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Hi-Tech companies seeking the next big thing in the IT sector to enliven their sluggish revenues finally seem to have found it: the ability for customers to access the software they need on demand across the internet.

Software on demand has long been touted as the wave of the future, letting firms pay according to the applications they use and the number of users. But for all the froth about cutting costs, eliminating licence fees and avoiding the headache of installing and supporting software in-house, it is still a niche activity.

Now there are signs that the small trickle of adoption will gradually become a tide. So far 79Percent of the top 1000 companies in the US use it to some degree or are exploring the concept.

Last week Microsoft -- which has a lot to lose if packaged software sales begin to dip -- reaffirmed its intention to supply software online as well as in a box.

Its online services should generate a substantial $2,6bn in revenue in the financial year which began on July 1. Since Microsoft's overall revenue hit $44,2bn for the year just ended, the figure represents a small but increasingly important sum.

Microsoft's "live software" stance is to offer internet-based services to enhance, rather than replace, its desktop software.

"Some may view what we're doing here as a big, bold bet, but it's a very natural bet for us as a platform company," said chief software architect Ray Ozzie.

"I do not believe the web is the be-all and end-all of experience delivery," he said, but added that in time the cost benefits of internet-based software might be difficult to ignore.

Locally, GijimaAst hopes to derive much of its long-term revenue from software as a service. Its new line of business will manage all the computers, databases and applications of its clients from a control centre in Midrand, using IT management systems from BMC Software.

"It's really about business success, it's not about software," said GijimaAst executive Dan van der Westhuizen. "Packaged software has a large up-front capital investment, it takes a lot of time to get it right, and there are ongoing maintenance and upgrades.

"There is a lot of responsibility you accept with the traditional licensing model."

Software on demand also frees up in-house technicians to work on higher-value projects instead of looking after the existing kit.

BMC has offered its software as a service for 12 months with contracts worth $27m a year.

"It's one of the fastest-growing businesses today," said vice-president Lori Cook.

"Software licences will be replaced by other kinds of agreements. You will pay for exactly what you use and have the ability to scale up according to your business cycles."

BMC's clients include retailers who make 75Percent of their sales in the run-up to Christmas, and tax specialists whose workloads dwindle as a tax year closes.

Business Connexion is also exploring the idea, and has built two new data centres for R143m to double its capacity to provide such services to its clients. Outsourcing executive Mike Sewell said it could provide world-class services to lift the burden of IT management and governance.

A big constraint to adopting the on-demand model in SA has been the high cost of internet access, said Sandy Pullinger, MD of software company nFold. Now bandwidth fees are dipping as more rivals offer more high-speed packages, so even small companies can afford fast internet access. "I see small companies starting to adopt this model more and more," said Pullinger.

Analyst Mark Walker of IDC believes the trend will take several more years to come to the fore -- but he has no doubt that it will.

"It's not going to happen overnight, but over a five-year time frame. As companies become more comfortable with it, they will abandon the standard application purchase model."

Even the most feature-rich software is not completely suited to a company's needs, and buyers believe the costs are disproportionate to the value. A slew of irrelevant features and built-in obsolescence are other irksome points.

The alternative on-demand model is far from wrinkle-free right now, however. Key issues to resolve are the difficulties of integrating it with current IT systems, resolving all the security risks, and to what degree the software can be customised for different clients.

As the concept gained traction and more applications became available, on-demand contracts should generate $140m in SA by 2009, Walker said.

The model could prove particularly useful in Africa, where companies with few IT skills could let a specialist supplier take care of the software headaches.

Business Day