You may have noticed recent full-page Wall Street Journal ads from IBM, Oracle, HP, Siebel and PeopleSoft, as well as announcements of major agreements with Fortune 500 companies for “on demand” computing.  There’s also much talk about the anticipated salesforce.com IPO.  So what is on demand computing?  Why are these technology leaders spending millions to promote this new generation of computing, and how does this relate to Web-hosted document management for legal — otherwise known as documents on demand?

In a recently published paper titled, “Software Goes On Demand” (2/10/04), Jason Maynard of Merrill Lynch states, “Software in an On Demand world will change the way customers buy, vendors sell and investors invest.  We believe that 2004 will be the year the software industry will hit a critical inflection point and move closer to being consumed as an on demand service.” 

Maynard continues, “We define On Demand as the new software business model enabling organizations to reduce cost, optimize time and minimize risk through term-based licensing and outsourced delivery solutions.” 

Corporate America Goes on Demand
This technology trend is already happening in corporate America with customer-relationship management software (CRM) and in other areas.  International Data Corporation (IDC) forecasts the on demand computing market to be a $1.8 billion dollar software market in 2004 and $7.2 billion by 2007.  Despite forecasts that the application hosting and management services industry was going to disappear after the dot.com bust, this sector is actually experiencing resurgence.  A new generation of Net-native software services is driving a renewed growth.  IBM and Siebel have partnered by investing $15 million dollars to promote their CRM on demand service.  PeopleSoft and Oracle have reported that their application-hosting business is growing at a far greater rate than their traditional software license revenue.  In a January 2003 survey by Aberdeen Group, Inc., 52 percent of prospective CRM customers stated that they would consider using CRM delivered as a service, and six months later a second survey concluded that more than 85 percent of the respondents would consider CRM delivered as a service — a substantial increase in a short time.

Benefits of Web-Hosted Document
Management Organizations are tired of spending tens of thousands of dollars on infrastructure, ongoing maintenance, licensing, implementation, software upgrades, networking and recovering lost data. 

Compared to a traditional client-server environment, Web-hosted, Net-native document management and collaboration applications offer the following compelling value propositions:

• A subscription-based approach reduces the chances of overcapacity; costs are treated as an operating expense and not a capital expenditure, smoothing cash flows for both customer and vendor.
• Implementation can be 43 percent faster than traditional software (source: IDC).  This is significant, as IT organizations are under pressure to be more responsive to the needs of the business, with flexibility and adaptability as crucial elements. 
• Risk is minimized, as the application outsourcer assumes the risk of delivering the application at guaranteed service levels with improved availability, reliable backup, recovery and network connectivity.
• Recurring costs such as management, training and maintenance fees are reduced; infrastructure costs, associated maintenance and upgrades are eliminated.
• The IT organization’s productivity and efficiency are increased, allowing redeployment of staff or reduction in headcount.
• An organization can fundamentally change the way it conducts business, such as reducing the copying of paper on litigation cases from five times to one or cutting express courier expenses by delivering documents digitally.
• Work-product transfer from one office to another can happen more easily and help merging law firms and international acquisitions.

In their “Financial Returns of a Software-as-a-Service” study, IDC reported that slightly more than two-thirds of the quantifiable benefits of hosted services were related to business productivity and business process enhancements, with the remainder attributable to technology improvements.

Documents On Demand
On demand computing is emerging as a major force, shaping the future of the software industry in ways not yet fully realized.  This transformation will likely be a process rather than a sharp conversion.  Is on demand computing as it applies to document management a fit for the legal market?  The answer is a definitive yes, and here’s why:

Technology in the legal market has moved towards a period of relative maturity.  The majority of AmLaw 250 firms already have DMS, time-entry, cost recovery systems and time and billing.  When legal-specific applications support processes that are viewed as utility-like, (client service-oriented) — or lacking a means for competitive differentiation — they’re ripe for an on demand model.

Client Document Sharing
Creating client extranets is a competitive advantage for an attorney, as it can visibly increase the value of client services.  However, using a traditional DMS to host extranets presents significant challenges that a Web-hosted alternative does not.  As mission-critical business and legal documents are shared, the host of the documents is expected to provide 24/7 availability and impenetrable security.  This presents significant logistical, management and cost requirements to the law firm, as well as potential liability issues.  In addition, the privacy, integrity and access log of the documents may be compromised when a single party in a business transaction provides the hosting services.  Also, everyone involved in the case must learn a new user interface, document retention policies and collaboration methods, including different usernames and passwords for each extranet.  The pain factor is intensified when the client requires, in reverse, its own corporate extranet and forces every attorney in the 20 different law firms to comply. 

It’s only a matter of time before the economics of business transactions will dictate a transparency of repositories across multiple parties, which can only be solved with a hosted, centralized solution from a trusted third-party source.

Internet and E-Mail
Another significant factor that makes documents on demand attractive is the freedom attorneys have experienced with the Internet and e-mail.  The IT staff is losing control of firm documents, while attorneys are finding ways to bypass the centralized, monolithic DMS that has traditionally tethered them to the office.  And telecommuting is a way of life for millions of people throughout the world.  Today, employees and colleagues may be in the next office, the next state, overseas or working from home.  This work-anywhere trend argues for a documents on demand model, where the technology can and should be available in a manner that supports the attorney’s work behavior and work efficiency.

Cost Savings and Risk Reduction
As typical legal practices are established in which partners are liable for the revenues and expenses of the practice, any effort towards reducing costs and minimizing risk to the firm while facilitating business performance will naturally be pursued.  From a cost- delivery perspective, documents on demand will force partners to rethink the hefty upfront charges and ongoing maintenance that have been traditionally thrust upon them for the sake of discounts and to the benefit of the vendors.  The risk has been entirely on the firm, in contrast to transferring it to the vendor who, in many cases, is the owner, developer and expert of its software and the technology infrastructure environment for that software.  Firms will continue to focus on IT efficiency and emphasize driving operating costs lower.  For all these reasons we’re already seeing some major firms migrating to server consolidation, outsourcing and increased utilization of software.  These trends will only increase, resulting in a continued customer interest in the documents on demand model.

Business Continuity
A key aspect of security is more than simply protecting data from the prying eyes of others; it’s also about preserving data and recovering it if it’s ever lost so people can get back to work quickly.  Centralizing data in a controlled, secured hosted data center provides levels of security and protection that a law firm could never have on its own; and the most cost-effective way to do this is on the Web, where the best Web-hosted application providers have installed advanced systems and patches to limit network attacks and spam and to properly manage the system.  It’s comforting to know that even if a law firm doesn’t run 24/7, its provider of hosted software will.  The documents on demand model typically provides round-the-clock monitoring of applications to ensure that all users, domestic and global, are supported.

Summary
There is a movement in the IT industry toward software delivered as a service, also known as documents on demand.  Industry analysts believe that the year 2004 is the year.  There are too many driving factors that enable organizations to reduce cost, minimize risk and save time, as well as enhance the productivity of its users and literally change the way attorneys do business. 

It’s just a matter of time before law firms begin following corporate America, as they did with Microsoft Office, by transforming the way they purchase software and manage their IT infrastructure.  Documents on demand will also shake up existing consultants, system integrators and vendors as they are forced to rethink how they deliver technology to their customers. 

About our author . . .

Leonard Johnson is the VP of Marketing at NetDocuments.  He has extensive experience in technology and international business development, including 12 years’ experience in document management and collaboration.  He can be reached at leonard@netdocuments.com.