Posts Tagged ‘SaaS’


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.”

Thanks, Mr. Voltaire

Posted: August 14, 2009 in CRM
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This is very interesting.  Oracle introduced Oracle VM Template for Siebel CRM.   You almost don’t need to know what a VM template is — OK, it’s a virtual machine architecture that enables customers to reduce the number of real servers they have.  But that’s not the big news — the big news is that Oracle is positioning this innovation as a GREEN idea.

Yes, right in the press release they say, “By helping to reduce the number of servers needed through deployment in a virtualized environment, Oracle VM Templates for Siebel CRM effectively promote green computing and can dramatically cut costs on server purchases and maintenance, as well as energy use.

Kudos to Oracle, I say.  They’ve taken on Green ideas as an important part of CRM and begun making products that reflect most people’s concerns about global warming.  Fewer servers means less power to run them, air condition them and all the rest.

Of course, the greenest approach to server reduction is SaaS where a small number of very robust servers support millions of users a la Salesforce.com.  But this is no time to make such comparisons and a great time to drag out one of my favorite quotes from Voltaire, “The perfect is the enemy of the good.”  (This proves my liberal education was really worth it.)

Simply put, running past good and seeking perfection is akin to reaching a level of diminishing returns.  It would be great if SaaS took over the world and it might but not today.  Meanwhile, wouldn’t it be really cool if every major corporation at least got on board with a virtual machine architecture?


The headline on the press release read: “NetSuite Offers Sage Partners Major Incentives to Begin Growing their Business on the NetSuite Cloud” and I figured, it must be summer.  For the last few years, Sage has announced an offer like this.  For the last couple of years it was a take away program for salesforce.com customers.

I like NetSuite, they offer a good package of ERP and CRM software delivered as a SaaS service.  They’ve made a lot of smart moves in the last couple of years including their IPO (which was not just smart but brilliant) and an apparent decision to move up market from their original SMB focus.

Going after larger companies made sense because I think NetSuite found out that their then target market didn’t have all of the resources — human and financial — needed to implement such an all-encompassing suite of software.  Though the product is good, any ERP implementation comes with a great deal of thought work that’s needed to rationalize business processes before automating them.  I think some small companies just choke on the effort.

Now it looks like NetSuite is trying to go after the SMB space again, this time with a full court press on Sage’s partners.  Just as I like NetSuite I like Sage too.  As a company Sage certainly has product and partner issues, but any company does.  What’s interesting to me about the NetSuite PR is the hyperbole it exudes.

Though the PR has several quotes from Sage partner take-aways the text is over the top.  One paragraph starts with, “NetSuite expects this program will find a warm reception in a Sage channel partner community wracked with fear, uncertainty and doubt about the future of on-premise applications…”

Wracked with fear?  Really?

I have to say I used to wonder about Sage too and about when they’d get their SaaS act together.  They’ve been late to the party, but not AWOL, they have products, especially in the CRM world.  Lately, though, I’ve concluded that Sage might know something about the space that I’ve been missing.  It’s a rather conservative market from the perspective of new product adoption.

The obvious success of SaaS in CRM may be enough to move the ERP partners but maybe not.  Undoubtedly some will move, the PR is proof of that.  But building a successful partner program is something that takes a great deal of investment in time and money.  And although NetSuite has been in the partner business for some time already, I think they’ll have to execute very well to make in-roads here.  It’s a conservative market and it’s summer.  In a recession.

As the Zen master says in an old joke, “We’ll see.”


Dan Jenkins, a venerable writer for Sports Illustrated and author of many novels about sport (he wrote Semi-tough, for example), coined one of my all time favorite Texas-isms.  It was a beautiful way of describing something just bordering on impossible.  In one of his books a character says that something is “Tougher than rent and alimony.”  I have long ago lost the context but even today rent and alimony are my acid test of true difficulty.

I never thought it would be possible to exceed rent and alimony for their sheer descriptive power and I believe that time will bear me out.  But to that nifty phrase, I feel compelled to add another idea because it is my observation that there is nothing more difficult than watching a product line commoditize knowing full well that your company must change while being totally unable to.  If nothing else, rent and alimony wins on brevity.

If change was easy in business, then everyone would be doing it but the fact is that it is a Herculean task.  Why else would so many major software companies watch as on-demand technology got better and better while doing nothing or next to nothing to embrace the new delivery model?

I suspect that making the technical argument for change is the easy part of the equation and the hardest part is dealing with shareholders.  As shareholders — and we are all shareholders — we play an interesting game of self-deception.  We intuitively know when change is needed but, nonetheless, we also know that often times, stock in a public company would crater if the market determined that a company’s business model was to suddenly change so that it would make less on purpose.

Far better to let the air out of the balloon in a slow deflation than in a burst.  In a deflation we all play a game of false hope, maybe the balloon will magically re-inflate, maybe we can break even and get our money back — maybe, baby.  In reality it is a one-way trip to exhaustion.  Rather than taking the decisive steps needed to save the company, albeit as a reduced revenue machine, we persevere tinkering with the old products and old business model hoping to forestall the inevitable.  More nimble competitors nibble at our undersides.

There are any number of examples today of companies or even whole industries that could greatly benefit from changing business models despite the negative potential for their share prices.  The first is the newspaper industry.  We are at a silly point in the evolution of news delivery where papers are owned by large corporations that seem to want to protect their business models more than their businesses.

Newspaper readership is in decline in America (though not elsewhere) and parent corporations are nonetheless loath to do anything to change the model of printing the news.  They give away their content on the Web afraid of charging for it despite the evidence that doing so can be profitable (the Wall Street Journal) and that recent surveys show readers are more than willing to pay for content delivered electronically.

I hear the loudest analysts say that electronic content delivery would not replace the revenues from print, but I hear very little about cost reductions in labor, transportation and printing.  There is a solution to this, which is to simply wait until the print news business further deteriorates.  Then some of the largest newspaper corporations might qualify for a federal bailout or the further reduced projected revenues of dying business might balance out with the prospects of the new paradigm.  Conversion would then become a “no-brainer” with no irony intended.

The second example is the software industry and I fear that the American software industry — the jewel in our high-tech crown — might go the way of newspapers.  For despite the fact that we have wonderful examples of forward looking companies like Salesforce.com, NetSuite, RightNow, Google, Facebook and hundreds of others crafting the software paradigm of the twenty-first century we still have too many conventional software companies watching their stock prices.

The conventional companies are big and form the backbone of global computing.  They have names like Oracle, SAP and Microsoft and while some are making good efforts to convert their business models, the tasks are great and some have barely started.  Kudos to Oracle and Microsoft for increasingly offering SaaS solutions.  You can debate whether their solutions go far enough or if they are simply extending the old paradigm but they are making progress.

Microsoft worries me at the operating system and office automation products levels though.  Google’s announcement that it was building a stripped-down operating system that gives small computers just enough functionality to get to the Internet is brilliant though it remains to be seen whether they can deliver.  Microsoft now finds itself on the other side of an equation from its position as the disrupter of mainframe markets.  In the 1980’s we were told that nothing had the power to stop mainframe computing but somehow client-server networks took over.

At risk is Microsoft’s deep penetration in desktop operating systems and office products.  Google has a plan to deliver it all over the Internet — free — which could be a big problem for Redmond.  Of course Google has to deliver but the sheer number of vendors in the SaaS space means that even if Google fails in the attempt, there will be other challengers.  It’s not impossible, but it is rather hard to beat free, so what does Microsoft do?  Wait for the threat to materialize or take action?

The standard playbook says stand pat but as playbooks go it has a disastrous track record.  Time, as they say at Apple, to think different.

Lesson learned from LucidEra

Posted: June 29, 2009 in CRM
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LucidEra’s unfortunate announcement that it was suspending operations hits the SaaS industry hard.  The on-demand sales analytics company had a good record of providing valuable solutions for sales organizations and managers interested in better understanding their pipelines and deriving meaning from their SFA data.  But ceasing operations highlights one of the chief risks inherent in adopting a SaaS solution namely, that an application can become unavailable.

Fortunately, the people at LucidEra are classy people and they have spent the last week or two trying to ensure that their customers could migrate their data to another on-demand provider.  They called it an “orderly transition.”  That’s about the best you can expect and if every SaaS provider that goes out of business in the future did that we would have the rough equivalent of the scenario when a conventional vendor goes belly-up or stops supporting a version.

The conventional software model leaves you with the software that will run as is regardless of whether its vendor is solvent.  Support and upgrades are a separate issue and they do not materially differ in either case.

So to the voices that have said LucidEra’s demise is proof of why conventional software is better, I say not so fast.  Throughout the SaaS era — roughly ten years — the SaaS industry has had to cope with numerous similar situations where there were no precedents.  Up-time, security and disaster recovery all had to be re-thought for SaaS and vendors invariably found solutions.  LucidEra is providing another example of a SaaS provider figuring out a solution to a tough problem and I think they should be applauded.

Nonetheless, the SaaS industry should not act like this kind of thing could not happen again and it would be wise to consider contingencies for a SaaS company going down in the future.  It may be wise for customers to consider requiring that SaaS providers carry insurance against failure or, more precisely, insurance to cover the contingencies associated with shutdown.

Surely some big insurance company would be happy to underwrite the risk in the same way that multiple insurers already provide business insurance against all sorts of calamities including errors and omissions.  Such insurance might not have been feasible ten, five or even three years ago.  But the popularity of SaaS and the business advantages it offers clients says that the risk pool is reaching critical mass if it has not surpassed that threshold already.

Let’s say insurance against a SaaS company’s demise costs a dollar per month per seat declining for really big implementations or customer bases.  Who couldn’t or wouldn’t afford that, especially in this market?  A dollar isn’t much but given the market I can’t see how it wouldn’t be a profitable business.

I don’t expect that any SaaS company will rush out and advocate for insurance and, as is often the case, demand for such insurance will have to come from the customer.  But all of the pieces seem to be in place and, like mirrored data centers and SLAs (service level agreements) I expect transition insurance in the event a SaaS company goes out of business will become standard fare in this still evolving industry.

Is it SaaS or pseudo-SaaS?

Posted: June 9, 2009 in CRM
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We’ve seen this movie, right? 

It’s amazing to watch the software industry re-engage in the single vs. multi-tenant debate for enterprise SaaS computing.  After several years in which the debate seemed to be settled a new round of claims and counter claims is shaping up giving new meaning to the idea of “much heat and little light.”

SaaS vendors are contacting me with stories of new entrants in their markets claiming to offer software as a service but without multi-tenancy.  What’s going on here?  Enough to write a book, probably, though I doubt if anyone would read it.

I’m thinking that the usual has happened.  After years of warning signs that the conventional software business model was increasingly misaligned for the future, SaaS solutions have become a threat to conventional vendors.  During those years of warnings, many conventional software vendors chose to do nothing to upgrade their offerings and businesses to the SaaS business model — including rewriting their code.  These vendors are now attempting to throw a Hail Mary pass.

It has been apparent to anyone with a functioning eye on the software business that the on-demand model was moving in, setting up shop and planning to stay for a while.  Now that the lag time is really up, vendors that did nothing are slapping browser front ends on their products and offering to “host” their wares on their own servers and calling it literally “software as a service.”  They’re literally right too — it is software delivered as a service — but these offerings are a long way from offering the power and flexibility of true SaaS based on a multi-tenant architecture.  I think of it as pseudo-SaaS.

The crux of the issue is the architecture model — single tenant or multi-tenant?  Single tenant simply puts conventional software into a facilities management paradigm reminiscent of the 1970’s.  You get software delivered as a service and certain other benefits like fixed pricing and reduced overhead compared with doing it yourself.  But you miss a lot too.

What pseudo-SaaS vendors are not able to provide is all of the benefits of a single code base that enables rapid configuration, simplified upgrades and integration, significantly lower total cost of ownership and a lot more.  More importantly, multi-tenant SaaS is hardly standing still.  The newest wrinkle, Cloud Computing, depends on the multi-tenant model for its underpinnings. 

Cloud Computing promises great things like anywhere computing where your information is always accessible and multiple deployments from a single application definition.  That means your applications run on your BlackBerry or iPhone as well as your PC or laptop without a massive porting effort.  Then there’s integration.  Applications built on multi-tenant platforms are far easier to integrate and can more easily contribute to a best of breed scenario that supports your business processes.  No more having to buy everything from a single vendor.

All this and a lot more is possible because multi-tenant SaaS brings a lot of standards to the table while single tenant solutions use the standards of a particular vendor.

If I could translate the single tenant/multi-tenant debate to telephone service, I would say it’s the difference between buying a rotary phone or a cordless model.  Skeptics will say the rotary phone is just fine for basic communication and they’d be right if voice communication was all anyone wanted to do.  That’s because the network is backward compatible.  But look at what you give up — voice mail, auto-dialing, redial and lots more.  It’s all stuff we take for granted because the standard has moved on.  And it’s all made possible by a better design of the basic service.

Multi-tenant is like that.  It’s the design of the future.  We can argue about single tenant and multi-tenant and it will confuse some technology buyers into making bad decisions.  But it won’t change history.  Because of bad decision making earlier in this decade a lot of software companies are being increasingly left high and dry by changing times. 

They’ve got lemons and they’re trying to make lemonade.  Fair enough, there might still be companies out there that can’t see past the traditional objections of security or mobility or whatever to embrace multi-tenant SaaS.  For them a single tenant solution might look really good and it will deliver business benefits the same way a rotary phone would let you make an emergency call — though I doubt you could simply dial 911. 

Just don’t tell me there’s no difference between the two models.  There’s a gap between the two models as big as the Grand Canyon and it’s growing.

Benioff’s coup

Posted: March 4, 2009 in CRM
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Last week Salesforce.com marked its tenth year in business.  To celebrate, the company held a conference call to discuss its earnings and CEO Marc Benioff, brought presents for his investors.

The big announcement was that Salesforce had succeeded at generating just over one billion dollars in revenue for its fiscal year—the first time in history that any on-demand company posted numbers like that.  Moreover, Salesforce reported that it gained 3,600 net new customers in the last quarter.  It’s hard to say from that data whether companies in these economically distressed times are opting for on-demand or if this simply represents normal growth.

Other companies like Oracle and Siebel reached the billion-dollar milestone sooner in their corporate lives but I think that perspective compares apples and papaya.  Software companies that reach the billion-dollar plateau have always done so on the basis of products on sale for considerable sums—often hundreds of thousands to millions of bucks.  Reaching a billion dollars based on charging by the seat every month is an entirely different matter. 

So a billion dollars worth of trickle-in revenue is even more impressive and it says a great deal about the acceptance of the business model as well as the technology.  If Salesforce had a different pricing model, I think they would have gotten to this level a long time ago. 

Critics might say that most of the seats represented by this revenue is SFA based but that can be said about almost any full suite CRM provider.  There are many more sales people than marketing people in a typical organization hence more SFA seats to buy.  Very large companies often have massive call centers too.  No matter, Salesforce is selling in all CRM verticals and they are increasingly selling generic seats to companies that simply want to write their own on-demand applications.

It’s worth noting that there were other on-demand SFA solutions on the market when Salesforce.com got started ten years ago with names like UpShot and Salesnet.  Each company had the same basic idea and each was dedicated to the multi-tenant model.  But neither of those other companies is a freestanding entity today.  Siebel bought UpShot and integrated it into Siebel’s on-demand offering.  Then Oracle bought Siebel and Oracle CRM On-Demand traces its lineage through that line of inheritance.  RightNow bought Salesnet then decided to stick to its service and support knitting. 

I think a great deal of credit has to go to the CEO for Salesforce’s success.  I knew the chiefs of UpShot and Salesnet at the time.  Both are good people, good businessmen and each wanted to succeed.  But, in my opinion, neither one really understood the disruptive innovation that on-demand computing presented.  Or possibly the potential was more concept than reality and it took Marc Benioff to press the issue. 

At the end of the day you could argue that it was Benioff’s vision that made the market.  Without Benioff it is possible that on-demand computing would have remained a backwater, a cute idea for supporting salespeople the same way that social networking has pretty much remained a nice consumer idea. 

It is interesting to note that the rise of social networking as a business tool closely correlates with the ability to form mashups with other on-demand products, notably Salesforce.com.  And Benioff is behind some of it.  He shared the stage with a Facebook executive late last year to announce the integration of their products and to promise that integrations with other social media were not far off.

Benioff’s vision of on-demand computing is older than Salesforce.com.  As an executive at Oracle he championed the on-demand idea along with Evan Goldberg , a founder of NetSuite.  Timing is everything and though the idea was mature enough when he was at Oracle, Benioff had to wait for a few technologies, like the Internet, to catch up.

As on-demand computing enters its second decade it’s worth taking a moment to consider where the original invention will take us next.  Social networking, hand held devices and a vastly improved wireless Internet will no doubt contribute to driving computing deeper into our lives.  But the style of computing will be far different from what we see today.  It will be ubiquitous for sure, but it will also be personal to an unprecedented degree and I think it will owe a lot to on-demand, platform-based applications mashed up with social networking and who knows what else.