We were actually prepared to have an on-premise offering if we needed to as something of an appliance. But we haven't been asked for that. That's basically because these CIOs are embracing it, and there's a difference between the new generation of CIO, who definitely buys into it, versus a more technology-centric version of a CIO who's worried about losing control.

CIO: In a recent CIO survey on CIOs' ERP strategies, just 9 percent of respondents said they were using "alternative ERP models," such as SaaS or on-demand solutions. Nearly 54 percent of them said they probably or definitely would not consider moving to an alternative ERP model. The remaining 35 percent of CIOs said they would probably or definitely consider trying something different. So, Aneel, your anecdotal evidence surprises me a little.

Bhusri: I think there's a difference when you say "ERP" in that there's a big difference between supply chain and manufacturing ERP systems [and HR and financials]. I don't suspect those are going to be on-demand anytime soon. On the accounting side and the core administrative applications side—HR, payroll, accounting and procurement—I expect all of those are going to be led by on-demand solutions. Your data is not surprising at all, actually. It's kind of where I would expect it to be in the early stages of a market like this.

Who Doesn't Like On-Demand and Why

CIO: Are you finding that companies are more reluctant to let someone else handle their sensitive financial data, especially in the regulatory environment we're in today?

Bhusri: I think HR data is similar [to financial data] in terms of the regulatory issues, especially data privacy. It's usually an initial question mark with customers. But when they go through our security and data privacy, and the way we encrypt data, I think most customers walk away saying, "Wow, that's a lot more than we're doing and that's offsite." You know, for most customers their data is at a data center, and it's not at their corporate headquarters. So the data is remote anyway. It's an issue that gets raised because it's a sort of a "conventional wisdom" issue, but it goes away very quickly in the sales cycle. I would make the comparison to 1993-1994, when people said the same thing about client/server, saying it wasn't ready for prime time and they were going to stay with their mainframe architectures. You play it forward 10 years, and almost everybody moved.