IPOs Help To Endorse On-Demand Software; Trend Is Taking Hold; The pioneers in this new way to provide software are now publicly traded.(INTERNET & TECHNOLOGY)

Byline: J. BONASIA

Demand is growing fast for on-demand systems -- software that's sold as a service rather than a product.

With an on-demand delivery model, software runs remotely over the Internet instead of being loaded directly onto a computer hard drive. The idea is to do away with the hassle and cost of installing, maintaining and upgrading software.

Spending on software as a service is expected to grow 26% annually through 2008. The market should top $3 billion in 2004, says International Data Corp., and pass $7 billion in four years.

Such software also is typically leased via subscriptions -- rather than sold with one-time license fees. That cuts down on initial costs and lets buyers pay only for what they use.

These changes mark a major upheaval for software, says Jason Maynard, a Merrill Lynch analyst. Many large software makers, including Siebel Systems, Computer Associates, Oracle and IBM, are reacting to this shift with their own on-demand strategies.

"This will fundamentally change the industry," said Maynard.