Pay-per-view ERP

That's the beauty of accessing information from a single, offsite location via the Web. But given recent headlines about high-profile network breaches (Sam's Club, et al.), it's hardly surprising that some potential on-demand ERP adopters fret about the technology's potential security vulnerabilities.

Such concerns may explain why scores of banks, brokerages, aviation companies, government contractors, and other businesses that undergo close government scrutiny have yet to embrace on-demand ERP software. "Health-care organizations tend to want to have control over the systems they rely on," says IDC's Pang. "They don't necessarily want to outsource or let somebody else take care of their data."

There haven't been any security leaks so far — or at least any that have been publicly reported. But that's probably cold comfort to CFOs who worry about sending very private operational data over the very public Internet. "It's one thing to be afraid that someone might get access to your customer list," says Richardson. "It becomes thermonuclear when you stand to lose access to other elements of your business process. The ERP side has got all of your financial data, orders, inventory, and so on."

Many observers believe CFOs might be worrying needlessly, noting that authentication technologies have improved considerably over the past five years. "It's funny: we trust our payroll data, which has some very sensitive information, to ADP," says Richardson. "But we're very concerned about having other stuff outside of our firewall."

Rewards Program
Peerless Steel's Remdenok isn't one of those people. He deployed a hosted ERP program (from Plexus Systems) at the steel distributor some five years ago, making the Michigan company something of an ERP pioneer. Remdenok says the rewards of the hosted approach have far outweighed any risks to the business. The proof? Peerless Steel has consistently achieved an annual ROI of at least 20 percent on its hosted ERP investment.

Most of Peerless Steel's returns have come from downsizing its IT department. That's hardly surprising: hosted software is basically a form of business-process outsourcing. "When you eliminate eight salaries," notes Remdenok, "the cost to operate [the software] is less than what we're paying for our existing staff."

In Florida, Elias also feels he's blazing a new and groundbreaking technology trail. "This is the future," he insists. "Three years from now, I don't think there will be any companies that develop software through the traditional route."

John Edwards, who covers technology for CFO, is the author of The Geeks of War.

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License to Bill Project of revenues from ERP software licensing and hosting (in $ billions)
Revenue Source	2004	2005	2006	2007	2008	2009	Growth Rate*
Licensing	$16.1	16.6	17.8	19.0	20.2	21.8	6%
Hosting	$1.1	1.5	1.9	2.3	2.7	3.1	22%
*Annual Source: AMR Research

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Program Guide: Three Methods for Delivering Software
	Custom Applications Created in-house or by external developers exclusively for a specific business, which then owns the product	On-site Licensed Applications Developed by commercial software publishers for a wide range of businesses, usually running on the licensee's own servers	On-Demand/ Subscription Applications Accessed by customers via the Web and run on servers supplied by the software provider or an authorized third party
Initial software cost	High	Moderate	Low
Customer owns the software	Yes	No	No
Customer's ability to customize the software	High	Moderate	Low
Upfront hardware costs	High	High	Low
Software maintenance/ upgrade costs	High	Moderate	Low
Compliance protection	High	Moderate	Low
Vendor lock-in	High	Moderate	Low

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Late to the Dance

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