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Tuesday, November 30, 2004Business2 publishes an article by Erick Schonfeld wherein he says,
on-demand enterprise software is ready to take its next step: Automating thorny business processes. Excerpts from the article( with minor edits and my views added.)
As against outsourcing your business processes to offshore locations,soon enough you'll be outsourcing them to an on-demand software service instead. At least that's what Net mogul Halsey Minor is betting on with his personal $50 million On Demand Venture Fund.
Minor, who was at the right place at the right time when he founded CNET Networksin the mid-1990s, is now a big believer in on-demand software that is delivered as a subscription service over the Web. Grand Central is a software-integration service that acts as a central hub for IT folks who want to connect different enterprise applications together without paying consultants millions of dollars to do so. Instead they pay Minor per megabyte of data that runs across Grand Central. Minor is also an investor in Salesforce.com, which offers customer-relationship management software as a service over the Web in much the same manner. What these two enterprise-software businesses have in common is that their customers incur no up-front costs and pay only for what they use. Minor likens it to a utility or a railroad, hence his company's name.
While this notion of software delivered as a service is gaining in popularity, Minor's fund is focused on the next logical step: Web-based software that automates business processes. A business process can be anything from the way a company pays its bills to how it approves travel expenses to the procedures it follows for interacting with suppliers. Mundane stuff, maybe, but a multibillion-dollar industry of so-called business-process outsourcing has sprung up over the past few years to take these rote processes off the hands of corporate managers. These are tasks like processing insurance claims or expense accounts. Too often, though, these outsourcers are tempted to throw cheap, foreign labor at the problem instead of using technology to improve the way the processes are handled.
Web-based software platforms can change all that. Instead of merely letting customers tap into some enterprise software over the Web, startups now have the opportunity to translate specific business rules into software and automate large swaths of the outsourcing industry. "I am just waiting for the entrepreneurs," Minor says. He has three rules for considering a business pitch:
- The startup must aim to make companies or industries more efficient by automating a business process,
- The software must work using Grand Central, and
- The would-be founders must build a functioning prototype. (If Minor doesn't like your plan, one could try Emergence Capital Partners, another venture firm looking to invest $125 million in this area.)
The resulting businesses, Minor believes, will lead to "the Googlization of enterprise software." He means that, just as Google only gets paid per click for ads that appear on its website, business-process software customers should only have to pay for each successful transaction. "Pay per success," he says, "lines up exactly with the way businesses want to buy. If I pick up the phone and the call doesn't go through, I don't pay. If the plane does not leave, I don't pay." Why should enterprise software or outsourcing services be any different? Software-based outsourcing services could be built for any noncore business process in practically any industry. (Consider the possibilities in accounting, human resources, legal documentation, and procurement, to name a few.) Anyone who has expertise in a widely applicable business process should be translating it into Web-accessible software and beating down Minor's door with business plan in hand. Outsourcing to India or China won't stop.
But ultimately, technology arbitrage will trump labor arbitrage. And the days of throwing bodies at these problems, when bits can handle them much more effectively, will go the way of the abacus. |
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