Mary Hayes Weier: 6 Things SaaS Needs To Do In 2009

Software as a service has made headway in the past few years as an alternative to traditional licensed software, but it can’t yet be called a game-changer in the enterprise software market.

While this statement is true for all intents and purposes, it nearly does a disservice to Mary’s piece by narrowly framing what ended up being a very concise and prescriptive article on the adoption challenges SaaS faces in the context of the enterprise market – in reality, these challenges are nearly universal across all market segments.

1. “SaaS continues to gain momentum, but pure-play SaaS companies such as salesforce.com, NetSuite, Workday, and even Google aren’t likely to steal a big chunk out of the enterprise software market within the next few years.” So be it.  We’re talking about a disruptive technology, so the goal isn’t to attack market incumbents in their backyard, it’s to drive adoption to entirely new technologies that will eventually become sustaining technologies that surpass the incumbents over time as demand for legacy technology diminishes.  We don’t need “…solid, believable commitments from Microsoft, Oracle, and SAP” for SaaS to gain widespread adoption; in fact, it’s probably best if the beheamoths stay out of the way and let the disruption happen on its own.  They’re too big and too entrenched to embrace SaaS (or any type of truly disruptive technology) internally, so there’s no point in waiting for them to get on the bus.
2. “…for SaaS to make major headway and lure over the resistors, it needs to achieve a near-perfect record of uptime and availability.” Ain’t it the truth.  Raise your hand if you’ve heard, “I want five 9′s of uptime!” from the obligatory IT guy on a call, when said IT guy couldn’t define five 9′s nor had he ever achieved anything close to it in his own shop.  But it is what it is, and even if Salesforce only goes down for 40 minutes a year, those 40 minutes will be brought up by IT every time there’s a perceived encroachment on their turf.   Mary could not have said it any better when she writes, “Everyone knows that there is no such thing as 100% uptime, but a lapse in service is even more unsettling when an IT manager can’t dispatch his or her own staff to fix the problem. Such lack of control creates a psychological barrier to SaaS for some IT managers, and to overcome that barrier, SaaS needs to be near perfect.” So let’s just put the argument to bed and achieve the “five 9′s” of uptime.
   
3. “Companies are turning to SaaS to lower costs and complexity. But unless a business doesn’t mind keeping that software service separate from the rest of its operations — which typically run on on-site, licensed software — it has to integrate the SaaS with its onsite applications…and for SaaS to truly succeed, SaaS providers must do more to make integration easy.” Absolutely.  This is arguably both the biggest challenge and the biggest opportunity for SaaS providers at this stage in the game.  If you’re not going to rip out enterprise software in favor of SaaS, you need to integrate with it.  This is why situational applications have such enormous appeal right now – they combine the power and flexibility of SaaS, but do so with a “take only what you need” approach to integration.  It’s an incremental approach to adding value that has much more appeal than trying to add additional layers of complexity through comprehensive integration architecture.
4. “What’s needed from the analyst community are more detailed research reports on the total cost of ownership of various SaaS applications with comparable on-site software applications…If SaaS providers visited potential customers armed with objective, in-depth research that supported their claims of SaaS’s superior TCO over licensed software, they’d have a more convincing argument.” Amen.  You hear the ROI and TCO arguments made to seemingly no end, yet the quantitative and objective support for these arguments is thin at best.  Hopefully Gartner has this high on their agenda, because the last piece of research that they released on this topic was fairly high-level, and is now almost 16 months old.
5. “The SaaS model is clearly a difficult one on which to make money, since SaaS providers don’t get the millions of dollars in up-front licensing fees that they can then pour into operation and research and development.” Ugh.  This is the elephant in the room.  We’re all struggling with this one, and struggling even more mightily in a brutal selling environment.  At the end of the day, the purging that our economy is going through right now is forcing us to find innovative ways to survive, and ultimately one had to believe that this will necessarily lead to innovative (and of course profitable) SaaS business models.
6. “…in many cases, SaaS is more about choices in configuration than software code that’s been tweaked beyond recognition to fit the needs of a specific customer. That’s why SaaS providers will need to convince customers that options in configurations are an acceptable alternative to customization.” We’ll go out on a limb here, but in most cases this one is inextricably linked to the same psychology as the downtime argument.  Just as IT departments think they can do a better job of keeping the lights on, many organizations think that their business processes are completely unique and that every software deployment must be completely customized.  That’s an argument for another day, but ultimately the responsibility is on the SaaS community to demonstrate the value of multitenancy before the argument can be made that the collective wisdom of the community provides best practices that are built into SaaS releases and given back to the community in what amounts to a virtuous feedback cycle.

Great article, we highly recommend heading over to InformationWeek for a read.