Why Some Traditional Enterprise IT Vendors Are Scared of SaaS
Some traditional enterprise IT vendors are selling the line that SaaS is a passing phase, that it is "old wine in new bottles". They are telling their market that SaaS is really no different from the discredited Web 1.0 Application Service Provider (ASP) model or even that it is simply the ghost of the ancient mainframe Service Bureau come back to haunt us all. This post shows why their analysis is wrong. It also shows why some traditional enterprise IT vendors feel so threatened by SaaS and why the economic downturn just made this a major issue.
Which Vendors Are Resisting SaaS The Most?
The most extraordinary venting against SaaS came from the CEO of Lawson who, in an interview with ZDNet, predicted that "SaaS would collapse within 2 years". Larry Ellison of Oracle also weighed in during a recent investor conference call, as reported in Information Week, saying that Oracle did not see any money to be made in SaaS.
Just this week, we saw the news that SAP, a company that is investing in SaaS, telling investors that they saw an extraordinary order slowdown in the last 2 weeks due the global credit crisis.
This Is Not Just The "Pooh Corner Debates"
There are people who really believe that SaaS is a passing fad, just Service Bureau 3.0. These people are like Eeyore, the old grey donkey from Winnie The Poo. They think the Tigger types who are constantly running around excited about new technology are just, well ridiculous. There are others, like Piglet, who are just scared of anything new and big. The Wisdom Of Pooh, is just humbly asking asking questions.
But the guys running large enterprise IT vendors are smart. They are just putting on the Eeyore act to appeal to Eeyore clients to keep buying the old stuff as long as possible.
Debunking The SaaS = ASP and Service Bureau Myth
There are similarities between SaaS, ASP and Service Bureau. All are centralized architectures where the hardware is managed by somebody else. But that is where the similarity ends.
The notion that SaaS is taking us back to the days of dumb terminals is simply ridiculous. Have they not heard about AJAX and all the other rich client stuff that actually uses PC cycles to enhance the user experience?
The SaaS detractors are right that the ASP model was really just a financing vehicle. It was the same software, leased and run by somebody else. Yes, the economics of that are lousy.
SaaS is not ASP. SaaS is Net Native software, built to run on the Net. What worries the heck out of the big vendors is that this new code costs a tiny, tiny fraction of the cost that their mammoth old code bases cost. Seeing the traction that 37 Signals have with Basecamp and then seeing that they have only 12 employees is worrying for any old style competitor. You cannot even buy them, they have no VC forcing an exit and they are profitable.
The New New Thing Is Social SaaS
If SaaS was simply doing traditional enterprise IT but with a Net Native design at a fraction of the cost it would be big. But that is only the start. What really differentiates the SaaS winners is that they have a social media/networking twist at the core of their value proposition.
This Downturn Favors The Innovators
Some old style vendors are hoping that this is like the Dot Com crash, when big, solid and reliable beat small and innovative. They are wrong. This cycle is different. The client's risk goes away with SaaS. Try it for free for a while and then start small. The size of your company is not an issue.
This is The Innovation Economy and some people don't like that.
Comments
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Let´s be honest for a minute.
IBM, Sun and Red Hat pays the bills while some Web 2.0 guy talks about his mad AJAX skills. Yeah, because those 79 lines of Javascript makes him stand out in the marketplace. Web 2.0 is largely based on open source software and is only possible because of it. So the differentiating factors are design and scalability. Which are easy to duplicate for large companies.
Scared ? Why ? Oracle and similar companies are paying the bills. Basecamp is just crashing the party and stealing beer from the bathtub.
Basecamp is a hotdog stand. Great hotdogs though.
Posted by: Jan Erik Paulsen | October 8, 2008 5:30 PM
Could you please define SaaS or give a link to a definition for the benefit of readers who are not up to date with new terminology? This question could apply to many entries in RWW. Thanks. --Rodney
Posted by: Rodney Topor | October 8, 2008 5:45 PM
@Rodney SaaS is software-as-a-service, where you can use the software via a browser and internet connection, the software is hosted in the cloud . so u do not need to install anything at your PC or servers. think of Gmail is a SaaS, so with SaaS, application are hosted online at the vendors servers not urs.
Posted by: Gaith | October 8, 2008 7:23 PM
I agree to the closing statement "The innovation economy"
Small can challenge the big!
SaaS is not the end...revolution will come through
Platform as a service (PaaS) + Utility Computing(UC)
We forget that the future growth is primarily from emerging markets, where PC penetration is very less, needs are different, markets are very cost/value conscious.
Maintaining software and long implementation cycles are the weakness of existing enterprise vendors.
Posted by: Sumeet Anand | October 9, 2008 12:36 AM
I have reviewed the current SaaS offering. I have found a number of obstacles to application and usage.
- Firstly, my intended client base will be slow to house business related data on a foreign server. Take-off will only be permissable if I can sell the Euro version, housed in Europe on local servers. Localisation is key and this is how current software vendors operate.
- Secondly, the pricing model is based on a per user basis with little or no give by vendors. I contacted a number of SaaS vendors and I was constantly given the flat fee structure. Flexibility on pricing is key here.
- Thirdly, as a potential user, how can I be sure that some developer is not going to run off with my idea. What protection do I have if I am outside the US jurisdiction. Confidentiality is simply not jumping out at me.
Tony
Posted by: Tony | October 9, 2008 3:36 AM
I like the idea of having a Pooh Corner Debate on SaaS or any other innovation. I noted a couple of Eeyore type comments. I am mostly Tigger-like, with occasional delusions of Pooh wisdom. But I do know that Eeyore is often right, many innovations sink without trace (we can all make a long list). But almost all innovations are greeted with skepticism initially. So Eeyore is also sometimes wrong. On the SaaS front I am sure Eeyore is wrong, but only time will tell for sure.
Gaith, thanks for a good explanation. It is hard to always explain/link to the background in every post. I would love a little pop up explainer.
Summeet, saw your Tata + Nen award. I am interested in hearing more about those awards as I write about Innovation from India. Can you connect me with the organisers?
There are a number of good threads in this piece for people to grab on to.
And it’s good to see the discussion of SaaS being broadened – with a call out to Basecamp. It is interesting to note that the majority of the movement in SaaS continues to be by companies that are focused on either the front or back office. There is precious little being said by the major players in the infrastructure, operations management, or security categories (e.g. HP, BMC, CA, and IBM).
We recently published a blog post on the various forms of cloud computing with the purpose of simplifying the discussion via images and cutting through the confusion. We even included a table that helps to explain why ASP and SaaS are not the same.
You can read it here: “ASPs are dead, long live the Cloud” https://community.paglo.com/blog_topic/index/110-the-asp-is-dead-long-live-the-cloud
We also were pleased to see your mention of “social.” While truly developing a meaningful “social” environment takes time and grows organically, we are with you. This is a phenomena we termed “Social Solving” and wrote about some time ago as well https://community.paglo.com/blog_topic/index/53--social-solving-the-power-of-community
SaaS is here to stay because businesses have been hurt by massive enterprise software implementation failures and are generally fatigued by the lack of innovation that is taking place by the traditional vendors.
Brian de Haaff, Paglo
www.Paglo.com
Posted by: Brian de Haaff | October 13, 2008 10:04 AM
I would echo the comments of the SaaS proponents (Mr. Lunn, Mr. Anand, and Mr. de Haaff). One addition in response to Tony's concern that "my intended client base will be slow to house business related data on a foreign server."
Some SaaS vendors have dug their own grave in this regard by claiming that multi-tentant is the only SaaS architectural option.
Service-now.com is an example of single-tenant SaaS. In other words, each customer instance receives their own dedicated server, database and code isolation. We even provide an option for our customers to host the Service-now.com instance in their own data center while we continue to manage the application remotely through VPN tunneling.
About 10 percent of our customers (typically large financial institutions in Europe and Switzerland) have selected this on-premise hosting model.
This economy, combined with massive product upgrade cycles for BMC Remedy and HP Service Manager, has presented a significant opportunity for Service-now.com. The fact that we are cash flow positive and have no need for an IPO or venture capital funding puts us in a good position.
The traditional enterprise IT vendors are running out of FUD to combat the success of SaaS. They are stuck dealing with a customer base, code base, investors and a business model that can't be rearchitected to deliver the benefits of SaaS anytime soon.
Posted by: Rhett Glauser | October 13, 2008 5:41 PM