THINK IT Services

I’ve just returned from two days in a chilly Florida where I was participating in a sales kickoff meeting for an independent software vendor (ISV) that is preparing to add a Software-as-a-Service (SaaS) component to its portfolio.

I’ve presented to plenty of sales teams about SaaS, cloud computing and managed services, what made this session unique was that this ISV isn’t planning on rolling out its new SaaS solutions for another 9-10 months.

To the credit of the company’s management team, they know that it will take a long time to fully prepare the sales team to properly sell their new SaaS solutions.

Especially, because they’ve been successfully selling the value of their legacy, on-premise applications against a competitor’s “ASP” solution for the past five years.

While the company was confident that it has employed the latest in Web 2.0 technologies and techniques to leapfrog its competitor functionally, it knows that it still has plenty of work to do operationally and from a sales perspective to be successful.

The company asked me to participate in the meeting to educate the sales team about the market forces which are driving the on-demand services market, explain how SaaS differs from the old ASP model, and coach them about how to talk to IT and business decision-makers about the functional benefits and cost-advantages of SaaS solutions.

In addition to giving a one-hour keynote presentation about the overall marketplace, I participated in three breakout sessions aimed at addressing the sales team’s specific questions and concerns.

I was joined in these sessions by company executives who provided candid insights about their SaaS goals, objectives and even uncertainties. They readily admitted that they are making a ‘big bet’ on SaaS and still have plenty of piece parts to put in place regarding how the new offerings will be packaged, priced and positioned.

Their candor was refreshing and rewarded with an enthusiastic response from the sales team which recognizes that times are changing, and they have an opportunity to offer their customers new game-changing SaaS solutions and greater options to meet their corporate objectives.

The sales team and company management both know that it could be a bumpy ride into the SaaS world, but they are giving themselves plenty of time to make the proper preparations.

While I’m happy to help aspiring SaaS vendors at any stage of their evolution, it is nice to be invited in early rather than be called when a company is trying to recover from a false start.

The service disruption which Salesforce.com experienced this week came at a bad time for the Software-as-a-Service (SaaS) and cloud computing market.

Although I believe the long-term prospects for SaaS and cloud computing remain strong, there are plenty of short-term challenges facing SaaS and cloud computing vendors in today’s tough economic environment.

Salesforce.com’s outage reignites the debate about the reliability of web-based services, and will intensify the concerns of those IT and business decision-makers who have been reluctant to adopt on-demand solutions.

It also validates the claims of legacy software vendors that SaaS and cloud computing are not viable platforms for enterprise applications.

The ultimate irony is that the public website which Salesforce.com created after it experienced a series of outages in 2005-2006 to demonstrate greater accountability, www.trust.salesforce.com, also went down during the latest outage.

In 2006, Salesforce.com was quick to turn its problems into marketing opportunities. This time there is even more at stake. Salesforce.com will have a hard time convincing software vendors and enterprise customers to adopt its Force.com platform unless it can build greater confidence in its service delivery capabilities. 

It is not only important for Salesforce.com to quickly restore its own reputation, but also rebuild customer confidence in the overall SaaS/cloud computing industry. This is essential for SaaS/cloud computing companies to capitalize on their competitive advantage over legacy apps in today’s tough economic environment and rapidly changing workplace.

In fairness, Salesforce.com’s uptime record is still the envy of many IT and business decision-makers. That is why an increasing number of IT organizations are not only supporting the adoption of SaaS and cloud computing, but also benchmarking themselves their operations against these on-demand service providers.

However, legacy software vendors will attempt to exploit this latest disruption to make their case for sticking with on-premise applications. For example, Oracle has publicly stated it is targeting Salesforce.com accounts and promoting its ‘pod’ approach as a hosted alternative.

PS: Click here to read about the lingering concerns of some customers who participated in THINKstrategies’ most recent customer survey in conjunction with Cutter Consortium.

I’m sorry to see that the new year and today’s severe economy crisis haven’t rid the technology industry of old, outmoded thinking.

One of the most recent exmples is a blog post by ComputerWorld’s Mark Everett Hall entitled, “How SaaS Hurts a Fragile IT Economy”, in which Hall suggests that Software-as-a-Service solutions represent a threat to both IT professionals and the technology industry because SaaS commoditizes traditional, on-premise IT systems and software applications.

Of course, what Hall fails to recognize is that customers are migrating to SaaS, as well as a broadening array of cloud computing services, because legacy systems and applications failed to fulfill their promises or justify their costs. And, in today’s economic environment and rapidly changing marketplace, few companies can continue to accept the exorbinant costs, complexities and risks associated with legacy apps and systems.

In contrast, SaaS and cloud computing are proving to not only be more cost-effective but also delivering superior functional capabilities which are better geared toward meeting the changing economic, competitive, workplace and ecological (think green) requirements of today’s world.

I’m finding that enlightened IT executives and staff are quickly discovering that SaaS/cloud computing isn’t the enemy and a threat to their jobs, but a welcome relief to the day-to-day challenges they’ve faced deploying and managing needlessly complex legacy systems and software.

Because SaaS solutions and cloud computing services are proving to fulfill the business requirements of their end-users at a more economical price, the IT department can finally focus on more important corporate priorities and initiatives rather than constantly responding to the daily firefights of keeping their systems and software up and running.

It is for these reasons that THINKstrategies’ most recent survey, conducted in conjunction with Cutter Consortium, found that SaaS adoption is not only accelerating but achieving unprecedented customer satisfaction, renewal and referral levels.

Hopefully, Hall and other trade press reporters who are prone to view every new trend with skepticism will learn about the positive realities of SaaS and cloud computing in 2009.

I’m committed to promoting the IT and business benefits of SaaS. That’s why THINKstrategies’ launched the Best of SaaS Showplace Awards program earlier this week. Click here to read more.

THINKstrategies launched a new awards program today aimed at showing how Software-as-a-Service (SaaS), cloud computing and other on-demand services are helping organizations of all sizes across every industry grapple with the operational challenges created by today’s unprecedented economic crisis.

The new Best of SaaS Showplace (BoSS) Awards are aimed at promoting the tangible benefits which web-based services can deliver.

The awards will be given to SaaS and cloud computing companies listed on the SaaS Showplace which can demonstrate that their on-demand solutions have produced measurable business benefits for specific user organizations. These benefits could be increased sales, lower costs, higher customer satisfaction, faster operations, etc.

Click here for more details regarding the nomination process, criteria for selection, fees and award program benefits.

I’ve just returned from my last business trip of the year. This time I was in Washington, DC, hosting the Software-as-a-Service (SaaS), cloud computing and managed services track of NetworkWorld’s IT Roadmap event.

The keynote speaker at the event was Bechtel Corporation’s CIO, Geir Ramleth, who gave a fascinating talk about how his IT team is transforming the way Bechtel leverages technology and business applications by modeling their operations on YouTube, Google, Amazon.com and Salesforce.com, rather than traditional enterprise organizations.

Ramleth has recognized that these on-demand service providers are delivering high-value solutions in an amazingly low cost fashion, making them the envy of CIOs at many of the greatest companies in the world.

Although Ramleth’s team has decided that today’s commercially available SaaS and cloud computing solutions don’t meet their corporate requirements, they still felt the operating model of today’s on-demand service providers is worth imitating.

Ramleth’s presentation echoed many of the ideas which THINKstrategies has been advocating for the past seven years. His team recognized the ease of use and operating efficiencies of consumer-oriented web-services and SaaS vendors, and decided to benchmark their internal operations based on these successful models. As a result, they have not only increased end-user productivity, but dramatically reduced their operating costs.

Click here to read more about Bechtel’s transformation process.

Given the proliferation of Software-as-a-Service (SaaS) and cloud computing players over the past year in response to the rapid rise of customer interest and demand, it was easy to predict that a shake out in the on-demand services market was inevitable. The question is whether today’s turbulent economic environment will accelerate this shake out process and kickstart a series of mergers and acquisitions heading into 2009.

One school of thought is that many of the weaker players in the on-demand services market are not mature enough to attract buyers and, therefore, the volume of acquisitions will not be any greater than normal.

Compounding this situation is the fact that many potential acquirers are facing their own financial challenges and lack the currency to take advantage of a “buyer’s market” and make acquisitions.

I’m not an expert in the art and science of M&As, that’s why I’ve established alliances with key players in this business. But, I am intimately involved with many on-demand service providers who recognize that they must strengthen their competitive positions in order to survive and succeed in an increasingly challenging economic climate and competitive landscape.

Therefore, a number of companies are looking at ways they can expand their market penetration via acquisition. For instance, I’ve have the privilege of serving as a senior advisor to Triple-Tree, LLC, which has seen a significant uptick in its pipeline of deals over the past few months. Triple-Tree has announced two deals in the past week alone,

• Paisley–a governance, risk and compliance SaaS vendor–has signed a definitive agreement with Thomson Reuters, a provider of intelligent information for businesses and professionals. Thomson Reuters is acquiring Paisley to provide customers a ‘one-stop’ compliance management and internal financial control solution.
• SearchAmerica–a provider of payment prediction data and analytics to the U.S. healthcare industry–has been acquired by Experian, a global provider of information, analytical, and marketing services to organizations and consumers to help manage the risk and reward of commercial and financial decisions. The acquisition will permit Experian to extend its Credit Services and Decision Analytics activities in North America to help healthcare providers manage their billings and cash flows.

These were not ‘asset’ sales. Instead, they are deals which enable the respective acquirers to expand their portfolios and market reach, and permit the acquired companies to achieve a solid exit. These transactions also typify the blurring of the lines between software, business and information services sectors.

You can expect to see a steady stream of these deals through 2009 as the on-demand services industry evolves and is reshaped by broader macro-market trends.

I’ve been suggesting for a few months that the Software-as-a-Service (SaaS) and ‘cloud computing’ market has been experiencing a ‘gold-rush’ era of accelerated growth. The rapid adoption of SaaS solutions was confirmed by THINKstrategies’ latest survey in conjunction with Cutter Consortium.

Just like in the original gold-rush of the 1800s, today’s ‘cloud-rush’ is not only attracting a proliferation of players, but also an assortment of unsavory characters.

The scandal surrounding IT Factory of Denmark is the most recent example. If you haven’t been keeping track of this one, it is worth reading about. The company’s CEO, Stein Bagger, disappeared before Thanksgiving after financial ‘irregularities’ were discovered at his company and a half billion kroner were found to be missing from the company’s bank accounts. Bagger is presumed to be hiding out in Dubai, and his company has fallen into bankruptcy.

The scandal doesn’t only affect the company’s employees, customers, partners and creditors. It also is a black-eye for the tech industry. As TechCrunch reports, just this September the Danish version of Computerworld named IT Factory “Denmark’s Best IT Company 2008″.

Another scandal involving a SaaS company unfolded in October. In this case, Entellium’s CEO and CFO were arrested for keeping two sets of books to disceive the company’s board of directors and investors. The company is facing bankruptcy and its assets are likely to be sold to another vendor.

Once again, the impact of this scandal extends beyond the company’s employees, customers, partners and investors. Entellium won numerous industry awards for the quality and innovative nature of its SaaS solutions from a variety of industry associations and publications before the company’s executives were discovered to be cooking the books.

While these might be isolated cases, they are a clear indication that the SaaS/cloud computing market has grown to the stage in which it is likely to be a target for more of this type of deceitful behavior.

For instance, I’ve even discovered a new online directory which is structured curiously like my SaaS Showplace and includes almost an identical list of companies which is attempting to exploit the SaaS/cloud computing market.

These ethical threats to the SaaS and cloud computing movements could undercut the success which the on-demand services marketplace experienced over the past year, and could combine with the uncertain economy to derail the momentum many SaaS/cloud computing companies were anticipating in 2009.

All of us who have worked hard for years building the SaaS/cloud computing market will have to work even harder now to combat these threats and safeguard the integrity of the on-demand services industry from these opportunistic, scurrilous characters.

Today’s deepening economic crisis is testing the mettle of IT/business decision-makers, IT solution providers and technology investors alike.

IT and business decision-makers in nearly every industry must make cuts to their capital and operating budgets in order to offset rapid declines in business and tightening credit markets. In many cases, this is forcing them to fundamentally reevaluate the way that they acquire and utilize technology and business applications, and leading them to seriously consider various on-demand service alternatives such as Software-as-a-Service (SaaS), cloud computing, and managed services.

I have recently suggested in commentaries in Datamation and the Business Technology Roundtable that any IT/business decision-maker who isn’t seriously considering these on-demand alternatives is doing their organization a disservice and could be jeopardizing their jobs.

THINKstrategies’ latest customer survey in conjunction with Cutter Consortium clearly shows that organizations of all sizes are adopting SaaS solutions to reap the economic and functional benefits of these on-demand services.

However, many of my clients are also reporting that they are putting a hold on all spending until they get a clearer picture of the state of the economy in 2009. In addition, many are also issuing requests for information (RFIs) to their current suppliers, including SaaS companies they are already using, to obtain additional financial data that can help them determine which vendors are most likely to survive a worsening economy. This is the first step of a broader initiative being undertaken by many of these companies to weed out those suppliers who may fail in the coming months.

Proving their long-term financial viability will become a key challenge for many SaaS, cloud computing and managed service providers (MSPs). Compounding this problem is the growing anxieties within the venture capital (VC) community which is facing severe pressures from their limited partners (LPs)–financial institutions, universities and others–who have been seriously impacted by the economic meltdown. With many of these LPs threatening to renege on their original commitments, the VCs are carefully scrutinizing and setting higher standards for their current and prospective portfolio companies alike.

As a consequence, many of the SaaS, cloud computing and managed service companies who were hoping to capitalize on the current crisis by increasing their sales and marketing efforts to promote their business benefits in a down economy are being forced to go slow or even cut back their spending instead. Many of these on-demand service companies are also facing longer sales cycles as customers delay their purchase decisions and demand more information about the providers’ operations and financial status as a part of their due diligence process.

Given that THINKstrategies’ SaaS Showplace already has over 900 companies from around the world offering over 4500 SaaS solutions organized into 80 Application, Industry and Enabling Technology categories and there may be twice that many companies actually offering on-demand services, an industry shakeout is inevitable and likely to happen sooner than expected.

These trends were the focal point of the recent Software Business and SIIA On-Demand conferences I participated in over the past few weeks. While Salesforce.com’s Dreamforce user conference was a celebration of the accelerating capabilities of cloud computing and SaaS, the Software Business and SIIA On-Demand conferences where more somber industry events were concerns about today’s economic environment were the center of attention.

I think the reality is somewhere between the euphoria and despair these two events. The measurable benefits and growing number of customer success stories that on-demand service providers can boast give them a clear long-term advantage over traditional, on-premise software and systems. However, these companies will face stiffer challenges from incumbent players and conservative decision-makers.

An indication of the competitive challenges facing SaaS and cloud computing vendors was provided by Anthony Lye, the Senior Vice President of Oracle’s customer relationship management (CRM) division, at the SIIA On-Demand conference. Lye spent about 30 minutes of what was supposed to be a “Point/Counter-Point” keynote session challenging the fundamental benefits of on-demand solutions and questioning the long-term viability of the on-demand services model, despite the fact that he is responsible for running Oracle’s on-demand CRM solution which has experienced significant growth over the past year.

Lye’s tough-minded presentation was an example of the same kind of subtefuge which his boss, Larry Ellison, the Chairman/CEO of Oracle, has been conducting for the past year with his own statements aimed at discrediting the on-demand services market despite the fact that Oracle is one of the largest suppliers of databases and middleware for SaaS and cloud computing vendors. (Click here to read THINKstrategies’ profile of Oracle’s SaaS enablement platform strategies and solutions.)

On-demand service providers will have to do a better job than Zach Nelson, the CEO of NetSuite, did at the SIIA conference. Nelson was supposed to offer a SaaS industry response to Lye’s incumbent software vendor (iSV) arguments, but he chose to side with Lye instead and distance NetSuite from the rest of the SaaS community. Rather than dispute any of Lye’s contentions and misrepresentations of the SaaS model, Nelson decided to take only 15 minutes of his portion of the keynote session “debate” to promote NetSuite’s integrated software and new focus on the service industry based on its acquisition of OpenAir.

Anyone who wasn’t aware that NetSuite offers SaaS solutions would have thought it was a traditional software vendor based on Nelson’s presentation. It was a disappointing performance which will do little to endear NetSuite to the rest of the SaaS industry. Instead, it only reinforced the impression that NetSuite and Oracle have a mutual understanding about how they will complement rather than compete with one another.

So, the on-demand services movement will continue to be led by Salesforce.com, Google, Amazon, Facebook and other innovators. It will also be led by bold, new leaders. Although Marc Benioff of Salesforce.com is the figurehead of the movement and Treb Ryan of OpSource is another important evangelist. Josh James of Omniture has emerged as an important spokesperson as well. James delivered a captivating presentation at the SIIA On-Demand conference which elaborated on a similar talk which gave at OpSource’s SaaS Summit last February regarding the key management metric for measuring SaaS sales effectiveness–the ‘magic number’.

It will take bold ideas and actions to succeed in the on-demand services market going forward. The winning on-demand service companies will be those who can convey a compelling message regarding the fundamental business benefits of their SaaS, cloud computing and managed service solutions, and deliver these tangible results in a cost-effective manner.

Like the well known line from Charles Dickens’ book “Tale of Two Cities” goes, these will be the best of times and the worst of times for the on-demand services movement.

One of the most vexing questions in the Software-as-a-Service (SaaS) market, and broader on-demand services industry, is what role traditional channel companies will play in this brave, new world.

While Salesforce.com and other SaaS vendors are touting the enormous advantages of leveraging the ‘cloud’, there are still plenty of companies on Main Street who are just beginning to become familiar with today’s online services. Many of these small- and mid-size businesses (SMBs), and even large-scale enterprises, have relied on their local value-added reseller (VAR) and system integrator (SI) as not only their primary technology supplier but also their ‘trusted advisor’ for their technologies strategies.

These VARs and SIs have been uncertain about the impact of SaaS solutions and on-demand services on their businesses. In fact, many feel down right threatened by these services.

There is no question that SaaS solutions and on-demand services eliminate much of the upfront planning and design, installation and integration, and ongoing support requirements which have been the bread and butter of VARs and SIs’ revenue streams, not to mention the margins they made on hardware and software product sales.

However, there is still plenty of opportunities for channel companies to add value to SaaS and on-demand services across the entire lifecycle of customer requirements from needs assessment through the deployment and management processes. Appirio, Astadia, Bluewolf, SaaSpoint and Sofia Works are living proof of these new market opportunities.

Today, HP and NetSuite announced they are partnering to offer SaaS business applications to SMBs via HP’s vast channel community of 15,000 VARs in the U.S.

Under this agreement, HP and NetSuite will initiate a referral-based program for HP channel partners that will encourage them to recommend NetSuite’s solutions to their customers. They will also offer new value-added implementation and management services as part of the HP Total Care support program.

NetSuite will provide dedicated resources to support the HP resellers, along with a toll-free hotline for channel sales support and a self-service portal for channel partners to access sales tools and online training resources.

This agreement is significant on a number of levels.

First, it gives NetSuite a vast new channel to market to a broad cross-section of SMBs.

Second, it gives a wide array of VARs/SIs an opportunity to jump onto the on-demand services bandwagon with the help of HP.

Third, it gives HP a SaaS solution to sell to SMBs through its channel partners.

And fourth, it gives SMBs an opportunity to obtain a SaaS solution from their existing technology suppliers who they trust.

This agreement is a strong endorsement for NetSuite at just the right time. The company has been trying, without luck, to keep pace with Salesforce.com which continues to command the attention of the on-demand/cloud computing industry because of its brilliant marketing efforts and robust sales growth. Meanwhile, NetSuite has never been a strong marketing company and has seen its stock value severely impacted by failing to meet Wall Street expectations which hasn’t helped its standing in the SaaS industry.

Teaming with HP can be a timely shot in the arm for NetSuite. As a result of its acquisition of EDS, HP is now the largest vendor in the IT industry. HP has spent years building a strong channel network. Its willingness to expose the HP channel partners’ to NetSuite’s solution shows that HP believes it is a good fit for their customers. Otherwise, HP wouldn’t waste its time promoting NetSuite’s solution or jeopardize its channel relationships.

This agreement is also a way for HP to gain entry into the SaaS market where they have lacked a presence. In fact, I’ve been told by HP insiders that the company’s own SaaS initiatives have been slowed by their EDS acquisition. Who knows, HP might become a potential acquirer of NetSuite as a result of this relationship rather than Oracle who has been the most natural candidate in the past. On a more tactical level, the alliance also gives HP to opportunity to sell and promote more of its ProLiant servers and StorageWorks Modular Smart Arrays which are a key component of NetSuite’s service delivery infrastructure.

Ultimately, this alliance has the potential to be a win-win-win-win for all four parties—NetSuite, HP, channel companies and customers.

However, making this agreement a success won’t be easy. It will take time to train the channel companies and devise the right pricing and promotional programs to encourage them to sell NetSuite’s solutions. Even when the channel companies become comfortable with NetSuite and convinced that they can make money in this program, it will still take time to sell a enough NetSuite subscriptions to have an impact on everyone’s financial results.

Nonetheless, the evolution of this alliance will be an important indicator of how traditional channel companies will participate in the SaaS/on-demand services market. While the hoopla at last week’s Dreamforce was squarely focused on the new world of the ‘cloud’, today’s announcement may help to define the role of traditional channel companies in the SaaS market of the future.

One of the primary concerns of IT and business decision-makers regarding Software-as-a-Service (SaaS) applications is security.

Although most SaaS vendors have been able to demonstrate that their cloud-based applications are secure from an operational point-of-view, there are still access control issues which enterprises need to address to ensure their corporate data is fully secure from an end-user perspective.

It is becoming particularly important to address these issues because SaaS applications are gaining popularity in today’s increasingly challenging economic climate.

The economy is also producing a new round of layoffs which means businesses need to be especially vigilant about how they manage user access to their SaaS applications to be sure laid off employees do not inadvertently or intentionally compromise sensitive or proprietary corporate data.

I’ve had the privilege of participating in two recent webcasts regarding these issues hosted by OutProtect and Symplified. These companies, and others such as Conformity, Ping Identity and Tricipher, are offering varying approaches to single sign-on (SSO) access control, usage tracking and centralized management of multiple SaaS applications.

Although on-demand SaaS has proven to be more secure than most on-premise applications, these SaaS security and management solutions are still worthwhile because cost-effective, end-user management and security will become even more essential as the SaaS market experiences accelerated growth due to the current economic crisis.