calculates the world-wide market for software
as a service will grow to $19.3 billion by 2011 from $6.3 billion last
year.
"We're seeing the slow, steady evolution of the technology," says Mr.
Benioff of Salesforce.com, noting that Web-based services have gone
beyond the sales and marketing services that Salesforce.com pioneered.
Some larger, risk-averse companies -- though still nervous about
Web-based services -- are now trying them. That was the experience of
Rhonda Stickley, director of recruiting and staffing at timber giant
Weyerhaeuser Co., who began using a Web-based service for tracking
hiring from Taleo two years ago. At the time, Weyerhaeuser, Federal Way,
Wash., was about to embark on a hiring spree as many of its employees
neared retirement. But its technology for tracking hires was outdated
and clumsy, involving contractors to scan paper applications into a
program from a big software company.
Even so, when Ms. Stickley discovered Taleo's service, she wondered
whether applicants' private information would be secure and if Taleo
would be able to handle the surge of Weyerhaeuser applicants. She
visited the Dublin, Calif., software company in 2005, toured its
research-and-development center, and grilled its chief executive about
everything from the company's emergency plans to its long-term strategy.
Ms. Stickley was satisfied when she heard Taleo was planning to add more
Web-based human-resources services that she could later add and had
security guarantees that more than satisfied the company's requirements.
Now, she uses Taleo's service to solicit applications through the Web,
which enter her system directly without any scanning required.
Ms. Stickley stopped paying the eight human scanners she used to have
and now doesn't have to worry about maintaining hardware or on-premise
software. She says she's saving 10% to 12% by using the service, mostly
from efficiency gains because the service is less of a hassle to manage
and easier for job applicants to use than the software she had
previously used.
One challenge that remains for users of Web-based services is that
companies can't customize these services the way they could with
traditional software. Mr. Rose of Chevron has had to tweak the way his
company communicates with suppliers about prices to fit with how the
Ketera service works.
