THINK IT Services

Last week, Dell made its second acquisition of a remote management services company in less than six months. After buying into the remote server management business with its acquisition of SilverBack Technologies in June, Dell expanded its remote management capabilities to encompass the desktop and mobile devices with last week’s acquisition of Everdream.

(A recent THINKstrategies whitepaper sponsored by Everdream gives some indication of how Dell will leverage the Everdream acquisition.)

Both transactions are a part of Dell’s larger strategy to expand its product and service portfolio with a variety of automated solutions. The biggest of Dell’s recent acquisitions with this goal in mind was its EqualLogic purchase for $1.4 billion in cash, which will give Dell automated iSCSI storage area network (SAN) solutions optimized for virtualization environments.

While the EqualLogic acquisition dwarfs the SilverBack and Everdream buys, and has garnered far more press attention, the latter two have generated plenty of concern among channel organizations. I think there are even broader implications.

Both SilverBack and Everdream are former managed service providers (MSPs) who shifted away from providing direct services to end-user organizations in favor of offering automated remote IT management capabilities to resellers and other aspiring MSPs. Both also recognized the virtues of a multi-tenant, Software-as-a-Service (SaaS) model to deliver their services.

While they were both making some headway in their efforts to build a channel program, neither was blowing the doors down because they both faced an uphill battle educating channel companies about the benefits of managed services and helping them transform their businesses to capitalize on this opportunity.

SilverBack was one of the first enabling technology companies in the managed services market to recognize this challenge and established a ‘franchise’ strategy to help its partners with their business needs. Everdream was in the midst of developing a similar channel education and support program when Dell made its move.

Some VARs are suspicious that Dell may be building a direct support capability at the same time that it is trying to expand its channels to market to jumpstart its recent slump in sales. Dell has made a point of stating that the SilverBack and Everdream acquisitions are aimed at enhancing its channel strategy.

Dell claims that SilverBack and Everdream will help channel partners deliver a new level of remote management services, i.e. managed services, which can better position them in a world where product differentiation is fading, particularly among mid-size businesses.

Although I tend to agree with Dell’s view that the SilverBack and Everdream functionalities can strengthen channel companies’ service delivery capabilities and tighten their bond with their customers, I think Dell has broader ambitions with these acquisitions.

The company has acknowledged that it must also strengthen its position among large-scale enterprise customers where it plans to continue to sell direct, and it also must automate its support capabilities for small businesses to remain profitable. During a briefing with Dell and Everdream representatives, they pointed out that the Everdream and SilverBack functionality can scale up to meet the needs of enterprise customers, and down to support small businesses as well. But, these representatives stopped short of revealing Dell’s service strategies aimed at these two segments of the market.

While I think Dell has a sincere interest in making a new generation of automated, remote management services available to its channel partners, don’t be surprised to also see a set of direct remote management services from Dell aimed at large enterprises and small businesses in the near future.

You should also consider Dell’s latest acquisition as an important endorsement of SaaS aimed at the IT management environment which will be copied by other major hardware and software vendors.

Last week’s second annual SIIA On-Demand Conference was a bellwether for the state of the Software-as-a-Service (SaaS) industry. Rather than being composed of the usual suspects of SaaS speakers—Salesforce.com, Microsoft, etc.—the event included an interesting mix of prominent players and start-ups who clearly demonstrated that we are well beyond the ‘why SaaS’ stage and deeply into the ‘how’ phase of this important movement.

The event opened with a packed house of over 300 attendees, many with senior executive titles, and a relatively new name to the SaaS market presenting. Donald Proctor, the Senior Vice President of Cisco Systems’ Collaboration Software Group kicked off the event promoting its vision of the next wave of inter-office SaaS solutions based on WebEx’s collaboration platform which Cisco acquired in March 2007.

Although I might suggest that this wave of inter-office SaaS solutions is well underway and the acquisition slowed WebEx’s Connect ecosystem efforts, Proctor’s SIIA presentation was a clear indication that the networking company plans to put its shoulder firmly behind a renewed campaign to establish WebEx as an important platform for SaaS developers and corporate customers.

Erik Larson, Director of Marketing and Product Management for Adobe Systems’ Business Productivity Business Unit followed the Cisco presentation with Adobe’s stance regarding corporate collaboration via SaaS solutions. He demonstrated Adobe’s enabling technology for SaaS applications, and described its vision for a web-based future.

My colleague, Phil Wainewright, moderated a customer panel which included a cross-section of large (Chevron) and small (Pacific Northwest Economic Region Tourism Division) organizations leveraging SaaS to achieve their business objectives. While their views were timely, Phil and I had hoped to recruit enough customers to fill two panel sessions rather than just one. However, SaaS providers are still having trouble convincing their customers to publicly endorse their solutions in this fashion.

I had the privilege of moderating a panel regarding integration challenges consisting of representatives of Boomi, Informatica, Interweave and Pervasive Software. They all boasted about their individual approaches to delivering integration on-demand and admitted that there is still plenty of customization required.

Three of the most interesting speakers presented on the second day of the conference.

Dr. Werner Vogels, the Vice President and Chief Technology Officer of Amazon.com described how his company has commercialized its internal operations platform to support SaaS companies’ storage and service delivery infrastructure requirements. In my view, Amazon has single-handedly resurrected the utility computing concept, and has made it work for a growing assortment of SaaS vendors and other business users. As a result, Amazon now looms as a major force in the on-demand marketplace, not just as a channel to market but also as an enabling vendor.

Jason Maynard, the software industry analyst for Credit Suisse and the strongest advocate of SaaS on Wall Street, suggested that on-demand solutions could create a new level of value which he called “Software as an Answer”. His concept reinforced the views I’ve espoused in my writings and consulting engagements that SaaS provides an unprecedented opportunity for vendors to aggregate, analyze and distribute data based on application usage patterns and statistics. This data can be used for benchmarking, marketing, sales and operations purposes. It can even create new business opportunities for entrepreneurs.

Anthony Lye, Senior Vice President of Oracle’s CRM OnDemand division, gave the SIIA audience a preview of the company’s new generation of SaaS solutions which will be unveiled at this week’s OpenWorld conference. They include an impressive user-friendly interface which borrows heavily from the best of the Apple iPod Touch, combined with a robust set of social networking and mash-up capabilities.

The most important message from Lye is that Oracle’s enhancements are not aimed at satisfying the needs of small- and mid-size businesses (SMBs), but to meet the growing demands of enterprise customers. This echoed Proctor’s presentation on behalf of Cisco. This shouldn’t be surprising given the recent partner agreement between Cisco and Oracle. Oracle’s PR machine will undoubtedly generate a stream of third-party endorsements of its new on-demand capabilities as part of its OpenWorld festivities, such as today’s announcement of an integration with Xactly.

These were important proclamations for a market where SaaS is too often viewed as a simpler and cheaper solution for SMBs alone. (A misconception reinforced by a recent statement by SAP.) Instead, Oracle and Cisco are confirming my longstanding view that SaaS offers unique capabilities which fit the escalating demands of an increasingly decentralized and financially strained enterprise market.

Ironically, some of the attendees who had not been to previous SIIA events lamented the conference was too focused on the enterprise. While I understand their frustration, I still believe the seriousness of Cisco and Oracle’s efforts to climb onboard the SaaS bandwagon will further legitimize this movement. This will lend greater credibility to SaaS as a viable alternative to traditional, on-premise legacy applications. In turn, SaaS will become that much more attractive to SMBs as well.

However, the SIIA conference also demonstrated that industry best practices regarding service provisioning and delivery, integration, support, sales and marketing are still embryonic. An example of the risks which the SaaS market must still withstand was the extended outage suffered by NaviSite. And an indication of the growing focus on service provisioning was the announcement by Aria Systems as the SIIA conference convened that it had closed a $4.0 million Series A financing round led by Hummer Winblad Venture Partners.

Over the past week, three Massachusetts-based companies have announced important developments which can serve as measuring-sticks for the Software-as-a-Service (SaaS) and managed services markets.

On October 31, Iron Mountain announced its intention to acquire Stratify, a leading provider of electronic discovery services for the legal industry and Fortune 500 legal departments. This announcement came on the heels of the Iron Mountain’s recent analyst briefing focused on its growing digital services business. THINKstrategies views these digital services as part of the broader managed services sector.

Iron Mountain has become a major player in the traditional physical records management in part because of its aggressive acquisition efforts. It has also established a solid foothold in the digital services market as a result of previous acquisitions of Connected and LiveVault. The addition of Stratify gives Iron Mountain a stronger eDiscovery capability to respond to escalating regulatory and industry compliance requirements. It is also a further indication of Iron Mountain’s conviction that digital/managed services are going to be an increasingly important component of its corporate strategy and portfolio.

Two other Massachusetts-based companies made news on October 31 with Kronos announcing its acquisition of Deploy Solutions. This was a classic transaction between an established legacy application vendor and rising on-demand SaaS provider. Deploy provides SaaS solutions that help organizations increase and improve the quality of their applicant flow while reducing their software implementation and management costs. The acquisition enables Kronos to expand its portfolio and accelerate its entry into the SaaS market.

On November 5, ADP’s Employer Services Division announced the launch of an automated Sales Incentive Compensation Management (ICM) solution powered by Centive’s on-demand Compel capabilities. ADP National Account Services is a major provider of payroll, benefits administration and human resources services. Its adoption of Centive’s on-demand ICM platform is an endorsement of SaaS and Centive. This isn’t the first time ADP has shown an interest in the SaaS movement, and in many people’s view ADP is the best example of the intersection between business and software services. Over the past 18 months, ADP has made two SaaS-related acquisitions of Employease and VirtualEdge to broaden its suite of services. The Centive alliance clearly demonstrates ADP’s determination to leverage SaaS solutions to satisfy a wider array of its customers’ needs.

It is also important to note that in each of these transactions, the SaaS solutions in play can meet the needs of both enterprise and small-/mid-size businesses (SMBs). This is further proof that the SaaS movement is gaining acceptance among organizations of all sizes, and astute vendors are aggressively moving to deliver on-demand solutions to their customers to satisfy their changing requirements.

It is also gratifying to see the Massachusetts technology community responding to these trends and embracing the SaaS movement. The latest announcements follow a series of recent IPOs of MA-based SaaS providers—Salary.com, Constant Contact and Athena Health. While Silicon Valley is still driving the SaaS market, MA-based companies can now feel confident that they are offering competitive on-demand solutions.

Many industry pundits and trade publications question whether Software-as-a-Service (SaaS) can penetrate large-scale enterprises because they believe it will fail to meet corporate procurement standards and satisfy escalating compliance requirements.

These concerns were echoed in a roundtable discussion within the SaaS cluster of the Massachusetts Technology Leadership Council this past Friday. At our monthly meeting, Eric Esperne, who is the President and Principal Consultant of James River Consulting, gave an in-depth assessment of the procedural hurdles SaaS vendors must face to win corporate approval from the procurement offices of major corporations and governmental agencies. Eric was an in-house attorney for MCI WorldCom and Cable & Wireless, as well as several small government agencies, for over 15 years. So, he speaks from experience.

Yet, THINKstrategies’ research and consulting work is finding that enterprises are not only getting more comfortable with SaaS from a procurement perspective, they are even looking at SaaS as a vehicle to address their compliance needs.

For instance, I had the privilege of speaking this morning with the CEO of Enviance, Larry Goldenhersh, as a follow-up to the company’s recent announcement that American Electric Power, one of the largest electric utilities in the United States, has chosen Enviance’s compliance management SaaS solution as its system of record for North American Electric Reliability Corporation (NERC) reliability.

NERC is certified as the “electric reliability organization” by the Federal Energy Regulatory Commission (FERC) making it responsible for maintaining the reliability and security of the bulk power system in North America. AEP has deployed the Enviance System to ensure compliance with the NERC standards. Enviance’s SaaS solution allows the power companies to centrally manage all aspects of regulatory compliance in real-time.

Larry informed me that demand for Enviance’s compliance management tool in the utility, chemical and energy industries is escalating as concerns about greenhouse gases and other environmental issues rise. The Enviance solution has gained acceptance because of its rapid deployment capabilities; ease of integration via web services with legacy software, such as SAP, and custom applications; and relatively low costs.

The success of Enviance is convincing major corporations and government agencies that SaaS is not only compatible with today’s compliance requirements, but can be a key enabling technology to meet these escalating regulatory requirements.

As a consequence, I’m hearing about a growing number of large-scale enterprises who are not only adopting SaaS, but are signing multi-year deals to capitalize on discounts and making a commitment to this new software delivery model to address business challenges that legacy software hasn’t been able to satisfy.