When Thomas was suggesting the SaaS term was all hype and marketing spin and just bureau solutions revisited, I responded with the 5 questions I ask to differentiate SaaS vendors from SoSaaS, ASP or hosted solutions. Where the vendor’s solution is more like traditional software, but hosted, they often focus on the on-demand term, rather than SaaS, as this is less clearly defined. But as several people pointed out, from the customer’s point of view, if the solution is available through a browser, does the job, and at the right monthly charge, does it really matter?
From a buyers point of view, I still think it is valuable to make the differentiation, because the true SaaS provider is more likely to have a scalable solution that performs well as their user community expands, and a sustainable business model that continues to allow the vendor to provide high quality support, and allow the application to be regularly enhanced to keep pace with the market.
Jim Holincheck, at BlogERP, has weighed in with Gartner’s definition of SaaS, in an good post that puts SaaS in to context amongst other deployment options. Although most of their material on the topic is only available to subscribers, Jim explains:
The Gartner definition has three requirements:
1. The application is owned, delivered, and managed remotely by one or more providers
2. The application is based on single set of common code and data definitions which are consumed in a one-to-many model by all contracted customers at any time.
3. The application is licensed on pay-per-use or subscription basis
I would suggest these 3 make good sense, but are the minimum requirement. I would add the following:
4. The application behind the service should be properly web architected, rather than an existing client/server or Windows application simply web enabled.
5. The vendor should have a true SaaS rather than traditional software business model.
5. The vendor should have a true SaaS rather than traditional software business model.
In dialogue on this topic with the Irregulars, Jeff Nolan agrees with me that this last item is actually the most important. To reiterate, using the words from my earlier post, it affects every aspect of what the vendor does. 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 but 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 worry about). It means they 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.
If you turn those business model characteristics around in to the benefits they give to the user, they’ll be key to providing better value, better service, a more competitive Total Cost of Ownership over a 5 year period, and an application that is steadily enhanced, compared to the maintenance mode and software tax of traditional solutions.
So I would propose these are the 5 characteristics that buyers should be looking for in differentiating true SaaS within the current on-demand market.
Update: Just after I added this, I saw that Phil Waineright has put up a post that analyses the development of the SaaS landscape over time. Well worth reading.
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