THINK IT Services

I had the privilege of being a columnist for the Web Hosting Industry Review (WHIR) for nearly three years from its inception in 2004 to mid-2007. (Click here to read these columns.) During that time only a handful of hosting companies saw the potential of the rapidly evolving Software-as-a-Service (SaaS).

The majority of those hosting companies who saw the SaaS market opportunity primarily focused on pushing their managed services and co-location capabilities. OpSource was the first to recognize a broader set of business opportunities and became a thought-leader in the industry offering a wider array of services, augmented by set of third-party technologies.

Other hosting companies may have been generating greater revenues from independent software vendors (ISVs), but didn’t pursue the broader array of business opportunities associated with SaaS. As a result, OpSource won the lion share of industry attention and ‘mindshare’.

Now that the SaaS and wider ‘cloud computing’ movement is accelerating, a growing number of hosting companies are focusing their attention on this market. Their escalating efforts to prove that they are viable suppliers of SaaS enablement services is not only being driven by the exponential growth of the SaaS/cloud computing market. It is also being driven by the emergence of various ‘platform’ vendors who are promising a similar set of hosting and service infrastructure capabilities.

SAVVIS unveiled a new SaaS enablement program yesterday and it has come with a new twist. In addition to offering a set of Core Infrastructure Services and full range of Lifecycle Services, SAVVIS is seeking to differentiate itself in an increasingly commoditized hosting industry with a new “Marketplace” which promises to give ISVs access to its larger population of enterprise and ISV customers. In essence, SAVVIS is offering to be a channel to market for its SaaS ISV customers in addition to being their enablement partner.

The marketplace idea can also benefit SAVVIS’ enterprise customers who can gain access to an assortment of SaaS solutions which can help them address specific business requirements and achieve their corporate objectives.

I’ve been suggesting this idea to a number of hosting companies over the past year and will be interested in seeing how well SAVVIS is able to deliver this new level of value to its customers.

The financial crisis which came to a head last week may only be the latest chapter of an ongoing saga, but it is certainly going to be another driver that will push the on-demand services movement to a new level of market acceptance and growth.

In December 2007, I predicted that the Software-as-a-Service (SaaS) market would not only survive a deepening recession but would grow because of it.

My prediction was based on the premise that financial uncertainty would compel organizations of all sizes to adopt procurement policies which would favor the more flexible pricing model and more rapid deployment capabilities of SaaS, rather than continue to make significant capital investments in traditional on-premise software and systems with long deployment cycles and limited odds for success.

Ten months later and the economic climate has only gotten worse. Spiralling gas prices have compounded the severe financial issues surrounding the subprime mortgage mess that caused the extraordinary events of the past few weeks.

I’ve been on the road nearly every week this year speaking at industry events or meeting with corporate clients. The IT/business decision-makers I’ve met have all confirmed that they are adopting SaaS and cloud computing solutions to address a widening array of IT management and business requirements. The SaaS and cloud computing vendor executives I’ve talked with have also seen a significant rise in adoption of their on-demand solutions.

Add to the economic and energy concerns, rising recognition among business executives and end-users that we all have to be more concerned about the ecology, reduce our carbon footprints and go ‘green’.

So, here are the three key drivers for continued growth of the on-demand services market,

1. The turbulent economy
2. The rise in energy costs
3. The fragile ecology

The Three Es.

PS: Another indicator of the fundamental shift in today’s business climate is the addition of Salesforce.com to the S&P 500, replacing Freddie Mac.

The proliferation of on-demand services has been driven by the promise that these Software-as-a-Service (SaaS) and ‘cloud computing’ alternatives to traditional on-premise software products will be faster to deploy, easier to use and quicker to produce tangible value.

While this is generally true, it doesn’t mean that these web-based applications are entirely fool-proof or without their challenges. Sometimes there are technical nuances which have to be overcome. Other times there are integration, customization or optimization issues which have to be addressed. And like any application, sometimes on-demand solutions encounter service disruptions which need to be resolved.

Until recently, SaaS support services were taken for granted. Many SaaS vendors bundled support services into the price of their SaaS solutions, and offered ad hoc support to quickly respond to specific questions or problems. Much of this support was delivered via online services or email, with phone support offered as only a last resort.

However, a growing number of SaaS executives have been telling me that their support costs have been escalating and customer concerns about the quality of support rising as the population of SaaS users has expanded and the number of cloud computing service outages has grown.

The success of on-demand services is predicated on the speed at which vendors can acquire new customers and the rate at which they can retain and grow these accounts. Put another way, on-demand service providers cannot afford customer dissatisfaction, abandonment and churn.

At the same time, customers who are recognizing that on-demand services are a viable alternative to on-premise products are recognizing that they cannot afford to adopt point solutions from a myriad of providers. Instead, they must select a smaller set of strategic vendors who can supply the best combination of on-demand services. As a result, IT/business decision-makers are taking a closer look at the quality of support offered by on-demand service providers.

While many of the more mature SaaS vendors have recognized this growing requirement, it is just beginning to gain industry-wide attention. In response to the growing importance of customer support as a key selection criteria for SaaS solutions and pivotal part of ensuring customer satisfaction, NetSuite unveiled a new portfolio of technical support, training and professional service capabilties this week.

SuiteSuccess™ includes multi-tier technical support options that include 60 days of free support with any NetSuite solution and NetSuite support personnel on-call around the clock. It also includes free, on-demand e-learning sessions.

The company’s SuiteConsulting is based on its NetSuite One methodology that helps customers implement and customize NetSuite’s SaaS solution for their specific business needs. NetSuite is also offering Shared Consulting in which customized projects are jointly managed by NetSuite and the customer, and Guided Consulting for customers who need more standardized solutions with help from a NetSuite specialist.

Anyone who has followed the support side of the software and technology industry may not be impressed with these offerings because they follow a familar pattern and borrow from proven customer support frameworks. But, that is the point. NetSuite’s new support program is a clear indication that the on-demand services market is maturing, and trying to meet the standards of support which were established in traditional software and technology world.

The real interesting question is whether the on-demand services movement can redefine the meaning of support just as it has redefined the way solutions are delivered.

The recent debate about the viability and value of cloud computing has generated at least one outstanding analysis from a friend at AT&T, that’s right AT&T!

Joe Weinman is the VP of Strategic Solutions Sales at AT&T Global Business Services. He published a terrific blog entry last week on GigaOM which was also distributed by BusinessWeek entitled, “The 10 Laws on Cloudonomics”.

I met Joe at a utility computing conference in NYC in 2004 where we both listened to a series of CIOs discuss how they were transforming their IT operations to achieve their business objectives.

What was facinating about their presentations was that they were not talking about hardware-based utility computing models that many vendors at the time, such as IBM and HP, were pushing. Instead, the CIOs from a number of major corporations and public agencies talked about how they were deploying Software-as-a-Service (SaaS).

It was this event which propelled THINKstrategies to focus its energies on the SaaS market, along with the related area of managed services, and to create our two online directories–the SaaS and Managed Services Showplaces.

Joe’s commentary is timely because a series of Amazon and Google platform outages have raised a new round of questions about the costs and benefits of cloud computing, today’s term for the old idea of utility computing.

It is also relevant because there are still plenty of IT and business decision-makers who are trying to determine when it makes sense to adopt on-demand, SaaS solutions rather than continue to contend with traditional, on-premise software applications. This was the topic of my presentation yesterday at Serena Software’s TAG user conference.

The pivotal question for IT and business decision-makers considering SaaS and the growing array of cloud computing alternatives is the risk and return tradeoffs.

At what point do the benefits of quicker time to market, lower total cost of ownership and greater return on investment clearly outweigh the potential costs of service disruptions, loss of proprietary data, or limited customization capabilities?

Helping customers perform these cost-benefit analyses and SaaS/cloud computing vendors communicate the value of their on-demand solutions has become a 24/7 campaign for me.