Fusion applications decide an argument, sort of

Posted: October 27, 2009 in CRM
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With Oracle’s announcement of Fusion applications, you can make a reasonable case that Salesforce.com has won an important ten-year old argument about the future of the software industry.  Notwithstanding SAP, the only significant outlier left, Oracle is the last major software company to adopt on-demand computing as a centerpiece thus awarding legitimacy and critical mass once and for all to the idea.

Amen.

But the Oracle announcement says more about business models than technology paradigms and at the model level it is not clear that Salesforce has won.  Salesforce CEO Marc Benioff’s vision of business applications delivered over the internet has won an important victory but the business model — subscription services — that makes this technology the center of the movement and exclusive delivery mechanism has not eliminated all competition.  Not yet, at any rate.

The reasons are simple enough, market reticence generated by concerns — both real and imaginary — about security or the viability of the technology model still hamper full adoption of the business model.  As a result, companies as diverse as Oracle, Microsoft and Sage have hedged their bets by offering technology that can be implemented in numerous ways including on-demand as well as by conventional deployments.  As a result vendors have effectively thrown the business model decision over the wall to the customer.

With software capable of, shall we say, polymorphous deployment, the ultimate decision about how to deploy now becomes the exclusive province of the customer as the vendors have now turned into Solomon or, in a modern interpretation, Burger King.  Customers are completely free to have it their way or ways.  They can deploy business applications in a fully SaaS configuration or in hybrid ways that are to a lesser extent owned and operated by the IT department.  As I have noted before, this is typical transition state behavior of vendors straddling two diverse paradigms.

It is no surprise that adoption of the business model lags adoption of the technology.  It has always been true that conversion from traditional software licensing to SaaS is a big step and one that for many software companies could lead to financial ruin if not handled expertly.  More to the point, there are customers who, for reasons of security, custom and preference believe that SaaS computing is not for them, at least not now.

So it is no surprise therefore that the most successful SaaS companies are those that, like Salesforce, grew organically from on-demand roots.  Other successful SaaS companies like Oracle bought their way into SaaS computing, a time honored tradition when adopting new models.

Even before Oracle’s Fusion announcement at Open World this month, the company had been a player in SaaS based CRM with Oracle CRM On-Demand due to its earlier acquisition of Siebel Systems.  But it remains to be seen if any software vendor can fully realize the benefits of SaaS — and now Cloud Computing without full emersion into the technology model.

One of the most powerful aspects of SaaS computing is not the idea of subscriptions or even Internet delivery but of a single version of the applications supporting all users.  With a single version of the code, all users have the same foundation on which to configure, modify and build new applications.  The single code set — also called multi-tenant architecture — makes it hugely unlikely that any two independent software makers would develop incompatible applications and therein lays the power of the business model.

This single idea makes it highly likely that applications built to the standards of the foundation — or platform as we like to call it — will be able to inter-operate.  Take this standard away and you have the same Babel of competing standards and proprietary designs that have been the bain of the software industry.  There is a cost associated with this lack of standardization and software customers have been paying it for decades — with rising resentment.

That cost is not measured strictly monetarily; there is opportunity cost involved too.  When everyone played by the same conventional software rules the opportunity cost problem was equivalent to a farmer experiencing bad weather.  But SaaS computing eliminates the weather variable giving a big advantage to companies under its umbrella.  So it is ironic that the decision about adoption is still left to taste.

With most of the hybrid products, the same code can be deployed in a conventional multi-tenant way or as a standalone system behind a traditional firewall.  The segregated system becomes a unique instance the moment a developer modifies the platform.  Doing that makes the idea of standards a waste of time.

But for the time being — and I am still calling it a transition state — we can expect to see a lot of deployments in which the software is SaaS ready but the deployment is decidedly twentieth century.  In the next five to ten years we will see examples of companies trying to back out of their proprietary SaaS-like systems to finally get on board with SaaS or Cloud Computing.  It will all have been avoidable and it will be good business for software consultants.

As Kurt would say, “So it goes.”

So, what did you think?

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