THINK IT Services

This week’s third annual SaaScon was more than just another conference. It represented an historic breakthrough for the rapidly evolving SaaS industry.

What made the conference so signficant was the nature of the audience, and stature of the keynote speakers and many of the breakout session presenters. While the originators of SaaScon–including myself as an original member of the conference advisory board–always envisioned the event as an important user-oriented conference, we were unable to achieve this objective during the first two SaaScons. We couldn’t find SaaS users willing to talk about their experiences and couldn’t convince IT/business decision-makers to attend the show. As a consequence, SaaScon just became another place for software vendors, VCs and others to talk about the state of SaaS. This year’s conference was a whole different story.

ComputerWorld’s events team deserves a lot of the credit for overcoming these challenges. They tapped their vast reservoir of senior IT executive contacts to pull together an impressive array of keynote speakers and breakout session presenters. With these senior-level speakers in place, ComputerWorld was also able to convince other CIOs and IT managers to attend. In fact, when SaaScon opened its doors on Tuesday morning there were over 900 registrants, approximately three times last year’s attendance.

Getting this many IT decision-makers to attend SaaScon clearly shows they no longer view SaaS as something they can ignore or try to avoid. In fact, each of the speakers, as well as those IT managers who I talked to, said they now view SaaS as a potential solution to many of their IT management needs rather than a threat to their jobs.

They like the pay-as-you-go model at a time of tightening budgets and deepening recession. They like the shorter deployment cycles and lower support requirements. They even like the limitations which SaaS places on customizing applications because they don’t have to support needlessly complex operations when simpler solutions would suffice. Most importantly, they like the greater functionality and added value of many SaaS solutions.

The CIOs who spoke at SaaScon represented a major endorsement of the SaaS concept and the conference attendees proved that IT is getting onboard the SaaS bandwagon. This event confirmed my prediction in December that SaaS solutions aimed at IT departments will help to accelerate the overall growth of the SaaS market.

As the Software-as-a-Service (SaaS) movement gains momentum, it is experiencing a ‘gold-rush’ affect with software, systems and service companies of all shapes and sizes trying to win a share of this rapidly growing market.

The inevitable outcome of this proliferation of aspiring SaaS players is a bastardization of the SaaS term and escalating debate about what actually constitutes a valid SaaS company or offering.

Most analysts and commentators insist on a strict definition of SaaS that hinges on the vendor having a multi-tenant architecture. In their view, if the vendor’s offering isn’t built on this architecture, then it isn’t SaaS.

I’ve always been more lenient when it comes to this architectural issue. I believe the definition of SaaS is in the eye of the beholder, and the most important arbiter of what is SaaS is the customer. If the customer is happy with a single-instance, hosted solution or one that is streamed to their desktop rather than built on a more sophisticated multi-tenant platform, then so be it.

That is why I think multi-tenancy is less of a determinant of SaaS success than other factors. Here are the characteristics which really set a leading SaaS company apart from SaaS wannabes:

• Networked applications – One of the primary drivers of the SaaS movement is the need for increasingly mobile workers and geographically dispersed customers/partners to share information and collaborate with one another more effectively. Web-native applications which leverage wide-area networks (WAN) are better suited to fulfill this need than the highly centralized, on-premise applications of the past.
• Enhanced user experience – Another key driver of SaaS is user frustration with the cumbersome, inflexible nature of legacy applications. These on-premise apps were generally designed to accommodate the technical demands of data center systems and corporate databases rather than appeal to the real-world workflows of businesses and intuitive senses of end-users.
• Variable pricing – Corporate decision-makers are also fed up with the capital investments and significant risks associated with legacy apps. They no longer want to be locked into perpetual licenses and escalating maintenance agreements. Having the opportunity to try software solutions before they buy them, and then being able to use their operating budget to acquire the software functionality they need as they need it is especially appealing in today’s recessionary environment.
• Real-time analytics – Given the economic climate and intensifying competitive landscape, companies of all sizes need to generate greater intelligence from their applications. It is for this reason that analytics is becoming an increasingly important feature in nearly every type of enterprise SaaS application, rather than just an assortment of standalone business intelligence SaaS solutions.
• Continuous enhancements – We are also living in a time in which the rate of change is accelerating and customers expect their vendors to respond to their constantly changing needs. Therefore, leading SaaS solutions are those which rely on agile development techniques to incrementally improve their solutions on a continuous basis rather than depending on long development cycles to roll out disruptive ‘upgrades’ to their legacy applications.
• Self-provisioned, dynamic toolkits – Corporate end-users are also becoming more tech savvy and more willing to take advantage of a rapidly expanding reservoir of gadgets, widgets and other mash-up devices to solve business problems or achieve their corporate objectives without the help of internal developers or outside consultants.
• Aggregated data & benchmark studies – Smart SaaS companies are beginning to recognize that the SaaS model gives them unprecedented insight into their customers’ operations based on their SaaS usage patterns. These SaaS companies are accumulating activity data which can be converted into valuable benchmark statistics and best-practice studies. This puts the SaaS company in an advantageous position to provide a new level of value to their customers that gives them an opportunity to transform their user base into a powerful ‘club’ where users get insight in addition to software functionality.

Companies that can deliver these benefits will be in a better position to survive and succeed in the SaaS market.

With the Software-as-a-Service (SaaS) event season in full throttle, I’ve found myself consulting with a new generation of aspiring SaaS players who are trying to learn about the fundamentals of this rapidly evolving marketplace quickly so they can respond to changing customer requirements and capitalize on new market opportunities.

Starting with SoftLetter’s SaaS Sales and Marketing Seminar in Atlanta which has been upgraded to the SaaS University for Waltham, MA in June, and continuing with OpSource’s SaaS Summit last month in San Francisco, a widening array of incumbent software vendors (ISVs) and old-line technology vendors have approached me seeking help in their efforts to join the SaaS movement.

Some of these companies have lived well for years in niche markets, others have enjoyed cashcow businesses at a mass market level with hardware-based solutions. Now they see a combination of market forces fundamentally changing their worlds and they are trying to transform their business models quickly to respond to a rapidly changing competitive landscape and customer preferences.

Although established SaaS companies clearly understand the differences between the old and new worlds of on-premise software products versus on-demand software services, these new arrivals are still learning about the challenges, as well as opportunities associated with SaaS.

What all of these companies have in common is that they can’t afford to discard their legacy software business in order to capitalize on SaaS opportunities. Instead, they must adopt a hybrid strategy that can support the needs of their existing customers while satisfying the changing expectations of a new generation of software user, without ripping themselves apart in the process.

What these companies are learning is that living in a hybrid world requires two different approaches to software development and delivery, two different go-to-market strategies, two different sales and marketing methodologies, and two different types of personnel.

Agile development replaces the long upgrade cycles of the past. Hosting replaces packaging issues when it comes to software delivery. Online marketing and telesales are more important than direct sales or traditional resellers. And, business-oriented customer support becomes essential rather than tech support to ensure customer loyalty and reference-ability.

Underneath these tangible differences is the more fundamental and subtle differences in attitude between the on-premise and on-demand worlds. In the old world, making the software work was the customer’s problem. The customer bought the software before they were sure it worked, hired the consultants and staff to get it up and running, bought the infrastructure to properly support it, and notified the vendor if something went wrong or they needed more help.

In the new world, making the software work is the SaaS provider’s responsibility. The customer can try it before they subscribe to it. They don’t have to hire additional staff or purchase more servers. They may still hire a few consultants to help with a smaller assortment of deployment issues, or to help with change management and training requirements. And, the customer expects the SaaS provider to keep the software service up and running, and continuously enhance it.

Can traditional software and technology vendors straddle these two worlds?

I think the answer for many of these vendors must be the same as the famous line in the movie Apollo Thirteen, “Failure is not an option.”

The big ISVs–Microsoft, Oracle and SAP–have the deep pockets to finance this balancing act. Other ISVs like Business Objects and Callidus Software are also demonstrating that hybrid models can work.

The smaller firms will have to make sacrifices in order to traverse this transition process. Many are fortunate that they are privately-held companies that don’t have to satisfy Wall Street’s short-term time horizons, especially in today’s frantic economic climate. Others are equally fortunate to have a loyal installed base of customers who will patiently work with them to ensure that the migration process is successful.

But, in each of these cases there will be plenty of potential landmines which will require careful planning and cautious execution. Thoroughly understanding these potential pitfalls will be essential if these new SaaS players are going to succeed in the on-demand marketplace.

Last week’s OpSource SaaS Summit was a milestone event for the on-demand services market on a number of levels.

The first SaaS Summit in Silverado in 2006 was a gathering of industry pioneers to discuss the potential of the on-demand movement. Last year’s Summit in Monterey was an opportunity to celebrate the growing success of the SaaS movement. This year’s Summit offered a chance to take stock of what it will take to scale SaaS to meet the needs of the mainstream market. The theme was platforms and web services, but the event also raised other issues.

With over 600 registered attendees, this year’s SaaS Summit was the largest vendor-oriented conference focused entirely on the rapidly growing Software-as-a-Service (SaaS) market to date. While Salesforce.com’s Dreamforce user conference is still the biggest SaaS event of all, OpSource’s SaaS Summit has represented the benchmark for vendor-oriented conferences since its inception in 2006.

This year’s Summit marked the first time that many of the leading names were overshadowed by lesser known players with far more compelling messages.

Microsoft’s General Manager of U.S. ISV and System Integrator Partner Businesses, Greg Urquhart, outlined the company’s SaaS enablement capabilities but did little to convince the conference attendees that Microsoft is committed to quickly delivering its own SaaS solutions.

By the same token, Salesforce.com’s President and Chief Customer Officer, Jim Steele, wasted an opportunity to convince the Summit attendees that Salesforce.com is a leader in the rapidly evolving cloud computing market by dwelling too long on the basic virtues of SaaS.

Everyone I spoke with at the Summit agreed that it was Josh James, Co-Founder and CEO of Omniture, who stole the show. James provided an engaging and enlightening presentation about the factors which have led to the phenomenal success of his company. James provided valuable information and insight, punctuated by a key takeaway that every successful company should have a ‘number’ that drives its growth. In the case of Omniture, it is a monthly statistic based on a formula calculating sales growth specifically for its web performance metrics business.

I was privileged to moderate a panel of journalists that concluded the Summit. The panel consisted of Eric Knorr, Editor – Infoworld, John Pallatto, West Coast News Editor – eWEEK.com, Ben Worthen, Staff Reporter – The Wall Street Journal, and Aaron Ricadela, Writer – BusinessWeek. These prominent business and tech industry writers offered their candid perspectives regarding the state of the SaaS market and the key obstacles that must be overcome in order for SaaS to become truly mainstream.

Ironically, Forrester Research issued a new report prior to the Summit suggesting that the SaaS market will cool off in the small- and mid-size market in 2008. A drop in the rate of growth is conceivable because of the law of big numbers, but is unlikely because there are so many vertical and horizontal market segments still to be addressed.

As is often the case, the real value of last week’s SaaS Summit was the opportunity it gave attendees to network with their peers and get a reality check about industry best practices from informal discussions rather than formal presentations.

My guess is next year’s SaaS Summit will be far bigger someplace in Vegas and we will be discussing an even broader array of business opportunities and challenges.

In the meantime, this month’s SaaScon user-oriented event will be the next opportunity to gauge the state of the SaaS movement.

Until then, we should all be thanking OpSource for making the SaaS Summit possible and using it to help drive the success of the SaaS industry.