February 29th, 2008
SaaS: Business model or feature? It depends
Software as a service is about to approach a crossroads in a few years and at issue is whether it becomes a dominant business model or a feature that becomes just another way for a vendor to deliver an application.
To Salesforce.com and NetSuite SaaS is clearly the dominant business model–or at least will be in the future. And given Salesforce.com’s recent financials it’s hard to argue.
However, massive software vendors–EMC, SAP (all resources), Oracle (via Siebel) and Symantec–are tossing in SaaS as an option. On the surface, these efforts–like SAP’s BusinessByDesign–are complimentary businesses that don’t encroach on existing product lines. For instance, BusinessByDesign targets midmarket companies–and allegedly won’t appeal to large enterprises that use SAP’s enterprise applications. I don’t completely buy that argument but we’ll see how BusinessByDesign develops over time.
Today, SaaS from a large established software vendor looks a lot like a hedge–an effort to protect their backside just in case the packaged software business goes south quickly. But that take may be a little too superficial. Perhaps SaaS will just be another option for application delivery. Maybe it’s just a feature or delivery mechanism. Just like I can go to the bank and see a teller, visit the ATM or conduct transactions online I can get software via a box, service or download. What if everyone becomes a SaaS vendor?
At this juncture, I’m not sure which way this road between business model vs. feature will go, but this issue -is going to get pretty blurry. I posed this future of SaaS issue to the Enterprise Irregulars, which is a group that’s sort of like the Justice League for enterprise software.
Here were some of the takeaways from the gang:
- There are no linear models left in technology or business. Pure SaaS companies will have to offer advanced reporting and offer a snapshot of a stand alone database. That’s stuff you’d find in traditional enterprise applications. Is that still SaaS?
- Phil Wainewright says SaaS is much more than a delivery model. He wrote in a recent post:
The bigger picture is this: the entire framework of how businesses consume computing and thus automate their information and communication processes is moving to a services model that runs on the global Web infrastructure. Within that software stack, SaaS is a component. But not as an alternative to conventional on-premise packaged software. I don’t believe that conventionally licensed packaged business applications will feature in the stack at all.
- On-premise vendors see SaaS as just another delivery model, says Vinnie Mirchandani. However, large vendors are selectively offering it to customers they could lose without acknowledging SaaS is a new model. Mirchandani likened these moves to a large automaker that grudgingly offers small cars, but makes most of its dough from SUVs. In other words, big vendors are grudgingly offering SaaS.
- Our own Michael Krigsman noted that the ease (and returns of course) of implementations will ultimately decide whether SaaS is a business model or feature. Are there differences between a SaaS and on-premise implementation if all variables are equal? How are processes and workflow mapped?
Krigsman’s point raises another question? Will SaaS be more dominant in key areas like CRM software, but less so for big suites like ERP?
We just don’t know the answers to a lot of this at this point since there are no test cases of two comparable companies that went with SaaS for a full ERP implementation or an on-premise implementation. When I say test cases I’m referring to a big enterprise.
Overall, it’s not really clear where this SaaS debate is going, but the discussion is worth having. On the bright side, there’s plenty of time to mull it over–it’s not like this SaaS fork in the road is coming tomorrow.
Larry Dignan is Editor in Chief of ZDNet and Editorial Director of ZDNet sister site TechRepublic. See his full profile and disclosure of his industry affiliations.
