When it comes to ecommerce software packages, buyers have basically 3 different choices on how the software is being made available to them; on-premises, hosted or on-demand. Much of which deployment method you prefer will depend on a variety of criteria and how important are those to you.
I compiled the following questionnaire based on many discussions I had with clients on that topic and some recent conversations with industry analysts, such as Gene Alvarez of Gartner, which hopefully provides you with some guidance when discussing the matter at your end.
The following figure provides a quick overview on the strengths of each of the 3 methods.
1. How much online revenue do I expect from the target market?
The revenue you expect will give you some good indication on how much you are willing to invest and how best to finance your investment. It will also guide you when it comes to price negotiation in the later stage of your selection process.
Revenue share models for instance, which are commonly offered by on demand providers, as their preferred choice have serious long term implications on TCO when your revenue rises beyond a certain point. At that point other licensing models or deployment models become much more interesting as your operational expense becomes much bigger than buying the actual software package.
When expanding into new markets the deployment method of choice may varies from the deployment method one would choose when entering a known market. Depending of the maturity of the market, revenue expectations and services which would need to be offered to customers may be in stark contrast to the well known market. Thus the revenue is more related to the revenue you expect from the context/market in which you’ll use the software rather than from a companies total revenue.
2. How fast do I want to go to market?
Different market need different investment into the sophistication of a solution. Although going to market as quick as possible is way up there on the wish list of enterprises, there is a huge difference between flipping a few switches and putting your logo up there or building something that really distinct you from your competitors but takes a few month to roll out.
When you are planning on entering into a well known market with many competitors you may need to differentiate yourself from the crowed by the services you are offering. A me-to solution (as on demand offerings are by definition) is may be contra productive in such situation. On the flip site when entering a market with almost no competition no one cares about you being me-to as the market will not know any other offering.
3. Is innovation more important than commodity?
on demand solutions only work for the vendor when the vendor can repeat an installation as often as possible. Thus the application will not allow for much customisation as it would be counter productive to the promise of an on demand solution. You also have to leave innovation to the on demand provider and have to trust in the execution of his roadmap. There isn’t much you can do by yourself.
That’s totally fine in rather static businesses such as CRM or where extension concepts work well. Salesforce is the poster child for this. Where the rate of change although is high, let’s say in eCommerce, that approach may isn’t the best. Well at least you should have a lot of faith that the vendor makes the right decisions on your behalf.
4. How do I want to fund my investment?
Again, that’s more a question about which price model you prefer. on demand vendors tend to offer revenue share models which look very good in the first year or when revenue is low, but become very expensive over time or revenue goes significantly up. If you like to pay your investment as an operational expense revenue share, subscription or pay as you grow models are certainly of interest to you. The last two options are more common with hosting models.
5. Will this solution run business critical processes?
When you just want to test the waters, either in a new market or by adding another sales channels, an on demand model might be the better option. The up front investment you have to make is small and if it doesn’t work out, you won’t loose much. If however you see this as a strategic mean to transform your business or run and hold business critical processes and data, on premises or at least hosted should be your first choice.
6. How much customisation do I expect for my business model?
As I already mentioned when answering question 3, on demand models are by definition very restricted in what you can customise and what you can not. Your business has to adopt to the software not the other way around. If on demand vendors claim that they are offering a huge degree of customisation, they in reality running a hosting model, disguised as on demand.
In that case you have similar challenges than you have with on premises model, may be reduced by less worries about hardware and hosting. Which in itself is a great value but it certainly is not an on demand model anymore. You should also watch out how the vendor actually sets up those ‘on demand’ projects. If that involves a team on his site you should really look into how dedicated this team is to you or if it may shared with other ‘on demand’ projects.
If it’s shared you may find yourself very quickly on the bottom of the priority list of things todo and you have yourself cut off from the vendors roadmap as ongoing updates and upgrades become very expensive for the vendor to do. So keeping you in sync with the roadmap is now a challenge. You lost immediately a huge deal of benefits on demand suggests.
7. How much control over the code do I need?
If you want full control over the code, on premises is the only way forward for you. hosted may give you some control but certainly not as much as actually having the software within your own 4 walls or the extension of the enterprise into it’s data center. An on premises solution is also a better option in those cases when you want to provide your in-house IT team with a framework that offers lots of standards and commodities so that your IT team has the freedom to innovate.
8. Do I want to own the software?
In a revenue share model, or subscription model you may never own the software. It’s like leasing a car or machinery.
9. Can the software be hosted in a data center of my choice?
You’ll only get that with on premises software.
10. How do I want to differentiate myself in the market?
As I pointed out earlier, an on demand business model only works for the vendor when the same thing is replicated over and over again. Thus all systems powered by this vendors are clones by definition. This does not give much room for individuality. Your system is one of many others. Your differentiation must come from your product assortment or price. It can’t come from the services or integrations you offer as all of your competitors (or at least those who are with the same vendor as you) will have them too. You are a run-of-the-mill offering. Every new feature you get, gets your competitor too – instantly and simultaneously.