I retired from personal blogging in July 2008.
But you can find me over at http://blog.xero.com.
Preeti Bajaj from Vision Software said something to me yesterday about Software as a Service (SaaS) that hadn’t occurred to me before.
There are many Line of Business applications that are very useful to business units but are not high enough priority to get the attention of the CFO for funding or get through IT for implementation. Both of whom are often gatekeepers to a software licencing deal.
From a technical point of view the SaaS delivery model may allow business units to obtain solutions with minimal involvement from IT and at a cost that may be under business unit discretionary operating expenditure.
Therefore this opens up a ‘long tail’ of opportunities that would just not get off the ground under the traditional enterprise installation model. Under a SaaS model, many more applications are viable and the markets are much larger than in an enterprise installation model. There are many more niches.
That’s exciting.
blog
I agree.
If you can shortcut those CIOs (and CFOs) that want that safety from the big vendors then brilliant. Big is rarely better - just more the same average guff.
The recent article on Read/Write web makes for interesting reading..
http://www.readwriteweb.com/archives/cios_spurn_web2_startups.php
[...] just stumbled across this little article on Rod Drury’s blog. The article describes the fact that when compared to traditional [...]
Thanks for the angle. I have a slight continuation at http://www.saasblogs.com/2007/03/22/fitting-saas-under-the-budget-and-cio-radar/
LOB apps via SaaS is great is you can utilise off the shelf but as soon as you require customisation you may find yourself needing to talk to the CIO afterall and that might help avoid any IP ownership issues. However, i think the opportunities for niche players within verticals is just waiting to be tapped.
Rod the key to why this can work in enterprise businesses is the last word is SaaS - Service. Many large enterprises suffer from having to get all requests approved by the IT department, who often can be coming from a control point of view rather than a service point of view. Service is still seen as a dirty word in NZ; people equate it with being servile. What SaaS allows is business units to buy subscriptions to an application that actually makes their business run more efficiently and bypass the IT department. In the worst case scenario all they have to do is get firewall access to the SaaS website. SaaS allows these business units to fly under the IT radar. Businesses have been doing this for some time in my experience, it just was not called SaaS and as an industry we have to be careful we don’t acronym ourselves to death.
From the SaaS supplier point of view the important of view it is important that we have the necessary infrastructure to support the SaaS model and provide the “serviceâ€.
I think there will be people out there who think they can build the application, stick it on a server and watch the cash register start to ring. Unfortunately for them building the application in many ways is the easiest part of the process. This is what I alluded to in an earlier post about the IT business thinking because we have a cheap, quick delivery mechanism, that this is all you have to do. Compared to traditional businesses that actually carve something out of steel or aluminium we do have a delivery advantage but we have no greater business advantage than they do; we still need capital and the motivation to do the “hard yardsâ€.
SaaS as a concept is interesting and in many ways liberating for a software development company. We have three SaaS offerings ready to go live in the next 3 months and another five waiting in wings.
Ad break: We’d be happy to talk to anyone needing industrial strength SaaS hosting and management. Building the app is just the first step - it needs smart infrastructure and support to make it fly as a quality service.
I’m going to have to change my comment spam filter :)
One of the benefits of SaaS is that small and medium size companies can make purchasing decisions on the fly by clicking a vendor’s “buy now” button. What is a bit surprising is that only 13% of SaaS companies have “click to buy” buttons. Most have “free trials” of course, but getting to “frictionless commerce” is key.
In large enterprises, SaaS often goes “viral” with small user groups subscribing without IT’s knowledge. Once the value is demonstrated, the use of the application proliferates through the division, and sooner or later corporate IT gets involved. Bottom line, with the ease of signing up and the low monthly cost, SaaS is proving its value every day.
One more thing, SaaS is not about Software, it’s about SERVICE.
There’s another angle to all of this. Some organisations have large mature applications. Unfortunately that also means you have to overcome a lot of inertia when you want to change them. Specific functionality exposed as a web services changes that. You can grow and change your application with very little cost.
The danger is that people will always focus on SaaS as producing a complete product and selling it. It’s interesting to see that the people in NZ talking about SaaS aren’t the same people who crowed about their application hosting environments in the first half of this decade, which IIRC are all now (thankfully) dead and buried. I have to wonder whether the SaaS crowd know all they need to know about the market.
There’s a natural danger when you’re a vendor to spend more time talking about your product, than you do listening to what your potential customer wants.
Excuse my ignorance but can someone explain to me the difference between ASP (Application Service Providing) and SaaS ?
ASP has been around for years and never taken off.
Putting myself in the shoes of a Financial Controller or CFO of a Small/Medium size business the major issue I see is not the software but the data and the lack of control of it in a Saas model, potential exposure of my data to competitors, potential compromise of my data.
Thoughts ?
The difference is 5 years.
With *better* broadband, better web dev techniques, people doing more online it feels the time is now right for SaaS. Though picking your markets is key as many will still be scared of the issues you raise.
The major problem with ASP was the investment it took to create the environments meant that you had monolithic applications on infrastructure you could never afford to upgrade. Add to that a very hidebound approach to pricing. It’s hard to get someone to pay for a luxury yacht when you only want to rent a dingy. When the vendor is used to making almost all of it’s yearly revenue from a small number of sales of luxury yachts, it’s very hard for them to see that the rental of a lot of dinghies is important. They also don’t have the sales staff and existing customer base to make it work.
There is a danger in niche thinking. Just because the Web extends the reach of a SaaS application in a cost effective manner does not mean the market is friction-less. A low-cost SaaS niche strategy is not competing against non-consumption as Preeti observation implies. Don’t get me wrong there are many niches that can be served though I wouldn’t rely on building a service on the basis or getting through a loop hole in corporate IT bureaucracy – a result of competing pressures on budget allocation processes and service level accountability. Policy will rapidly adjust.
More importantly, as a niche gets smaller what matters to customers, in order of importance, are flexibility, time, and a great user experience. It is only on the last point that many corporate workers are under served. Otherwise MS Office (namely Excel and Access) become the default, accessible choice for niche databases. This suits because in most cases a corporate user’s exact needs are uncertain to them and they don’t have the time to fully understand what they want, plus they don’t need approval and they know Excel etc. They can easily open Excel and start maintaining a simple database without too much effort. Of course using Access or Excel to build an ad-hoc database has many short-comings that Application Wikis such as JotSpot (now Google) are attempting to address in a SaaS business model.
If the niche is building an application around a common practice, euphemistically referred to as “best practicesâ€, tailored to a particular industry then there is real opportunity. Hence industry specific implementations of PM, SFA, CRM, CSS and Accounting don’t require fundamental changes to a user’s/business mental model of how they do things since the practice is already imbued in them. It is likely that switching costs then become the concern.
To complete against switching costs the new SaaS application needs to takes advantage of the Web inherent features – connecting people and on tap computing power/connectivity. You can see this work-practice paradigm change in 37Signal’s communication model that underpins Basecamp, verses MS Projects PM’s chant charts. Xero’s idea of an Accountant being a Virtual CFO verses a monthly accounts service provider is another example. i.e. SaaS applications need to be reinterpreted for the strengths of the new platform and not a straight copy. User experience has a huge part to play here.
[BTW co-opting the “Service†in SaaS to mean good service, as other commenters have done, is a little too generic for my liking; diluting the meaning. Great user experience encompasses a lot of aspects of a SaaS model that, as good service implies, is about making a users’ job hassle free.]
Serving a niche is intrinsic to SaaS because to improve the user experience there is a capability verses usability trade-off. Therefore if a SaaS infrastructure is designed correctly you can serve many niches off the same platform – something you have talked about w.r.t. Xero and geographical differences in accounting practices or the view of Xero as seen by a VCFO (Solution 6’s Charted Accountants application) verses a business owner (MYOB).
Rod summarises the differences 5 years have made very well. WRT data control, exposure to competitors etc, the issues are much the same whether the data is on your server or in a hosted data centre. Some people get comfort from the fact they can see the “box” or the server room that holds their data, but the rules for ensuring integrity and control are the same no matter where it’s stored.
In many cases SaaS is competing against “no decision” and the obstacles for a successful business case are greater for a Line of Business solution that is not considered core business. So the issue isn’t just cost but in many cases the ability of the LOB manager to push a business case through the approval processes embedded in large organisations.
SaaS can allow a dinghy to glide through a small opening where a luxury yacht would not make it. Sorry for the mixed metaphors.
(Disclosure: As Vision Software CEO I’ve discussed these issues at length with Preeti and we are shortly to launch our first Saas solution - a LOB application for Corporate Real Estate.)
I highlighted the same thing in an article that I did for Global Services a few months back. You can read it at http://www.globalservicesmedia.com/showArticle.jhtml?articleID=192204892.
I specifically mentioned this in the blog that I wrote afterwards.
http://www.globalservicesmedia.com/blog/hottopics/archives/2006/10/whose_saas_is_i.html