The cult of SaaS. Nobody expects the SaaSquisition

Nicholas Carr, Vinnie, Jason, Phil , David and several others have picked up on the McKinsey Report about SaaS.   

For ages I have been trying  to figure out what SaaS is.  I’m still no clearer, and I have read masses of posts,  analyst reports, marketing materials and irregulars emails.  It seems there are different forms of SaaS, including the highest forms of SaaSdom, “pure”  and “true” SaaS. 

Jason asks an important question.

How did McKinsey define SaaS?  — Put 20 technologists in a room and ask them to define SaaS, and you’re going to get at least a dozen different answers. Is SaaS any software solution that’s provided in a hosted environment? Is multi-tenancy a necessity? Is subscription pricing requisite? If McKinsey doesn’t tightly define SaaS to the CIOs surveyed, the potency of this data loses much significance.

This is my problem with SaaS.  What is or isn’t “allowed” to be called SaaS seems so arbitrary.  Have a look at the wikipedia entry.  A good bit of it is about what SaaS isn’t. 

 I’ve mentioned the Monty Python Spanish inquisition before when discussing the high priests of SOA, but it may be appropriate here too. 

I never expected the SaaSquisition. Haaa! Nobody expects the SaaSquisition

The unique property of SaaS is that it is hosted and that is multitenant..

Haaa! the 2 unique properties of SaaS are that it is hosted, multitenant and subscription based..

Haaa! the 3 three unique properties of SaaS are that it is hosted, multitenant, subscription based and uses AJAX

Haaa! the many unique properties of pure and true  SaaS are that it is hosted, multitenant, subscription based,  uses AJAX , REST,  RSS , is completely brand new,  is bought by the lob, requires no training,  isn’t tainted by the evil dark side of on-premise, sells virally without a salesforce, has a seasonal release  cycle  and knows the secret SaaS handshake.

Make no mistake, here in starship enterprisey we see the SaaS wave.  There are some great solutions out there in the “cloud”   I see some  HR executives buying SaaS offerings instead of deploying in-house applications simply because the in-house IT is too busy doing “mission-critical” supply chain stuff to talk to the HR folks.   Successfactors is vendor benefiting from this. 

 SAP’s approach to SaaS is cautious  to date, but it would to foolish to imagine that we are ignoring it.

I find  the talk about “hybrid”, “pure” Saas and “true” SaaS very Peoples Front of Judea.  I’m tired of all this purity stuff. 

David is uncomfortable with my assertion that SaaS is bureau rebranded, 

Of course there are still some who question whether SaaS is just an old idea with new marketing spin.  In recent dialogue another Irregular, Thomas Otter of SAP, believes that SaaS is simply bureau computing from the 60s and 70s, or ASP from 5 or 6 years ago rebranded.  I’ll argue the case for the differences another time, but the key thing is that these sorts of multi-tenanted, hosted (true SaaS) solutions  are set to become a much bigger component of the average company’s solutions portfolio in 2007.  

Show me what is a) new AND b) unique and I’ll repent, kill a goat and join the cult.  The technology has moved on since punchcards, but the business model has not changed.  AJAX, SOA etc are not the sole preserve of the SaaS vendors. 

SaaS is simply the latest evolution of the bureau. This is a fine thing.  Using the term bureau in the 1990’s was uncool, so the term ASP was born.  Many ASP’s slipped on the 2000 banana skin. New players needed a new name, something to distance itself from the ASP days,  and something hip that would make hosted applications cool again.  As much as I hate the 2.0, 3.0 game,  SaaS is Bureau3.0.  There is nothing wrong with running a bureau well -recently ADP marked the 32nd Consecutive Year of Dividend Increases.  

ADP, not Salesforce.com is the largest SaaS provider.

In 1949, when one of Henry Taub’s two partners in their joint venture chose to leave because growth was simply too slow, Henry decided to buy out the remaining partner. Although he was only 21 years old at the time, he never made a bigger business decision in his life. So, for the sum of $6,000, he became the sole owner of the small enterprise that offered, for its day and age, an unprecedented service — but up to that point had only one client. The business was called Automatic Payrolls, Inc. It manually processed company payrolls —providing everything from doing the calculations to preparing the checks and the payroll register.

The idea for the service actually belonged to Henry. As the story goes, one day he was visiting a nearby company. A key employee had taken ill, the payroll wasn’t done, and the workers weren’t paid on time. Company managers, who knew nothing about doing  payroll, abruptly put aside their other duties, and together
they finally got the payroll out. Henry was astonished at the disruption that was caused. Employees were angry. Managers were frustrated. Productivity suffered. All because a key person wasn’t available to prepare the payroll.
He wondered how many other companies faced similar crises, because a payroll wasn’t done on time. From that observation
came the unique idea that launched Automatic Payrolls. He would offer a payroll preparation service that any business could use. One that was not only accurate and dependable, but also affordable.

Sounds  exactly like the  SaaS promise to me. 

Read the history of ADP here.  You’ll see that they do a lot more than just payroll. 

 

23 thoughts on “The cult of SaaS. Nobody expects the SaaSquisition

  1. Thomas, thanks for this. Over the past 6 months I have been asking people regularly what the difference between SaaS and ASP is, and have come to the conclusion that the only difference is the marketing pitch around them. That doesn’t mean that the hosted/multitenanted model is bad – increasingly it’s the preferred route for our customers at InfoBasis – but we try to avoid using the terms altogether. The problem is that once an ill-defined buzz word gets popular, you can trip yourself up when someone understands a different meaning to yours.

  2. Thomas, I agree. This actually looks like something I should be ranting about! Thanks for doing it for me.

    It’s a nice new acronym for an old idea.

    I’m on board with your cynicism.

  3. Donald,

    There are vast differences between SaaS and ASPs, but unfortunately (much like any promising technology trend), too many people who aren’t SaaS are painting themselves that way.

    A lot of existing software companies, including a good many that started out as MSP/ASPs but hung around during the lean times, are calling themselves SaaS and OnDemand.

    All that really means it two things…they are charging on a subscription basis, and they are hosting the software instance themselves.

    To me (I’m a bit of a purist here), those are hardly the things that make SaaS such a potentially disruptive trend within software development and deployment.

    Multi-tenancy is where the potential TCO values come into play, no way around that. Unfortunately being able to deploy a really useful set of services in a secure and scaleable cloud environment isn’t easily done; thus we’ll continue to see small and large vendors pretending they’re SaaS when in fact they’re really just offering traditional software code in a slightly more fluid way.

    Make no mistake, there is value to the customer by providing better pricing AND offering to host an implementation; but if that’s all SaaS was about, it would hardly be worth the attention we all give it, nor would it warrant the focus SAP, ORCL and the VC community are putting behind it for their own reasons.

  4. nowhere in this discussion and elsewhere is the question being addressed – what are the thousands of incumbent SAP customers going to do? Many cannot or will not move to SaaS. SAP and Oracle and salesforce.com are too busy arguing the purity of SaaS and chasing after new customers. Incumbent customers do want lower maintenance and to be able to leverage some SaaS concepts like utility computing and fractional resources and automated or at least painless upgrades as I wrote in SaCS – software as a customized service below.

    http://dealarchitect.typepad.com/deal_architect/2006/11/sacs_software_a.html

    Why is SAP not encouraging itself and its ecosystem to provide that to current customers?

  5. That’s not strictly true Vinnie. Depending on how you wish to define SaaS from an apps perspective, SAP is building out a massive ecosystem of developers using all this good stuff.

    I was surprised to find an entire gorup dedicated to building widgets. How current is that? Now assuming they get these things to do useful, non-trivial ‘stuff’ then there is no reason to assume this won’t spill into the main SAP community. Is there?

    SAP devs are no different to any others. They like to share and show off their technical prowess. If that brings benefits to the business, and, as seems likely at low cost and low risk, then does your initial thesis really stand up?

    As regards core – probably – but as regards value around the edge? I’m not so sure.

    If on the other hand you’re focusing on the cost card then your thesis stands up no problem.

    SaaS has many dimensions.

  6. Jason

    Thanks for your thoughts, and for your excellent blog on SaaS exemplar Salesforce.com.

    I take your point that multi-tenancy is the key to TCO gains for clients. It means gains for software providers, too, like ease of deployment and not maintaining a long tail of legacy installations.

    So, yes, there has been a shift in the delivery of software. I suppose my concern about SaaS is one of communication: if the market doesn’t agree what it means, is it a potentially mis-leading term to use?

  7. Donald, Funkmeister,
    I’m afraid I don’t agree. See the trackback above this comment to my post on the 5 questions to ask to differentiate from a true SaaS vendor over an ASP or bureau provider. There are plenty of ASP and hosted solutions who are misrepresenting themselves as SaaS. Part of the confusion is that the difference doesn’t just involve technology, but the business model adopted by the vendor. Although web architected (as opposed to web enabled), and 1 to many multi-tenancy are important components, the real differentiation comes in the different business model. For a (true, real, pureplay, member of the faith) SaaS vendor, everything from sales, through production to support is different when compared to a traditional software vendor. Some ASPs have some, but not all of the characteristics.

  8. All this discussion about what is and isn’t SaaS is interesting, but mostly misses the point. The point is not about the features of SaaS, but the benefits. Within the benefits live the differentiators.

    Customers deserve to be able to 1. focus on their business and business results – not technology 2. be ably and easily supported in reaching their goals and c. always have the most up to date tools at their disposal so they can nimbly and seamlessly meet changing needs.

    These benefits are the ones that, to my mind, truly differentiate SaaS/On-demand. To the extent that these nicknames help us communicate those benefits, they are great. Once they start getting in the way, they are just a confounding element.

    More on the blog.

  9. Hi Max,
    I’m completely with you on this… in fact my company’s strap line/motto is “think Business, not Technology”. The benefits of the SaaS solution (achieved through a combination of particular technology approach and different business model) are the important things. I just get frsutrated when so many “not SaaS” solutions dress themselves up in SaaS marketing clothes. When customers investigate, and do a proper benefit analysis and TCO they should identify the differences.

  10. hola
    i’m so happy that i saw this site. that posting was so great. thanks again i bookmarked this article.
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