The client-server model: Not dead yet
Traditional enterprise-software systems may not be trendy, but they're not going away.
(Fortune Magazine) -- With all the buzz about software served up over the Internet, you'd think old-guard enterprise software makers like Oracle and SAP would be panicking over the future of their businesses. You'd be wrong.
"I don't understand what we would do differently in light of cloud computing other than change the wording on some of our ads," Oracle (ORCL, Fortune 500) CEO Larry Ellison famously told an analysts' gathering last year. "It's crazy."
What Ellison was driving home during his rant was that he can already offer all the benefits touted by the cloud-computing crowd, most notably Salesforce.com (CRM) and NetSuite (N) (companies that Ellison helped finance, by the way). Oracle, Ellison would posit, already offers its customers flexibility, elasticity, reliability, and the option to save money. Put another way, software sold as a service isn't going to sweep away the traditional client-server world anytime soon.
And while they might not deliver the message with the same Ellison bravado, other incumbent software providers - SAP (SAP), Microsoft (MSFT, Fortune 500), IBM (IBM, Fortune 500) - all agree. Of the approximately $64 billion spent on business applications worldwide in 2008, research firm Gartner estimates that about 10%, or $6.4 billion, was spent on applications housed remotely and delivered via the Net.
"It has taken a decade to get there," says Ben Pring, a Gartner researcher. "It is going to be a sizable niche of the marketplace, but the idea that the chief information officer of a big business can rip everything out and replace it with software-as-a-service just doesn't work."
Part of the reason these Internet-based software solutions are getting so much buzz is that it is an area of growth in a stagnant industry. And so while Ellison isn't quaking in his boots, he and his peers are investing in their own software-as-a-service offerings. "For us it's a matter of offering our customers choice," says Tim O'Brien, Microsoft's senior director for platform strategy. Companies may want a blend of traditional client-server solutions and cloud offerings. "Cloud computing deserves a place at the table, but not the entire table," says SAP technology chief Vishal Sikka.
Of course, SAP and others have one big reason to keep the client-server model alive: profits. Oracle's profit margin is a tidy 25%, while Salesforce had margins of about 4% in its most recently reported quarter. Perhaps that helps explain why the software-as-a-service crowd is quietly embracing the client-server model. Google has been making a push onto the desktop with offline versions of its e-mail and calendar. And after online outages in December and January, more businesses are looking at installing desktop clients to manage their customers. One of the vendors offering the "offline" software? None other than Salesforce.com.