South African business’ appetite for hosted services has increased exponentially over the past two years, with growing numbers of companies happy to outsource their critical business applications to trusted suppliers.

That’s the view of Richard Halton, the director of ICT advisory specialist Exordia, who says he's seen a “significant increase” in the number of companies purchasing a range of hosted services, from mail servers to enterprise resource planning (ERP) software.
“We used to spend 90% of our time showing people the benefits of hosted services. Now, as companies become more comfortable with security and service availability issues, we’re seeing a definite, fundamental shift in the way technology is being sourced, used and paid for,” says Halton.
The market also needs to cut through the “white noise” around concepts like cloud computing, software as a service and on-demand computing, says Halton.
“If you cut through the hype, what we’re really talking about is outsourcing. Quite simply, companies are realising that it actually makes sense to be able to access your information from anywhere, and to get access to world-class applications that they previously could not afford.”
Halton’s views are borne out by market analyst Gartner, which predicts the market for software as a service (SaaS) is forecast to reach $8-billion in 2009, a 21,9% increase from 2008 revenue of $6,6-billion.
“The adoption of SaaS continues to grow and evolve within the enterprise application markets as tighter capital budgets in the current economic environment demand leaner alternatives, popularity increases, and interest for platform as a service and cloud computing grows,” says Sharon Mertz, research director at Gartner.
Gartner says several factors are driving adoption of SaaS, including the benefits of rapid deployment and rapid ROI, less upfront capital investment, and a decreased reliance on limited implementation resources. Another reason that on-demand solutions are gaining greater currency is the fact that risk and resource requirements shift from internal IT to vendors or service providers, says Halton.
Tracey Newman, who heads the Dynamics business at Microsoft South Africa, comments that the business application market is changing dramatically, with older, established systems with deep functionality being displaced by more modern and agile systems.
“Companies are no longer comfortable spending huge chunks of their IT budgets on expensive, unwieldy systems,” says Newman.
“With local companies on the cusp of getting their hands on increased bandwidth, suddenly we’re seeing a definite shift in how ERP is going to be handled. Market appetite for hosted services is growing exponentially. Companies are happy to outsource, and they’re demanding almost instant usability and functionality from their business software.”
Halton says there’s a clear growth in the size of companies getting involved in the hosted services boom as they become recognised as viable enterprise offerings. Where the PwC-owned Exordia used to get excited about a 40-user deal, the business is today processing proposals for companies that have more than 1000 users in as many as 30 locations.
“Outsourcing used to be about a company coming in and looking after your IT systems,” says Halton. “Now we have a fundamental move to an on-demand capability. Once an application is in the cloud, it makes it far easier for a company to expand. It’s no longer just outsourcing – it’s brought the ability to do a lot of extra things. And that’s where the value lies.”