Following some e-mail dialogue and recent posts, my fellow Enterprise Irregular Thomas Otter wrote a very entertaining post referencing Monty Python’s Spanish inquisition sketch. Thomas believes that the SaaS term is all hype - just 60s and 70s bureau services rebranded, or ASP services from the late 90s repackaged by vendors so they can distance themselves from being associated with the dotcom boom and bust. Over on Rough Type Nicholas Carr gives him a good thwacking - Dennis has invented a new term for this - I’ve been “Nicked”.
Thomas has looked at the Wikipedia definitions, and he suggests that they say more about what SaaS isn’t, rather than what it is. I can understand an element of his confusion, because there are plenty of vendors with a bureaux approach, or with a hosted application who want to jump on the SaaS bandwagon and use the emerging branding for the sector. That’s why some of us vendors start to talk in terms like “pureplay” and “true” SaaS to try and differentiate ourselves from the pretenders who are stealing our clothes. It does begin to sound a bit like a religion, so the inquisition reference is spot on.
In the comments on Nick’s post, Charlie Wood suggests:
“I think Thomas is right that “SaaS” as a category has very fuzzy boundaries, but I’m not sure it matters. Mark (Crofton) gives SAP’s standard response of “customization”, but that’s just a euphemism for “complexity”.”
In his post, Nick uses Glovia as a good SaaS example, but Dennis wonders:
“But to be serious for a moment, the whole point is SERVICES (plural) beyond the hosting. I have no idea who Glovia is - so my bad - but the description you give and their collateral sounds a lot like SoSaaS (Same old software as a service) to me but with a fresh pricing spin.”
Vinnie brings the debate back to economics:
“customers have little interest in the purity of SaaS models or moving to SaaS whether offered by SAP or Salesforce.com, but are looking for creative ways to lower maintenance and to leverage SaaS type concepts in their incumbent apps portfolio - utility computing, fractional resources etc. It’s what I call SaCS - software as a customized service”
I’m not sure inventing a new term is such a good thing to add clarity to a topic that already has “fuzzy boundaries” and people dressing their old hosted applications as SaaS (SoSaas to use Dennis’s pejorative term). However, at the end of the day the customer is much less interested in the details and semantics, and only really wants a stable, secure, scalable, good value solution. But I am interested in the detail, because that is what leads to the value.
So when I’m looking at a new SaaS or On-Demand vendor, these are the questions I ask to test if they are part of the one true faith (red robes, soft cushion and comfy chair not required):
1. Is the software behind the service properly web architected? If the software is based on some previous client/server or windows product that is using Citrix or some other technology to web-enable it, it may well be working inside a browser, but that doesn’t make it SaaS. The solution will hit performance, usability and very definitely scalability problems. We started like that, hit those problems and re-architected. One of my UK competitors uses web-enabled approach. They give out a multi-page guide on how you configure IE to make it work (and it doesn’t always work), so this is one of the signs you can look for to spot the difference.
2. Is the solution using a multi-tenanted, 1 to many model? Although the vendor may have hybrid, or other implementation options available, is their core solution multi-tenanted? This is the key way they can make use of economies of scale within the ingredients of their solution, and pass those benefits on to the customer with more cost effective subscription pricing at a much lower level than traditional software, when you take Total Cost of Ownership in to account.
3. Do they use true “pay as you go” pricing? Changing the pricing to monthly rental is not enough. Does the customer have the ability to discontinue on a month’s notice? If so, then that is SaaS. Is there some sort of 3 or 5 year contractual agreement along with my monthly subscription? If so, then all I’m doing in practice is leasing the software.
4. Do they have a “self service” component in their approach to support? New style SaaS vendors will tend to have better online documentation, online help, FAQs, forums, wikis and IM based live support. This will vary greatly from vendor to vendor, but you should be able to see a cultural difference in their approach to implementation and support that is learning lessons from the consumer oriented, web 2.0 style solutions.
5. Do they have a SaaS business model? You’ll need to do some investigation to check this out properly, and it overlaps with question 4. True SaaS vendors have to adopt an entirely different business model to traditional software companies, which affects every aspect of what they do. The structure of their sales force and sales approach will be different, and they have to pay their sales people in a different way - no big up front licence and service contracts to pay big commissions. A SaaS customer might start with a small pilot project and a few users, to test things out, and so the risks of the project are suddenly transferred away from the customer and on to the vendor. The vendor needs the small pilot to be a success, because they only really begin to make money when the solution is rolled out to a wider community of users, which might be in year’s 2 or 3 of the project. The vendor’s development and release cycle is completely different. Instead of a 12-18 gap between new releases, the SaaS vendor can do monthly, or even weekly product releases in much more controlled circumstances (only one platform and several browsers to support, rather than multiple operating systems, multiple database platforms, and complex PC client implementations to test and get right). It means the SaaS vendor can get new functionality out to market much quicker than the traditional or SoSaaS vendors. And they have to put more emphasis on all of the elements of support and helpdesk. As well as making sure the various implementations succeed so the population using the service increases to a full roll out, there is always the risk that customers could pick up their data and move to a competing service at a month’s notice. Now, obviously this wouldn’t be an easy change for the customer, like switch electricity suppliers, but it would be significantly easier on a SaaS platform compared to a traditional software implementation. The SaaS vendor has to be mindful of the increased risk of attrition, and so puts more effort in to support.
For a particular vendor, the answers to 4 or 5 might not be so clear, but the aggregate of all the questions should help you see the true, pureplay SaaS vendors from the ones who have an old (and perhaps very successful) bureaux application, or an ASP approach that they have simply relabelled.
Update: Dan Farber picked up on my post as a SaaS litmus test, and then incorporated some good words from Phil Waineright. Phil is going to post some more on the SaaS definition tomorrow. Reading Phil’s post reminded me that it was he who coined the SoSaaS term.
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