Sightings in SaaS

Archive for October, 2009

Brian Sommer at Software and Services Safari has an excellent article today which I have summed up in the title. My takeaway is simply that as cloud based software services open integrations to other clouds and manage those integrations, they multiply the power of their individual clouds and create a computing environment that the on-premise companies cannot match.

With the multi-tenant capability of SaaS, the vendor manages the upgrade process. Therefore, the client base is always on the latest release. Integrations between SaaS applications are therefore easier. But more than that, as SaaS vendors themselves roll out the integrations, they also manage the integrations. Take the example of NetSuite and OpenAir, or NetSuite and SalesForce.com. These integrations are generated and managed by the vendor itself. Were these three vendors offering on-premise applications, creating and managing the integration of the apps would reside with each individual customer. 

Just think of it. Each customer hiring an employess or using an outside consultant to create the integration. But with SaaS applications, the integration must only be created once and then all customers, all running the same version of the SaaS, can use it. It’s a remarkably efficient way to perform integrations. And don’t even talk about maintenance. With home-grown integrations the authors were often employed full time to maintain the code. That is now off of the customer’s plate and back where it belongs – with the vendor. The customer is therefore the recipient of value based solely on the fact that are part of a larger network of SaaS applications. The vendors benefit from the same network effect. 

As SaaS applications move upstream in the marketplace I look forward to the amplification of this SaaS network value. Larger companies for example will require HR Talent Management applications, applicant tracking and benefit management. As these SaaS offerings are integrated with Accounting and Service Resource Planning SaaS, like OpenAir, they also will benefit from this network effect.

NetSuite’s strategy in purchasing but not swallowing OpenAir whole, as some have worried, is now more obvious: NetSuite is stronger with OpenAir as an integrated SaaS than they would be if they simply incorporated OpenAir’s functionality into their own and moved on with a bigger, but less networked, Suite.

I spent some of my weekend playing with NetSuite’s 2009 R 2 and found a couple of things that relate to current clients trying to solve difficult problems.

First, in a nutshell, is the problem of selling software into a large organization. For example, think about CAD software. Each engineer needs a seat, but engineering might be spread around a large company, spread across the globe in some cases. So company XYZ is already a client, but you are still actively selling to other divisions and engineering teams. How to manage all of that data, all of those people.

The new Lead Converison process is the answer. Bring in the new leads of Company XYZ as individuals and work the lead as you normally would, with the addition of the new data fields on the Qualifications tab. As the sales person makes progress in qualifying the lead, they collect the data and at some point decide that the lead is ready to take the next step into the sales process. There is a new button on the lead form to Convert the lead, and this brings up a form which allows the sales person at this point to create a new opportunity, change the lead to a prospect, create a sales task, assign the lead to a sales territory and, finally, merge this lead with the parent company – while keeping a history of both separately.  It’s very smooth and well thought out, and again a great solution when you are selling into multiple divisions of the same parent.

To get there, you’ll have to make a few small admin changes, like enabling the lead conversion process and also setting up a general preference to treat all leads as Individuals. If you are currently using NetSuite there are some good points to consider in the online help for how to make the changeover. Not difficult but you should consider them carefully before pulling the trigger. 

Also, you will have to abandon the current workflow that you may be using in NetSuite, where a lead changes to a prospect when an opportunity open. However you will not sacrifice any functionality in the changeover, as the new Lead Conversion process, detailed above, helps you to manage this workflow and much else as well. 

This is really a godsend for companies who sell into multiple divisions of a parent company and need to maintain relationships with dozens if not hundreds of contacts at a single company. Using the new lead conversion process will save them many hours of input but also help them to collect better data from their online forms and marketing campaigns.

Recently one of our NetSuite clients called with a big problem. They are continuing operations in the UK, but the US operations are being put on hold as they wait out this ugly recession. The US ops run on NetSuite and they needed to trim costs as much as possible while keeping a financial history of the business, which 2 years ago was brisk with a bright future.

NetSuite offers of lower cost version for small companies, NetSuite Limited License Edition, but the limits are normally 5 – 10 users and my client wanted only one user. Does not seem like a big deal, and it wasn’t. NetSuite issued a renewal and the client now has the least expensive option until the market turns around and they can return to active operations.

I really did not think twice about the whole thing until I read the following today:

SAP (like Oracle) has so far refused steadfastly to accept partial maintenance cancellations. While this is (from the vendor’s point of view) quite understandable, it can lead to very unpleasant situations that are not without legal issues.

Case in point: a recent insolvency in Germany. A mid-sized company filed for insolvency and failed to revive the troubled enterprise. There are still orders that must be served but in a few months the lights will be out.

Most of the 350 users of their SAP system are gone. Only about 50 are left and, of course, the HR-system is required to pay the residual staff. Closer to year end, a few legal updates will have to be fitted to the SAP-HR-installation.

The administrator, in an attempt to make sure that staff can be paid, asked SAP to accept a partial maintenance cancellation for 300 seats – very appropriate especially in light of the upcoming increase for standard support.

SAP refused to accept the partial cancellation. Either you cancel in full or you pay in full.

Ouch – that’s being damned miserable to a company that is experiencing possible end of life issues.

I know for certain that when our client moves back to full operations in the US they will have some loyalty to NetSuite, who cut them some slack when they really needed it. Why do companies not expect the same from the big on-premise vendors? I can’t say for certain what the psychology is that keeps so many taking it from these vendors for so long. But at some point there will be alternatives and I cannot imagine that some companies don’t finally say enough is enough.

Several articles in the press and blogosphere recently have caused me to stop and think about the future of SaaS, software as a service, and NetSuite as well, one the earliest SaaS adoptors.

First, let me say that SaaS metamorphosed over the past few years from a novel, even radical, idea and market disruptor to a mainstream technology component, one of many that companies of all sizes must consider. When we first started to blog many years ago we considered ourselves SaaS evangelists out on the frontier. Now we are just mainstream preachers and the flock is also more mainstream. Things change.

Witness this article by fellow Enterprise Irregular Phil Wainwright. Phil makes the point that NetSuite has now started to market its integrated suite differently:

Perhaps more SaaS vendors should take a leaf out of NetSuite’s book. Instead of going on about the lower cost and faster time-to-live of their solutions compared to conventional software, they should just point out that operating in the cloud is how business is done these days, and anyone whose business systems operate anywhere else is going to get left behind. It’s as simple as that.

There’s some truth here but it still seems hard to believe that we have now passed the tipping point for SaaS over on-premise software. But one wonders how this will flesh out over time. I don’t think that a lot of the large organizations that run Oracle, SAP, Peoplesoft, etc. are racing to rip and replace. The implementations of these products are not even finished in many cases and that is after years of effort.  As I have written in the past, many of these systems are mere shadows of what they could be but management has seen so many budget and timeline overruns that they are very tentative to continue. On the other hand they have no appetite for declaring defeat either, especially to the board and the market. So they continue to pay the big bucks in annual maintenance and keep a low profile.

NetSuite has taken an interesting tack here, and perhaps it was born of necessity, but going after the small divisions of large enterprises running SAP and offering discount prices (= SAP Maintenance $) is good marketing and will eventually create a situation where NetSuite can surround SAP  and convince management through use and adoption while at the same time continuing to mature as a software offering. NetSuite has made no secret of making SAP in hte mid-market their target.

Apart from this SAP strategy NetSuite is also taking aim at the services market, with the goal of creating a Service Resource Planning suite, SRP, to rival in the services market what SAP did in the products market. NetSuite has already made two acquisitions on the on-demand Professional Services Automation, PSA, market: Open Air and QuickArrow. The best of both of these companys’ offerings will play a role in the final product, I’m betting. CEO Zach Nelson drops a hint here. The bottom line is that NetSuite looks to move upmarket. After starting as NetLedger they have now a strategy in place that will over time move them into some very large enterprises.

Taking all of this in you start to see a market disruption, SaaS, coming together as a series of well planned strategies to build up into the market, each small step leading to the next. This is happening not only in the ERP/CRM space but also across the SaaS space  – HR, CRM, E2.0 social enterprise tools, etc. This is very different from the strategy that Oracle and SAP used to go to market in the original ERP invasion of the 90’s. Supposedly SAP worked on their software for 20 years before bringing it to the market, and they went directly at the largest enterprises. They seem to have a similar approach with their SaaS offering which they’ve been tuning now for three years, running the risk of running out of people’s patience.

Oracle also started out aiming at the largest enterprises. I have to laugh when I think of my nine year career with Oracle. The software that we really needed on my first implementation in 1997 was finally ready 9 years later on my last implementation – a single time entry system that could feed payroll for employee wages and projects for billing and costing. I was the first to implement it for multiple modules.

NetSuite and other SaaS vendors are starting with less functionality and smaller enterprises and then rolling out more functionality as they move up in the market space. NetSuite’s stated goal is to become the SAP of the midmarket, and it is well on its way. SuccessFactors, another SaaS vendor,  just sold a huge deal to Seimens AG in the HR space. 

The point here is that SaaS vendors have necessarily rolled out sounder software, more methodically, than their predecessors. But the march of more and better functionality has become relentless. This is how they will finally beat a lot of the on-premise software vendors.  The tipping point will go by quite unnoticed, unless of course we keep someone at the front who calls out ‘tipping point’ every fifteen minutes or so.  It will be a fairly quiet revolution. Conventional software will go out not with a bang but a whimper.