Sean R. Nicholson

In the first article in this series on rethinking the old model of Intranet portals, I covered the basics of why the old model of selling Intranet portal software doesn’t really work in the new world of Enterprise 2.0. The old model provided (comparatively) limited functionality at huge software price tags and infrastructure needs, primarily because the competition in the marketplace only existed with large software vendors.

The recent explosion of social media platforms, coupled with the financial meltdown driving a need for operational improvement, has left purchasers exploring low-cost open source options. This behavior is driving commercial off-the-shelf (COTS) vendors to rethink their licensing models. In addition, purchasers of Intranet software have started to expect expanded social media functionality and a variety of options for licensing/hosting their Intranet portals. In this article, we’ll focus on the new platforms available for Intranet portals as well as some of the options available to organizations as a result of this shift.

Quick Review – Why the old model doesn’t work

1. Lengthy Return On Investment – With multi-millon dollar investments, organizations rarely have a positive business case that shows a realistic ROI in less that 5 years. This means that it usually takes an organizational event like a merger, acquisition, spinoff, or change in leadership to get the funding approved.
2. Difficult To Track Process Improvement Impacts – After making the investment, organizations like HR or Corporate Communications often take over the operation of the Intranet with their own departmental initiatives taking priority. Operational organizations like Sales and Customer Support are often too busy and too entrenched in their old processes to take time to reinvent their operations to leverage the features offered by the new portal. As a result, the inability to move the business forward relegates the portal to a (very expensive) one-way communication vehicle and nothing more.
3. Added Features Come With Added Costs – Nothing ticks me off more than seeing cool new functionality from an Intranet portal vendor that is a “bolt-on” to the core software. What “bolt-on” usually means is that it’s not going to be core functionality any time soon and that it comes with an extra price tag, not to mention additional, ongoing annual maintenance costs.
4. Expensive Infrastructure Requirements – In the old model, one enterprise-scale Intranet portal for 50,000 employees required more than $75,ooo in Sun hardware costs (web servers, app servers, database servers, etc…). Even running on WinTel with VMWare, you were still looking at $30K+ in hardware. In either situation, you also require space in the data center, cost of power in the data center, Server Administrators to maintain and monitor, and the process/hardware costs of backup and restore.

While there are other costs involved, the old model of selling/implementing Intranet portals can drive a pretty hefty investment. On top of that, once the investment is made, executives are reticent to the change platforms or enhance them, because the initial investment is so great.  The key to overcoming that hesitation is to put together a strong business case with a quick ROI, usually based on the fact that the organization can either reduce operational expenses or costly annual software maintenance agreement (SMA) fees.

New Platforms For Intranet Hosting

The beauty of the shift away from the traditional portal model means that vendors have started to get creative in the way they offer their Intranet solutions. For instance, no longer is the traditional download/install/update/upgrade model the only game in town. With SaaS, cloud computing, and other options coming more into the spotlight and social media companies wanting to get into the game, there are a whole host (no pun intended) of options out there for organizations looking to build or reinvent their Intranet.

Software As A Service (SaaS)

Software as a Service bundles software licenses with a hosted infrastructure

If you haven’t heard the term “SaaS” being thrown around the water cooler, get ready…it’s on its way. I would definitely consider SaaS to be one of the hot buzzwords in corporate America in 2009 and it doesn’t look to slow down for 2010. As organizations look for ways to cut costs, Software as a Service has offered an attractive way to reduce annual software maintenance costs and recover from reductions in headcount necessitated by the economy.

Essentially, SaaS is a model where a software vendor provides all the hardware, software licenses, and infrastructure (bandwidth, backups, restores, upgrades, etc…) necessary and provides the customer with access to that environment via the Web. Instead of having to foot costly up-front capital bills for hardware and software, companies can opt for smaller monthly expense bills that are easier to digest and plan for. In addition, since the vendor is usually responsible for upgrades, new feature functionality is often added with no additional expense to the customer. Another benefit is that the ROI on a portal can be realized quickly due to the fact that there isn’t such a large outlay as in the traditional licensing model.

SaaS isn’t all peaches and cream, though. There are still concerns about placing sensitive organizational data in the hands of third-party vendors.  IT leaders are still skeptical, having seen their colleagues go through massive loss of credit card numbers, mishandling of customer information, and security breaches. Companies outside the US are also hesitant to jump on the SaaS bandwagon when data would be stored in US-based data centers. The broad reaches of the US Patriot Act makes them a bit hesitant to subject their customer or competitive information to potential seizure by US agencies. One other downside of SaaS is the fact that over the long term life of the agreement, an organization might actually pay more for a SaaS portal than they would have under the traditional model. Plummeting prices around enterprise portal software, however, are reducing that risk.

Even with these potential downsides, more and more software vendors are putting together SaaS packages to offer to their customers. Services like Ning.com and WebX’s Intranets.com are offering their services on a SaaS basis. Even companies like SalesForce.com (traditionally a CRM application vendor) is adding a Social Media component to their offering (aptly named “Chatter”) that will extend their services to more intranet-like functionality.

Hosting In The Cloud

Cloud Computing is opening up a new range of custom services for Intranet portals

Yes…you’re reading this right. I am splitting out SaaS and Cloud hosting. Too many folks are using the terms “SaaS” and “cloud computing” interchangeably and the fact is that they aren’t necessarily the same thing. SaaS solutions are one flavor of cloud computing, but SaaS agreements relegate all aspects of control over the environment and the software to the vendor. There are alternative cloud hosting agreements that allow the organization varying levels of control over installation, maintenance, upgrades, and administration. These custom agreements give the company the benefits of outsourced hosting with the required level of control that meets their needs.

Managed Services Agreements

Similar to SaaS in the fact that the vendor provides all the hardware, managed services agreements usually combine the headache-free environmental benefits with the traditional purchasing of perpetual licenses. Where the old model requires the organization to purchase software licenses and hardware, the managed services option allows companies to buy the licenses and pay a monthly, quarterly, or annual fee to the software vendor to provide servers and administration in their data center. The benefit of this model is that companies can pay the capital outlay on the software and expense the periodic costs of hosting. Managed services agreements often provide for application administration, which outsources the expertise of the application to the vendor. No longer do companies have to hire expensive knowledge experts to configure and maintain their portal application. Instead, they can go right to the source and have expertise from the vendor perform the necessary tasks.

On-Premise Leasing

On premise leasing is the flip-flop version of Managed Services Agreements. In these situations, the company usually has the hardware and resources in-house to host and administer the software, but they don’t want to lay out the large capital outlay for the portal software. Instead, they choose to lease the software licenses and host them on their servers. If/when the company chooses to discontinue use of the software, they simply terminate the relationship (per the terms of the agreement) and uninstall the software.

Appliance-Based Intranets

Some vendors are bundling hardware with software to offer an Intranet applicance

About 10 years ago, I remember reading articles like this one, touting how Intranet appliances were going to rescue us from poor productivity and change the face of enterprise applications as we know it. Vendors were looking for ways to capitalize on plug-and-play Intranets, but their primary shortcoming was the lack of a user-friendly interface that was both customizable and able to integrate with other applications.

Appliances, however, are making a comeback since the cost of hardware has dropped significantly and the bundling of high-quality Intranet software makes the user experience much more appealing. Companies such as SocialText and Bitrix are working on ways to deliver their Intranet or Social Media functionality to the enterprise in an appliance platform. These hardware appliances allow organizations to rack-and-stack the hardware, configure the software, and be up in running in days.

More To Come On Software Licensing

As more and more platform options are offered to the public, companies are also revamping their licensing options. In the next article in this series, we’ll take a look at shifts in traditional per-user and per-processor licensing, as well as new payment options such as monthly payments, ad-supported options, and on-premise leasing.

As always, feedback and comments are appreciated.

Sean R. Nicholson

Over the last few years, the social media boom has forced Intranet portal vendors to rethink some of their licensing models and expand their feature functionality. “Traditional” intranet portals that are simply presentations layers with a back-end content management system just don’t cut it anymore. Instead, organizations want their employees to generate peer-to-peer content using 2.0 functionality like blogs, wikis, and tagging instead of relying on one-way messages from the top.

The collaborative efforts of the open source community have also delivered new products into the marketplace, driving the cost of software down and injecting healthy competition into the portal industry.  On top of new features and pricing models, new hosting options such as Software as a Service (SaaS) and cloud hosting provide organizations additional options to consider when building or upgrading their portal. All of this spells opportunity for Intranet pros looking to make changes.

In future articles, we’ll take a look at some of the specific software vendors and new platforms that are reshaping portal price tags, but before we jump into the specific products, let’s take a look at a recent, real-world example of how much the climate has changed and how big the impact can be to a company.

In 2006, I was involved in an Intranet project for a Fortune 500 telecommunications company with an employee base of around 25,000. After identifying the requirements for the portal, the search for a suitable software package led the project team to three real contenders: BEA Systems’ Aqualogic portal (now Oracle WebCenter), Sun Microsystems’ SunOne portal (now defunct), and the Vignette Intranet portal (now part of OpenText).  All three offered a customizable presentation portal, content management system, search, forums and emerging blog/wiki functionality. However, each solution also required significant server hardware to be purchased and resources to be devoted to the maintenance of the hardware and the application.  After the final solution was selected and the appropriate hardware was purchased, the pricetag for the selected software and hardware tallied up to more than $2 million. Take note that the selected solution was the least expensive of the three.

Now, flash forward to 2009. I recently had lunch with the current manager of that specific Intranet solution and he and I were discussing the changes to the industry and the merits of both open source and hosted (SaaS) solutions. Knowing the price tag of the original solution and the annual software maintenance fees (20% of initial software costs), it took some simple math to come to the conclusion that he could take the annual maintenance of about $225,000 and easily replace the existing system for a hosted solution costing about $75,000 annually.

With the less expensive solution, he would get:

1. A 37% reduction in software costs ($200,000 dropped to $75,000) in year one.
2. A 93% reduction in annual software maintenance costs ($200,000 dropped to $15,000) in the following years.
3. A reduction in hardware costs, allowing $200,000 in hardware to be re-purposed in the enterprise or decommissioned.
4. No employee headcount required to maintain hardware, so reduced costs in employee overhead.
5. The SaaS vendor would now be accountable for a 99% server uptime (No more outage calls at 3am when the servers stop responding or a load balancer fails).
6. Continued evolution of the product since the annual maintenance buys him product upgrades from the vendor.
7. New Web 2.0 functionality offered by SaaS vendors that isn’t offered by the current vendor.

So basically, this Intranet Manager gets more functionality for his users, a stable platform that allows him and his team to sleep at night, and a significant reduction in annual software costs that makes him a corporate hero with the Accountant and Execs!

A second option that we discussed was looking at a lower cost software vendor or an open source solution. In these situations, he would still reduce his annual software licensing costs significantly, but would still require the hardware and headcount to maintain it. The ROI, however, is still positive in year one due to the huge reduction in software maintenance fees.

Obviously, the ROI for this organization is magnified by the size and extensive software/hardware requirements of the company. However, it’s likely that any Intranet portal built on the traditional perpetual software licenses/standalone hardware model could benefit from a review of the existing system and an analysis of potential replacement technologies. So, before you cut that next software maintenance check, take a few moments to think about how much you’re paying and where you might get some additional bang for your buck.

Check out part II of this series where we’ll take a look at some of the existing replacement platforms that could positively impact your Intranet bottom line.