If you work for a mid-size company that has never done business with IBM Global Services (IGS) before, there is something you should know about the IT services giant. During 2003, IGS plans to create many new services for mid-size companies, most of which will be delivered to your IT systems via the Web.

The new IGS offerings will be part of a broader IBM effort to deliver IT services to mid-size companies via a utility-based model. This model, which IBM recently dubbed "e-business on demand," is being driven within IGS by its e-Sourcing group. Over the last several years, the e-Sourcing group has helped large enterprises, including Goodyear and Saks Fifth Avenue, to outsource their applications to IGS hosting centers. Now, it is expanding its focus to include mid-size companies.

To reach the mid-market, IGS is forging partnerships with software vendors whose applications are designed for delivery over the Web. These applications will then be made available via IGS hosting centers for usage-based charges that will be billed on a monthly or quarterly basis. Though IGS will initially host applications in the United States, plans are underway to make them available on a global basis.

While the IGS mid-market campaign will not be in full swing until later this year, IGSis already hosting the products of four software vendors in its data centers. Here is a brief description of each of them.

• Employease provides human resources software for benefits management, performance management, employee self-service, and related functions.
• HRsmart develops solutions for employee recruiting and applicant tracking that accelerate the recruiting and hiring processes.
• Intacct offers core accounting applications, including general ledger, accounts payable and receivable, auditing, and a variety of specialized modules.
• Onyx creates customer relationship management solutions that focus on marketing and sales force automation.

While these offerings may appear to be rehashes of the failed application service provider (ASP) model that was the rage during the late 1990s, they differ from ASP software in many respects. Most ASP solutions were client/server applications that had browser interfaces slapped onto them. Since they were not originally designed for the Web, they often performed poorly and were difficult to customize for the differing business processes of their users. Indeed, most ASPs offered minimal customization options, a practice that imposed a "one size fits all" policy on customers. In spite of their limitations compared to in-house applications, most ASP software carried substantial initial license charges that were similar to--if not as hefty as--those for traditional solutions.

By contrast, the IGS-hosted solutions are designed from the ground up with the Web in mind. The browser interfaces are robust and in most cases capable of the same levels of customization as client/server interfaces. In addition, IGS is allowing customers to customize the business logic behind the interfaces to a greater degree than ASPs allowed. While the customization levels are not as great as those that customers could achieve by hosting the same applications on an in-house basis, they are adequate for many mid-size companies.

The IGS-hosted solutions also break from the past with their "pay as you go" licensing model. For a modest setup fee and payments of as little as $50 per user per month, the applications offer functions that can cost tens or hundreds of thousands of dollars to license on an in-house basis. Since this licensing model spreads the cost of applications over their useful life, many CFOs will find it attractive from an accounting perspective. Moreover, since the model bases fees on the number of users rather than the capacity of the server that hosts the applications, it could reduce costs for solutions that are accessed by small numbers of users, such as human resources and sales force automation software.

While IGS and its hosted software partners could offer a solid value proposition to many mid-size companies, it is a proposition that potential customers should examine closely before they accept it. Many of the software vendors whose products were designed for the Web came into existence in the last five years and have small customer lists. As such, customers should closely study these vendors to determine if they are viable over the long term. In addition, many mid-size companies will need help to integrate their in-house applications with those that IGS hosts. Companies that need help should determine whether IGS can offer cost-effective integration services or whether local systems integrators and consultants are available with the right skills. Many companies will also find that their customization requirements exceed those that IGS is willing to support in a hosted environment. In such cases, it may make more sense to license the same software on an in-house basis.

In short, IGS and the mid-size companies it is courting have some learning to do about each other before they start making any serious commitments. However, with IBM putting billions of dollars into its "e-business on demand" strategy--not to mention $100 million per year to promote its products among small and mid-size businesses--IGS has the financial backing to keep improving its mid-market utility services until they gain acceptance.

Lee Kroon is a Senior Industry Analyst for Andrews Consulting Group, a firm that helps mid-sized companies manage business transformation through technology. You can reach him at This email address is being protected from spambots. You need JavaScript enabled to view it..