The old dogs of enterprise software applications learned a new trick in 2006--how to roll with on-demand software applications.

Industry titans SAP, Oracle and Microsoft either dished out on-demand applications or announced plans to do so.

Interest in delivering applications over the Internet has grown rapidly in response to competitive threats from Web-based upstarts such as Salesforce.com and Workday.

Customers increasingly are seeking ways to avoid buying software and accompanying upgrades that they install and maintain on their own systems. A growing number of businesses are turning to on-demand applications vendors, which, for a monthly fee, allow clients to use current versions of software that the vendors host on their own servers.

The trick for established enterprise applications vendors is to offer a dual-delivery system to customers that strikes the right balance between on-demand options and annual licensed subscriptions.

SAP, for example, initially had reservations about offering on-demand applications, but eventually changed its mind. In February, the software giant launched an on-demand customer relationship management (CRM) software service.

Oracle, which had tinkered with its own on-demand CRM product before its acquisition of Siebel Systems, hit the market in October with its integrated, hosted Siebel CRM service.

Not to be left out, Microsoft in July announced its plans to enter the hosted CRM market in mid-2007. The offering will be part of the Redmond giant's Microsoft Dynamics CRM Live service.

In the meantime, the on-demand applications market is quickly filling up with start-ups. In November, former PeopleSoft founder Dave Duffield fully unveiled his on-demand services company Workday. Initially focusing on applications for the human capital management industry, the company plans to eventually branch out into financial and other services.

On-demand applications pioneer Salesforce.com stayed busy defending its turf. It recently introduced its Apex technology, designed to provide customers with more customization options for their on-demand applications.

Companies that sell applications for corporate tasks such as tracking accounts and customer relationships also embraced consumer applications and open-source software to a greater degree in 2006.

Web-enabled social networking, a tool that caught on in a big way with consumers, is increasingly finding its way into corporate America. Web 2.0 technologies such as blogs and wikis are being adopted by Fortune 500 companies with greater frequency.

And open-source software is increasingly being used in the development of corporate applications. Oracle, for example, announced in October it would sell support to Red Hat Linux customers and, in an additional competitive challenge to Red Hat, provide a free clone of the open-source operating system.

--Dawn Kawamoto

2006 Highlights

SAP debuts hosted CRM service

Software applications giant is looking to capture a slice of the ever-growing hosted-CRM market.

IBM looks to cash in on software-as-a-service

Big Blue extends partner program to encourage app providers to rely on IBM for hosting, infrastructure technology.

Newsmaker: Gates sizes up the Web's next generation

Microsoft's chairman says it's time to embrace new Web trends, from programmable sites to ad-funded hosted services.

Lane: Software shake-up favors new thinking

As software industry shifts, companies need new payment models and consumer-style apps, ex-Oracle executive says.

SAP and on-demand: 'The switch is tougher'

Henning Kagermann, chief of SAP, says new competition, fast-moving tech are driving the company to rethink how it builds its software and how to sell it.

SAP takes Praxis swing in its on-demand warm-up

Deal gives more tools to existing SAP Business One customers, but will it lure in new ones?

Microsoft updates hosting package

The software giant woos hosting firms away from open source with support for SQL Server 2005 and ASP.Net 2.0.

Report: Hosted CRM is king

Oracle leads in sales of human capital management applications, thanks to PeopleSoft buy, says AMR Research.

Last hurrah for PC-based software?

At Office 2.0 show, start-ups will be out to prove that a browser and online services are all computer users need.

Oracle's on-demand lineup adds Siebel, PeopleSoft tools

Launches Oracle PeopleSoft Enterprise On Demand and Oracle On Demand for Siebel CRM, featuring services acquired in mergers with the software makers.

PeopleSoft founder taking on Oracle again

Dave Duffield's new company to compete with Salesforce.com, recent on-demand moves by SAP and archrival Oracle.

Salesforce adds connector apps to Apex

New features of programming language to give customers more connections with other vendors' applications.