THINK IT Services

I had the privilege of serving as the chairman and ‘master-of-ceremonies’ at this week’s CloudFutures conference for ISVs migrating to Software-as-a-Service (SaaS) in San Jose, CA.

The event succeeded in drawing over one-hundred attendees seeking to better understand the complexities associated with leveraging the rapidly growing array of cloud computing services to develop and deliver SaaS solutions.

While this number may not seem significant, it was exactly the scale of event that I expected given the time of year and proliferation of cloud-oriented conferences. It was also an ideal size to delve into many of the thorny issues surrounding SaaS and allow the attendees to freely interact with the speakers, as well as one another.

In many ways the event resembled the SoftLetter SaaS University sessions where I’ve served as a keynote speaker and sponsor. While I’m still a big supporter of those sessions, I was happy to assist the organizers of this conference because they were filling a void in the calendar while SaaS U was on hiatus, with its next session scheduled in Dallas at the end of January.

The CloudFutures agenda featured a diverse group of industry pundits and practicioners regarding SaaS/cloud computing market trends; development and delivery best practices;  packaging and pricing techniques; storage opportunities and security challenges; and compliance and other legal concerns.

In addition to focusing on key ISV/SaaS vendor operational issues, I also recruited Doug Harr, the CIO of Ingres, and Allan Leinwand of Panorama Capital to provide the buyer and investor perspectives respectively.

The result was a packed agenda which gave the attendees a 360 degree view of the good, bad and ugly of using cloud computing resources to develop and deliver SaaS solutions.

The bottomline derived from two days of talks is that today’s cloud computing services are too embryonic and possess too many uncertainties to base an entire SaaS business upon at this time.

However, cloud computing also represents an invaluable resource to develop and test SaaS services and strategies quickly and economically.

The rapid technological evolution of the ‘cloud’ and gradual resolution of many of the business issues surrounding cloud computing will make it a more viable alternative for ongoing operations within the next two years, and a critical component of SaaS success going forward.

No, I haven’t gone over to the darkside and abandoned the Software-as-a-Service (SaaS) movement.

But, I just gave a keynote presentation regarding the state of the SaaS and cloud computing market at SoftLetter’s latest SaaS University in Chicago, where the challenges of developing and delivering successful SaaS solutions were once again brought home in the discussions among the software executives and SaaS professionals attending the event.

Despite it being scheduled on the last day of the quarter and first week of many people’s summer vacation, the event succeeded in attracting about 70 CXOs from a cross-section of established independent software vendors (ISVs) and SaaS start-ups seeking insights about how to succeed in this rapidly growing industry.

Like past SaaS University sessions, the attendees were treated to a variety of tutorials from industry practitioners with a minimum of self-promotion. And, this group of attendees distinguished themselves by asking very pointed questions from the opening bell about specific operational issues associated with the SaaS model.

But, it wasn’t until we got to the working lunch session on the second day of the two-day event that their anxieties came to head. It was during the session focused on the latest accounting rules governing revenue recognition in the SaaS model that frustrations among the established ISV executives began to boil over as they learned that:

• After making significant investments in (re)architecting their applications to be delivered as an ‘on-demand’ solutions,
• After building hosting facilities or selecting a hosting partner to deliver their services,
• After determining how to package, price and promote their solutions,
• After developing a service level agreement (SLA) or comparable legal agreement that clearly outlines the company’s contractual obligations,
• After convincing a committee of IT/business decision-makers to try their solution,
• After determining how much ‘customization’ they can do for specific customers without breaking the common SaaS application and underlying service delivery model,
• After accepting a fraction of the value of application in an initial subscription fee agreement,
• And, accepting all the responsibility for the availability, reliability, security and  performance of their SaaS solution…
• The aspiring SaaS vendors then discovered they would only be able to recognize their subscription revenues on a month-to-month basis, decimating their traditional software revenue recognition models.

This harsh reality is what has kept the CXOs of the legacy, on-premise ISVs up at night hoping that the SaaS and cloud computing movement would disappear or be derailed by a major outage that would send customers fleeing back to the comfort of their on-premises software and systems safely hidden behind the firewall. Of course, the opposite has been true and SaaS/cloud computing market growth is accelerating as a result.

No, from a vendor point of view, SaaS isn’t as easy as it looks.

It can be disruptive and painful. And, the rewards can take a while to be realized.

But, unless a major service disruption or ongoing service failures occur, the SaaS/cloud computing services market isn’t going to go away because it offers customers too many business benefits. And, ultimately it’s the customer point of view that really counts.

And, by the way, there are a growing number of SaaS vendors, and established ISVs as well, who are figuring out how to be successful in this deceptively difficult business.