Sightings in SaaS

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.