THINK IT Services

One of the topics which leading Software-as-a-Service (SaaS) vendors and industry analysts are most vehement about is that software vendors cannot survive and succeed supporting a ‘hybrid’ model.

This issue arises every time an incumbent software vendor–my definition of a “ISV”–rolls out a SaaS solution while also trying to sustain its legacy, on-premise application. There are plenty of impediments to success in this balancing act across the entire lifecycle of a product extending from software development and delivery to sales and support. These technological and organizational challenges are major obstacles to success for ISVs trying to keep pace with the SaaS movement.

However, despite growing interest and adoption of SaaS as well as other ‘cloud’ computing alternatives among organizations of all sizes, many IT and business decision-makers continue to feel that they must make an ‘either/or’ judgement when it comes to on-premise versus on-demand solutions. This often confronts with an unnecessarily polarized set of options rather than giving customers a variety of complementary choices that enable them to locate their applications wherever they like.

I believe that this no longer needs to be the case. Instead, I think SaaS and cloud computing vendors should adopt a different attitude toward the hybrid model to better respond to their customers’ preferences. If vendors adopt this new approach, it could remove one of the last barriers to broad-based acceptance of SaaS and cloud computing among small- and mid-size businesses (SMBs), as well as large-scale enterprises.

As I’ve written, and many others have stated elsewhere, building and selling a traditional software product is fundamentally different than delivering and supporting a SaaS solution. Supporting these two differing models creates internal redundancies and external conflicts which are costly, inefficient and doomed to failure in most cases.

Having said that, I’m becoming convinced that some ISVs can survive and will succeed by offering customers the choice of an on-premise and on-demand solution. In fact, I think it will be necessary to do so in order to satisfy the demands of those customers who are not comfortable with relying on a ‘cloud’-based solution to meet their IT or business needs.

While customer concerns about where a software solution, or even the application data, resides may not be entirely rational at times, it may not be necessary in the future for ISVs to have to convince them to part with their data or depend on an application hosted in an unknown location.

Instead, a variety of players in the SaaS and cloud computing market are leveraging an ‘appliance’ approach which permits customers to deploy the vendor’s on-demand solution behind the firewall where it is regularly updated and upgraded via a synchronization process similar to that which has become acceptable in a variety of other situations, such as managed storage, back-up and security services. It is also becoming possible with Google Docs offline and Adobe Air.

This idea is already being demonstrated by companies like Cast Iron Systems in the data integration arena; NTRglobal in the remote support management services business; and St. Bernard in the security solutions realm.

Although none of these companies are delivering major enterprise applications, they are all offering customers the choice of deploying their equally important solutions in the ‘cloud’ or behind the firewall.

And, if Google, IBM, Microsoft and others can modularize their data center capabilities into ‘pods’ which can be deployed anywhere, what is to prevent Salesforce.com or other enterprise SaaS vendors from doing the same thing with their applications.

(I’ve been hearing rumors for a while that Salesforce.com is already allowing some of its largest customers to host its applications behind the firewall.)

Now, it is important to note that this approach still requires an ISV to evolve its software design to sit on a single multi-tenant style architecture and code base in order to be operationally feasible and cost-effective.

But, the enabling technologies are quickly evolving to satisfy these requirements. And, customer demand definitely exists to make this approach readily acceptable and profitable.

Let me know if you think I’m crazy or if you know of other examples which support my argument.

Once again Gartner has demonstrated why it is viewed as a lagging indicator of meaningful market trends. Check out a new article in CIO Magazine entitled, “Gartner: Four Disruptions That Will Transform the Software Industry.”

In this article, Gartner analyst Yvonne Genovese identifies the following “disruptive” software industry trends that will take shape by 2010-2015,

• Rise in New Technologies and Convergence of Existing Technologies
• Change in Software User and Support Demographics
• Revolutionary Changes in Software and How it is Consumed
• Software Market Moves to Megavendors Supporting Large Ecosystems

To call any of these trends potentially disruptive in 2010 or 2015 is to ignore the significant impact each of them is already having on the software industry today.

Web mash-ups became the play things of the Facebook crowd over a year ago and are already being used by a wide array of companies of all sizes today.

That same Facebook generation has already brought their social networks into the corporate environment, making Gartner’s suggestion that “By 2015, no company will be able to build or sustain a competitive advantage unless it capitalizes on the combined power of individualized behaviors, social dynamics and collaboration”, ludicrous.

“Revolutionary Changes in Software and How it is Consumed” are already well underway and will be yesterday’s news by 2010. Software-as-a-Service (SaaS) and cloud computing are gaining mainstream and Main Street acceptance and adoption.

Gartner may be right that the “Software Market Moves to Megavendors Supporting Large Ecosystems” but it won’t be yesterday’s leading vendors. Instead, it will be Google, Amazon and Salesforce.com leading a new generation of SaaS and cloud computing providers.

Gartner’s forecast would be laughable if it wasn’t so sad how many companies spend millions of dollars to obtain this type of ‘insight’.

This is especially disappointing at a time when most companies are in desperate need of practical help and advice to overcome the unprecedented realities of today’s turbulent business climate, as opposed to the hypothetical world of the future as seen by a market research firm.

If 2008 is remembered as the year that a new generation of on-demand services, including Software-as-a-Service (SaaS) and cloud computing, gained widespread acceptance and accelerated adoption, then I think 2009 will be the time when winning channel partners will become more critical to the on-demand service providers.

Until now, SaaS and cloud computing vendors have been focusing on building reliable and scalable service solutions and demonstrating the viability of their on-demand alternatives to customers.

Now, that they have generally achieved this objective, their next challenge is to build an effective indirect go-to-market strategy and set of strong channel relationships, so they can rapidly and profitably extend their market reach and satisfy the needs of specific market segments.

The need to build a successful channel strategy has become even more essential as a result of the current economic crisis which is placing greater financial constraints on many on-demand vendors’ direct sales capabilities and making customers even more hesitant to do business with new suppliers. Instead, companies will try to reduce the number of vendors they rely upon and will prefer to turn to their existing suppliers, including their local resellers.

This means SaaS and cloud computing vendors will need to align themselves with established resellers and other companies who have access to customers, especially IT/business decision-makers.

Until recently, many SaaS and cloud computing vendors confused third-party ecosystems with effective channel programs. While encouraging third-party developers to design their applications to interoperate with SaaS solutions via application protocol interfaces (APIs) and web services can also enable them to resell the SaaS solutions, it doesn’t satisfy all of customers’ requirements or all of the business-level concerns of potential partners, such as revenue/profit sharing, joint marketing, etc.

Some SaaS vendors are already making enroutes into various third-party channels. Intacct has built a successful channel program, as has Intuit’s QuickBase unit. NetSuite has also been pushing vertical market approach that is highly reliant on channel partners for success.

It is for these reasons I believe developing a successful channel marketing program and creating successful channel relationships will be a key priority for most SaaS vendors in 2009.

Although the Software-as-a-Service (SaaS) business applications and cloud computing development environments are getting the lion’s share of the attention in the press today, the most prevalent form of on-demand services continues to be hosted email and security services.

Email and security management are escalating challenges for IT and business decision-makers facing greater demands for real-time communications from their end-users, coupled with growing concerns about viruses, hackers, compliance and litigation.

As a result, an increasing proportion of companies and non-profit institutions are choosing to ‘out-task’ their email and security management to third-party hosting companies and managed service providers (MSPs).

However, enterprises and on-demand service providers alike are also recognizing that email, security, storage, archival, e-discovery, business continuity and disaster recovery are all intertwined. Therefore, IT/business decision-makers are seeking providers who can service as a strategic source for these services and providers are seeking to build service portfolios which can satisfy these requirements.

It is for these reasons that Symantec announced its acquisition of MessageLabs yesterday. Symantec has made it clear that it recognizes the growing demand for SaaS alternatives to traditional software products and is committed to providing on-demand solutions which respond to its customers’ rapidly changing needs. However, the company has also discovered that there are a myriad of internal and external challenges fulfilling this promise.

The acquisition of MessageLabs gives Symantec a proven set of on-demand services and experienced business executives who can help the software vendor overcome the obstacles which have prevented it from rolling out its offerings more quickly.

MessageLabs’ hosted email and security services can complement Symantec’s storage services. In addition, MessageLabs has a solid installed base of customers and strong channel partners, an aspect of the on-demand services puzzle which Symantec has been trying to assemble. Symantec has its own vast base of customers and channels to market for its traditional products and services, along with the service delivery infrastructure and provisioning engine it has built for the Symantec Protection Network (SPN).

Because of MessageLabs’ track record of success, the company’s leadership team will assume responsibility for Symantec’s entire on-demand services portfolio and go-to-market strategy. The infusion of this new leadership, along with their indepth understanding of the business requirements for delivering scalable on-demand services, should enable Symantec to accelerate its efforts to become a major player in the SaaS marketplace.

This isn’t the first acquisition of this nature. Google bought Postini and Dell acquired MessageOne in response to the same market trends. Now, Symantec is in a better position to respond to its customers’ needs and keep pace with the competition for these services.

I’ve been saying for months that the Software-as-a-Service (SaaS) movement will gain momentum as the threat of a recession intensifies.

Now that the prospect of a recession has turned into a full-fledged financial crisis and escalating fuel costs are fanning the flames further, the economic justification for adopting SaaS has become even clearer to a broader cross-section of business decision-makers.

The latest reinforcement of this point came yesterday from one of the most visible personalities in the business press today–Jim Cramer, the host of CNBC’s “Mad Money”.

Love him or hate him, Cramer has become one of the most influential stock market commentators in the U.S., if not worldwide. And while many can criticize his ability to pick stocks or ridicule his crazy antics, Cramer does deserve credit for helping to educate people on Main Street about the nuances of Wall Street. And in the process, he has also made his viewers aware of many of the fundamental principles of business, as well as the critical success factors for market winners.

Therefore, I was pleasantly surprised to stumble across a segment of Cramer’s show last night–between the various post-mortems regarding the latest presidential debate–that included an interview with Salesforce.com’s CEO Marc Benioff and a strong endorsement of the SaaS model by Cramer, albeit while still cautioning his viewers to hold back on buying Salesforce.com shares because of its current valuation.

Despite Cramer’s hesitancy to recommend Salesforce.com’s stock, he strongly endorses the SaaS and cloud computing business models which he describes as not only recession-proof, but perfectly suited for today’s turbulent economic environment. (It is always nice to have a popular figure like Cramer echo the mantra I’ve been preaching for the past year.)

Cynics might discount the significance of Cramer’s endorsement, but I believe it is an important milestone in the evolution of the SaaS and broader cloud computing markets.

Click here to find a summary of the Mad Money segment and see the video interview with Marc Benioff.

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.

The recent service outages experienced by Amazon and Google have raised additional concerns about the reliability of these services in particular, and the concept of ‘cloud computing’ and Software-as-a-Service (SaaS) in general.

In my last blog entry, I suggested that the term ‘cloud computing’ may be gaining widespread acceptance but could also be preventing many mainstream business decision-makers from getting their heads around the idea of utilizing web-based services to meet their corporate needs.

The faceless personas of Amazon and Google’s cloud computing services doesn’t help the situation. While traditional telephone support services have left a lot to be desired, they at least give customers a opportunity to seek help from a real person.

Neither Google or Amazon offer this form of customer support for their cloud computing services. Given the modest price for their cloud computing services, it is easy to understand why this form of support doesn’t exist. These vendors, and others, may be planning to add fee-based customer support services later based on the level of demand for cloud computing services.

But, by omitting a customer support capability from their offerings at this stage they are running the risk of driving away customers who don’t want to put up with continuing service quality issues. They are also tarnishing the image of the overall cloud computing and SaaS movement, and could disrupt the growth of this market.

It is time for customers to ask questions about the quality of cloud computing and SaaS vendors’ customer support capabilities in the same way they have been asking about the reliability, security, customization and integration capabilities of their on-demand services.

I’ve just returned from my fourth trip to Las Vegas in four months where I spent three days attending my second annual Symantec Vision user conference and worldwide industry analyst briefing. The event offered a number of important insights regarding the state of the Software-as-a-Service (SaaS), as well as the managed services market.

I’ve stated in this blog numerous times, we are entering a pivotal new stage in the evolution of the SaaS market in which IT professionals are starting to view on-demand services as a powerful means of addressing many of their age-old management challenges, rather than a threat to their operations.

The Symantec executives who spoke at the conference and shared their candid views with me during the event confirmed my perspective by reporting that they are seeing rising receptivity toward SaaS ‘out-tasking’ alternatives to traditional management products among the company’s existing IT customers, as well as prospects of all sizes.

They suggested that this change in the IT department’s attitude is being driving by a number of trends,

• Escalating complexity due to the proliferation of new technologies and business challenges.
• Ecological concerns, escalating energy costs, and ‘green’ initiatives.
• Consumerization of IT as the result of end-users introducing their own technology devices into the corporate environment.

Generational changes among new employees demanding a wide array of Web 2.0 and social networking tools to perform their jobs.

The latter two trends are blurring the lines between the corporate and consumer worlds. Symantec’s prominence and brand equity in both worlds gives it a competitive advantage addressing the convergence of these two IT environments.

Symantec first started to talk about its SaaS intentions in 2006 and rolled out its initial SaaS solution aimed at online backup and storage services under the Symantec Protection Network brand name in 2007. However, the company encountered a series of internal operational problems dealing with service provisioning issues and external challenges responding to channel conflict concerns that slowed the rollout process.

Despite the bumpy start, Symantec’s resolve to deliver a full portfolio of SaaS solutions was made clear throughout this week’s conference. The first indication was during the kickoff keynote address by John Thompson, Symantec’s Chairman/CEO, who alluded to the company’s SaaS initiatives in his opening remarks.

The seriousness of Symantec’s focus on SaaS was even more strongly stated during an analyst briefing by the company’s new Chief Strategy Officer, Greg Hughes. Hughes previously ran Symantec’s service business, including everything from support and professional services to SaaS and managed services.

Hughes admitted that his service background has shaped his views regarding Symantec’s future direction. As a result, he revealed that the company’s top three emerging market priorities and new incubator focus areas are SaaS, cloud computing and virtualization. The company views SaaS as business oriented on-demand solutions and cloud computing as its consumer oriented services. Although I see this as an artificial distinction, the heavy emphasis on the overall development of on-demand solutions is the most important message.

The SaaS theme even permeates Symantec’s virtualization strategy. An example is the company’s new SaaS oriented Veritas Storage and Availability Management Operations Service aimed at large-scale enterprises. This service automates numerous virtualization management tasks and provides a web-based repository of management best practices to service subscribers. Over 1000 customers have participated in the Beta version of the service, creating a massive ‘ecosystem effect’ via social networking model.

Symantec isn’t planning to abandon its traditional, packaged product business, but is beginning to formulate a strategy for building an integrated set of complementary on-premise and on-demand solutions across all of its IT management competency areas and product families to satisfy the diversity of customer needs.

Demonstrating this point, SaaS was a part of every presentation during the analyst briefing.

Enrique Salem, Symantec’s new Chief Operating Officer (COO), also referred to SaaS as a ‘game changing’ trend during his brief talk with the analysts. He said that one of his goals is to simplify Symantec’s product/service portfolio to make it easier for customers to identify the right solution to meet their IT/business and make it easier for Symantec and its channel partners to sell these solutions.

Part of this effort includes an internal reorganization to consolidate related products and services into integrated business units. For instance, the company has merged its NetBackup and Backup Exec product teams, and integrated their capabilities. Symantec has also aligned these product groups with the company’s SaaS Symantec Protection Network (SPN) SaaS platform.

Enrique also stated that Symantec is now measuring its success on three criteria, including Net Promoter Scorecards based on customer loyalty. This customer satisfaction metric is now a key variable in employee compensation and recognizes that offering SaaS solutions is essential to enhancing the customer experience and to Symantec’s long-term success.

The company is also making acquisitions to fortify its SaaS capabilities. It announced the acquisition of SwapDrive which gives it added storage service resources which have been used to power Dell’s storage services.

The company executives I met with on a one-on-one basis said they are not only gratified with the positive response their new SaaS solutions have received from customers, but are also pleased with the dramatic change in attitude among Symantec’s product management and sales teams toward the company’s SaaS strategies. They admitted that a year ago, these internal groups viewed Symantec’s SaaS initiatives as a cannibalistic threat to their traditional products and sales efforts. Today, they recognize that SaaS can produce net-new revenue opportunities and want to jump on board the bandwagon.

Symantec is not likely to be the first to market with its SaaS solutions because of the myriad of internal and external challenges it faces. However, it could become one of the most prominent players in the IT management segment of the SaaS market over the longhaul as customers seek strategic sources to meet their needs. Along the way Symantec will have to overcome the ‘me too’ look and feel of its SaaS solutions.

In addition to attacking the overt market opportunities in the consumer and corporate worlds, the executives I met with during this week’s conference also suggested a long-term vision of Symantec become a key SaaS platform supplier for a wide array of Internet service providers (ISPs), leading telecommunications carriers and business service vendors. For instance, the company is planning to rollout a new Symantec Secure Scalable Storage (S4) cloud-based platform later this year.

While all of these developments represent a strong endorsement of the SaaS movement, the user conference attendance was noticeably smaller than a year ago raising questions about Symantec’s overall standing in the market. The decline could be a reflection of the recessionary times. However, other analysts attending the conference reported that they had seen attendance growing at other vendor user conferences this year.

Nonetheless, Symantec’s SaaS strategies and solutions are an important indicator of the rapid evolution of the on-demand services market.