Back in 2001 I was working at PeopleSoft as a technical CRM consultant. The company created that year an impressive data center in Pleasanton, California. The idea was to offer hosted web based PeopleSoft applications to the customers. In the present, this product changed shape (and hands) with Oracle on demand, but it is still there.
And PeopleSoft was not alone. This was just the beginning of a big number of web based applications for business and consumers hosted in the cloud. Today we have software applications like salesforce.com, Netsuite.com and many others competing in the "On Demand" market.
I personally do not believe in this model and these are the reason why.
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