Sightings in SaaS

Archive for the ‘SaaS’ Category

This came across the wire earlier today, pretty good news for NetSuite:

Nucleus polled NetSuite customers to gauge their success and satisfaction with their decision to entrust mission-critical business functionality to cloud computing. Ninety percent of the customers surveyed rated their satisfaction as four or five out of five — satisfied or very satisfied, and no company rated their satisfaction below three. When asked to elaborate on the reasons for their satisfaction, NetSuite’s ability to drive cost reduction was mentioned as a key driver. By offering tremendous scalability and breadth of functionality, with little to no IT expertise required to install and manage, NetSuite has earned long-term satisfaction and loyalty. “Because the application has been validated by users as an effective tool in cost reduction, deployment footprints at existing customers are more likely to increase rather than decrease,” wrote Nucleus in the report.

I’ve long said that running a system, or especially, many systems, has a huge hidden cost. Some might get away with it by putting the brother-in-law in IT, but believe me there is no way that the systems you maintain do not have a cost, I don’t care who runs them.  And there is also a cost to the systems that you do not run, mainly in the time and effort people expend manipulating data on spreadsheets.

6,600 customers, that’s pretty good, too!

Over the weekend I met a fellow in a local hardware who was looking for some very unusual screws. We got to talking and I found out that he supplements his retirement pension by re-conditioning dental chairs, of all things. Evidently it’s a decent money maker for him and he enjoys the hobby.

The conversation started me thinking about the current states of software and how this might actually reflect the state of the economy overall, not just in this downturn but in long term fundamental changes in the economy.

Software is in harvest mode, just about everywhere you look. What is harvest mode? When products reach the end of the life cycle they are kept around because they still have some value and market cache. We don’t continue to invest in them because the investment will no longer pay off. So we simply harvest whatever revenues we can while keeping a very close eye on costs.

In the software world, there are actually companies that buy older products and continue to harvest maintenance fees for years, especially true in the software for busines verticals. A friend of mine who works in a local steel service center owns one of these. The company purchased the software 20 years ago to help them manage inventory, processing and scrap. Then about 8 years ago the company that wrote the software sold off to a harvester. They now have a single person who supports the code base, but the product is no longer actively sold. There are after all only so many steel service centers in the world.

But what we are seeing today is something completely different. We have non-vertical, on-premise ERP/CRM software that is being harvested by the company that orginally wrote it, in the case of SAP, or by the companies that purchased it, in the case of Oracle or Sage. One way or the other, it seems that all 3 companies have come to the conclusion that it is useless to invest money in their now graying software products.

SAP’s steady decline went by another hurdle this past weekend when the current CEO left unexpectedly and two guys were promoted into the top spot. You can read extensive apologies here. Oracle has almost 100 acquisitions under it’s belt, making it a software harvester extraordinaire. Sage also has a host of harvest products. In fact in the on-premise space if you aren’t being harvested, you are a harvester.

On the plus side, harvesting means that your on-premise system will continue to run and be supported, more or less, by someone for the foreseeable future. On the down side, this means that you will continue to pay a lot of maintenance fees for the foreseeable future with little if any new features/functions. You have software on life support, basically, and that is both costly and a sorry state of affairs.

Why this is happening is difficult to say because the reasons are nearly as numerous as the underlying products. Sage for example still has some products that are not real time, but instead rely on batch processing. You would think it makes sense for companies using something like this to look around for something new, more useful and modern. There must be two reasons that they are not interested in changing: The newer software does not offer enough value to pay for the investment and trouble to change; the company is no longer making the income it once did and therefore has little to spend and little faith in the future. There’s some truth in both of these, but taken together they really pack a punch.

Think about a company that wholesales/distributes dental supplies, a b2b business. There was a time when the population in their area was surging and dental offices popped up like flowers. They became a strong regional player with a one or a few competitors, and all of them did well. But over the past few years business has changed substantially. First there are fewer new practices opening in their region, and the ones that are there have begun finding better values online. They can deliver next day, but it actually costs them more to hire a driver, a cost that he must pass through to customers, than it costs an internet distributor to send next day air. Huge efficiencies have happened in their market, and all have squeezed their margins.

What does a company in this space do to compete? They could also sell online, but they don’t have the expertise in materials management nor the capital to bring to bear to run an enormous, national brand warehouse. So, like the software companies, they go into lockdown, or harvest mode. They continue to service their region, keeping a very close  eye on costs, but they are unable to afford huge new investments in the business. Including software. So they keep on with their old system and eventually they will run out of reasons to exist altogether. Meanwhile, dentists squeezed by better oral care buy used, re-conditioned chairs instead of new ones. These are also available on the Internet.

In short, the Internet has thrown a wrench into the works of many mainline companies and as a result they have turned off new investments in technology. When I go over my NetSuite client list I can see a lot of companies that we implemented the software service for but only 2 of the more than 90 companies are mainline wholesales/distributors . Interestingly, one of my first clients was an Arizona company called Lifestyle and Leisure Creations, a wholesaler of massage equipment and supplies who sold out to a larger competitor.

That’s probably a strategy that  a lot of businesses need to be looking at. Purchasing competitors, especially at current discounted prices, can be a useful way to expand your customer list and restore some pricing strength. But you still need to gain greater efficiencies and the best way to do that is to think about investing in better technology. If you have a growing company across a large geography, you need to see where you are everyday and at every location. It’s not good enough to just throw together results manually at the end of the month. This is how on-demand software as a service can really help. Your entire company can work off a single account of the software, giving you real time results from all branches, warehouses, etc. And you don’t have to add the very expensive computing infrastructure that used to be necessary.

Again, looking over our client list, I see a dozen brand owners. These are wholesale/distributors who have gone an extra step and now are also manufacturing the products they distribute, using third parties in most cases. Brand ownership is one way of averting the steady decline of growth death spiral.

If your margins are getting hit hard and you’re thinking growth through aquisition or  brand ownership is the only way to continue the company, then you have to consider on-demand software. Like you, it operates unbounded by geography. And while on-premise software continues to struggle, NetSuite’s SaaS ERP/CRM grows and takes their customers.

Every once in a while I write a post that’s crazier than most. These normally happen late at night when my internal defenses have given way to a glass of wine. This post is along those lines. The basic question that I’ll try to answer is “Will the Cloud and SaaS save the current roster of Enterprise Software from the Dinosaur like extinction of its forebears?”

I’ll start by asking what  can you expect if you travel around the world looking for a tasty chicken dinner?

In Vietnam you can buy a live chicken, rest is up to you.
In China you can buy a chicken that’s been killed, you pluck and eviscerate and cook.
In Paris your chicken has been plucked, you eviscerate and cook.
In Des Moines the chicken has been plucked and eviscerated, you cook.
In New York the chicken arrives on your table plated, garnished and sauced

Now it may not seem like the world of software and the world of chickens have a lot in common, dear reader, but don’t give up yet. There is a point that I want to make here. A recent conversation with the Enterprise Irregulars around the difficulty of moving ERP systems forward with the business brought some interesting ideas to the fore. It all got started with an article by the now famous, in these parts, Thomas Wailgum in CIO about a study partly commissioned by CIO and Enterprise analyst IDC concerning this very question. Wailgum’s title says it all “ERP’s Paralysis Problem and the Repercussions for Businesses Everywhere.” The repercussions, as you might have guessed, are not good.

First,the premise, more exactly, is that ERP systems can prevent companies from seizing business opportunities because the systems are lumbering giants not given to flexibility, agility, growth and change. This leads us to conclude that the deeper the functionality of the ERP system the greater the difficulty of meeting business opportunity challenges. ERP in other words suffers from the New York Chicken problem: Once it’s served there is no turning back. You can’t change the recipe or cooking method at that point.

It’s an interesting thought. I am not sure that it is 100% on the mark, but having worked with Oracle ERP software for nine years I can attest from personal experience that there is more than a grain of truth here. Brain Sommer has a good post about some of the real sticking points in ERP systems that make changes and additions so difficult. This one stuck out:

5) Code block insanity – Just because your accounting modules can support a 30 segment code block doesn’t mean most companies should use this. Moreover, what views a company will want in its code block will change over time. Unfortunately, most financial software products (and all the feeder systems that supply accounting transactions to them) make changes to the code block akin to a complete re-install of the software. Nothing brings rigidity to ERP like the code block.

I’ll take the thought one step further – why do we have a code block, this huge accounting nightmare that attempts to pump all possible corporate knowledge about what the company sold and purchased into the general ledger from the subledgers where the transactions take place? When they began to create software for financial transactions they had only a general ledger, so to see as much data as they possibly could they tagged all the transactions in ht GL. Business software became accounting centric, and remains so even after real time relational systems came on board with multiple subledgers that can report out vast quantities of detailed information. Why do you have to update the GL with sales data when it exists in such fabulous detail in your CRM/Order Management system?

So what does a large enterprise do? They run Oracle, SAP, or something similar. Does the enterprise just forgoe new opportunities? I can’t imagine that , especially since the people who run large enterprises normally come out of sales and sales is where most of the new opportunities get their start. These folks are not going to be patient for long. Eventually the line of business, lob, will go ahead and start to do whatever they have to to tackle new business, even, in many cases, if that means writing custom software.

Now, developing custom software may not seem like such an odd pursuit to you and you would be correct – if it was the 1980s or earlier. But when so many large enterprises went to systems like SAP and Oracle they lost their development teams. That was the cost justification of the new ERPs. In the bad old days all large companies employed large teams of developers who built their custom business apps from the ground up on what came to be know derisively as legacy platforms, from IBM, Burroughs, etc. Coding custom software is like the chicken in Vietnam or China. Well, at least now you have more refined tools and platforms, so we will say it is more like China.

Well, apparently the wheel has turned again. Large Enterprises are again back to the custom software job enthusiastically and doing it with the aid of all the modern IT tools, platforms and business models – outsourcing, offshoring, onshoring, LAMP stack, Cloud, Free Open Source Software, you name it. They are coding software at a pretty good clip evidently, again in an effort to meet business opportunities.

Being on the cloud and developed in the SaaS, software as a service, model may help some of the newer entrants to the Enterprise software market avoid the New York chicken problem because the cloud can give a company greater access to partner software add-ons. But that is not a given. They must still walk a tightrope between offering a robust application that includes most basic needs while giving the Enterprise with more complex requirements a path to customize those requirements using the applications itself. Every NetSuite implementation, to be perfectly honest about it, requires a fair amount of explanation of what is not possible. You can run a lot of business processes in the system with no further customization and coding should be rare, but to have a system that truly represents your business today and your meets future opportunities, you will need to customize a quite a bit and code a little. It’s not an easy tightrope to walk obviously, and the balance struck is a subjective proposition.

However, I would also submit that every buyer contemplating the decision to move to one of these new enterprise systems should have a hard discussion about how much they want to customize and code, and how to do it in a way that prevents them from falling into the New York chicken problem themselves. For my part, I suggest that clients hold off on any customization except the most absolutely vital, and wait to add code completely, until you are live for six months. You will be surprised by how much your requirements will change once you know and understand the system.

The myth, not sure if it is still current, that SaaS prevented customization, has largely been itself eviscerated by Netsuite’s Business Operating System and Salesforce.com’s Force.com development platforms. These systems are not only open and customizable, they also encourage customers to make the applications meet business opportunity challenges.

Only time will tell if SaaS Enterprise vendors avoid the same fate as their older brothers like SAP and Oracle, but it is a good time to ask the question. Who would have thought 10 years ago that ERP would end up costing you money?

There, done. It had to be said and now it has been said. I no more liked saying it than you liked hearing it, but the truth will out, and now it’s done. Take a deep breath.

By not only having a financial software company write a new version of their software on the force.com platform but by then entering into a joint venture with said company to market the newly combined CRM and Financial software product, Salesforce.com validates what we have been writing and saying these five years: To wit, it does not make sense for Small and Medium Enterprises, SMEs, to try themselves to patch together various applications when there are integrated products already on the market. Integrated apps, as in a suite, are an enormously beneficial idea for any company but especially for the SME who does not have the time, manpower or cash to build bridges from one app to another.

In our long experience it is only the largest enterprises that have the necessary resources to pull off the interfaces between applications, and even then it is usually not done well. And to be perfectly frank, integrated suites are not perfect either; I make no argument to the contrary. However, when you are making the decisions for your SME you do not have the luxury of considering a best-of-breed-applications-stitched-together-and-maintained-by-professional-IT-staff approach to your business. It is simply not in the cards. Even if it were you will have a hard time explaining to yourself, and any one else who might be listening, why so many organizations across the world and across so many industries have abandoned the best of breed approach for their core applications and gone to an integrated suite (Oracle, SAP, etc.).

When we talk to SMEs who currently have several key applications from various vendors running core functions in their company they normally run them in complete silos, using spreadsheets to paper over the disconnects. They have either abandoned their interfaces (we still have not met a company that uses the SF to QB interface successfully) or never even bothered with them. That’s reality.

Salesforce has evidently seen the light themselves. I will hazard the following prediction: Over time SF will sell their standalone CRM to very large companies who have large, direct sales forces, and they will sell an integrated suite to the SMEs of the world. They really have no other choice. They are being surrounded in the SME market by a ton of CRM competitors who have matched their functionality. Add to this NetSuite and SAP’s redesigned Business by Design due out any year now and SF really needs to both differentiate its products from the Zohos of the world and confront the integrated suites as they take market share in a world newly interested in cloud computing.

So bravo to Salesforce.com and the newly minted FinancialForce. It will be a presence in the market, I have no illusions about that. It also validates NetSuite’s long maintained position that an integrated suite is the key to running a better information system and finally a better enterprise.

Thomas Wailgum writes some good articles and is frankly one of the few writers on the subject of ERP and enterprise software who appears to have some real knowledge of this market. His most recent piece on The Future of ERP is a sound reporting of the happenings of the last year since the world’s asset bubbles burst. A few of the ideas in this article really standout.

First, we have been as guilty as anyone of taking a Bridge to Far in our ERP thinking. Simply put, we believed strongly, and still have intense moments of remorse since we changed, in the idea of a single instance. A single database and application instance into which all corporate data could flow. We spent many years putting systems like these together for large corporate clients. We could recite in our sleep the benefits of an integrated single instance that would not require an army of personnel to manage the data links between varied and disparate systems. We were true believers in other words. Until recently.

NetSuite itself seemed like a godsend when we first started to work with it. Access from anywhere at any time. Pretty cool. The suite covers a lot of the business, but in some cases, we must reluctantly admit, it makes more sense to have several systems. We have seen many of our clients make links from NetSuite to another system, using of all things a Software as a Service integration tool – Boomi. NetSuite itself has also started to make some inroads into the small divisions and business units of very large enterprises for the simple reason that trying to install SAP or Oracle in these smaller, or small, units is not cost or time effective and in most cases does not work. Yes, we will even admit that the integrations required for the business units to communicate with corporate are much simpler today than they have ever been. We can use tools to map out the integration process and make point and click changes as needed. Not the bad old days of hand to hand integration, exactly.

In the background we also hear some other long resting ideas begin to stir. If we can accomplish integration less painfully, more efficiently, and have a more stable outcome then why not best of breed? Pick the best of every category and cobble them together. Our first inclination is to ask “Why bother?” If you have the opportunity to work within a single integrated system then why wouldn’t you? We’ll stick by this. In a lot of cases it just does not make sense to create an integration where it would be better to use a suite. But let’s face it, the snowballs in hell will be frozen solid before any of the well known SaaS vendors, NetSuite included, go to the trouble of building a strong HR module in their suites. It just does not make sense. The result is that small and medium enterprises need to integrate a best of breed product, which many of them are already doing. In many cases they use a SaaS HR offering.

So let’s be clear: We still believe in the integrated suite, especially when it comes to running the transactional revenue and cost processes of a business. But there are a lot of areas of business, depending on business size, model, complexity, etc., where the suite cannot by itself run the entire company. In these cases it only makes sense to reach out to other solutions, and with public API and web services the reaching out is not nearly as painful as it once was.

OK, we are all going for beer now.

It is being reported online that Oracle has started a significant RIF (reduction in force) process in their consulting division. ZDnet’s Irregular Enterprise  has a post about it today that brings up some good points. As a former Oracle consultant I wanted to weigh in as I think this is a worthwile subject to understand for folks thinking about on-premise software.

I went through several RIFs while employed with Oracle Consulting. The key thing to understand is that Consulting was told, in no uncertain terms, that it had to meet the same operating margins as software and maintenance, ~40%. Consulting charges $200 – $400 and hour for resources to work on implementation, yet it had a hard time meeting these margin goals.  That gives you some indication of how profitable on premise software and its annual maintenance fees are when a consulting division at these prices cannot keep pace!

Also, fewer and fewer are the organizations willing to spend top dollar for consulting help. In some cases you could hire two consultants for the price of one Oracle consultant and muddle through fine.  This makes it more and more difficult for Oracle to maintain the margins in consulting that it earns in software and support.  But customers have a point here. It’s not like the early days of ERP/CRM suites anymore. There are plenty of resources around now who understand these systems and who have done multiple implementations. Our NetSuite implementations for example average less than 100% of the price of first year licenses.

It’s important to understand, before heading into an on-premise software/implementation/support contract that the inmates have taken over the on-premise asylum and put the visitors, er customers, to work for them.

Salesforce.com on for example, and other SaaS firms, operate at much lower margins, under 10% in salesforce’s case and for NetSuite the operating margin is still negative.  Businesses of all types should expect good operating margins, but does it really make sense to have operating margins approach 40%?  This is a sign that the market is no longer competitive, that in fact a lot of on-premise software companies have locked in their customers and they can extract a pound of flesh as they wish. Not a good position to be in, if you are a customer.

How have they achieved lock in? Customers have spent so dearly to buy, implement and support the software over the years that all the players in the market know that to even suggest changing is waste of time. No one wants to have to bury the investment they have made in Oracle, SAP, Sage, Microsoft, etc.

Meanwhile small and medium enterprises are taking full advantage of less expensive software/implementation/support from a wide variety of SaaS vendors. It’s a real weakspot in the operations of many companies that they continue to escalate their commitments to on-premise software vendors that have done nothing but hustle them year after year.  Oracle’s operating profits may be great news to the buyers and sellers on the stock market, but eventually the customers have to take notice and ask “Why are contributing to our own mugging?”

Last week we talked about the idea of the SaaS to SaaS integration and how this network phenomenon could not be duplicated by on-premise software vendors where the same integration has to be built over and over again.  Today, we turn our attention to application upgrades and updates, bug fixes, additional new functions, both large and small. Is there an inherent difference between on-premise and SaaS in this area? What is it?

I chose The Big Dig in the title, referring of course to the massive construction project in Downtown Boston, because I think that there are interesting political and social questions that impact the discussion of how to improve software applications. Let me explain.

We now have so many touches of technology everyday that we can quickly forget how important it is to our lives – we can take it for granted. Until it doesn’t work, and then we notice immediately how much we lean on technology for our daily lives. In our greater experience, we have come to expect technology to work and we little patience when it does not. We also expect technology to improve, and we yearn for the next thing. The overall effect is to give more and more choice and power to individual consumers.

This power comes as a cost to those who currently hold power. There is not a lot you can do to manage the message when you have a population walking around with i-Phones or one if its competitors. In this environment what’s the best way to move forward? With massive projects that require highly concentrated bureaucracies? Or with smaller projects each of which offers slightly different choices.

Looking at it in this light, forced on-premise software upgrades look big, complex, incomprehensible and, finally, coercive, whether it comes from SAP, Oracle or Sage. As a counterpoint, look at the upgrade process of SaaS software. Most fixes and upgrades happen incrementally, the average user does not know how the software was improved last night while they slept. On a scheduled basis more important functionality rolls out, but in smaller customer batches, including several beta groups, over a period of time. The whole point is to make the roll out as non-intrusive as possible. The point of the on-premise roll out is to force customers onto the latest release so that the vendor doesn’t have to support more than a few releases at a time.

But why do on-premise customers balk at the upgrade process? Because it is very intrusive. It takes up a ton of time and effort, from the actual software updates to testing and testing and more testing. Remember, on-premise customers do all the work for an upgrade and they receive no benefit from the testing of other users.

No only is traditional, on-premise software intrusive to upgrade, but its upgrade process puts it behind the curve of the latest functionality. For example, take, as Anshu Sharma does, the example of Microsoft, just now releasing Windows 7. I am typing this blog on a notebook running XP, I skipped the Vista experience. That means that I have the functionality that Microsoft released 8 years ago. If I want a few new functions I could buy Windows 7, but then it will also be outdated a year from now. Of course, MS will not release improvements until they have enough of them that they can sell me another version of their operating system a few years hence. 

More and more the big, coercive on-premise software upgrade process looks like the massive, messy projects run by big bureaucracies. But in a world of the I-phone, Twitter and the blogosphere, coercion looks very antiquated.

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.

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.

Lyrics by the infamous Robert Johnson, screaming guitar by the legendary Eric Clapton Cream Play Crossroads. Why the blues reference? This is what SAP users do when their software version is iced and they are forced to upgrade, at the cost of several hundred thousand dollars, to the latest release or pay increased maintenance costs, as will happen to thousands of them currently running SAP R3 v4.6 and 4.7.

NetSuite’s recent initiative is therefore aptly named Crossroads, not that they had Eric Clapton in mind. What NetSuite is thinking is that as many large companies with dozens if not hundreds of divisions, many of which may be running SAP at a huge cost, many others which have still not migrated to SAP, face the decision to upgrade or pay greater maintenance taxes over the next few months, they have an opportunity to look at other alternatives in the marketplace. No, NetSuite will not replace SAP at the Corporate office, but large companies can deploy NetSuite successfully at the division or business unit level, at greatly reduced costs. And using one of NetSuite’s integration partners, we have used Boomi successfully to integrate applications with NetSuite, the division can roll their results up to corporate without a problem.

I have seen this exact scenario play out in an Oracle ERP implementation earlier in my career. The client was a Fortune 100 employment services organization that was opening offices across the globe. But there is no way to roll out Oracle to such small business units. So they found a smaller software package and implemented it at several of these offices. Unfortunately at this time there were not the internet based services available to them and results from each office had to be sent via ftp to corporate and manually consolidated.

Today the situation is both the same and better. The same business requirements exists for far flung business units but with NetSuite they could all operated under a single account using NetSuite’s SaaS OneWorld, with multi-subsidiary, multi-language and multi-currency functionality. Using one of the integration partners the NetSuite OneWorld results can be electronically consolidated with Corporate results. What an enormous improvement. If the parent company has actually forced the divisions to run SAP, or try to run SAP or Oracle, then the advantage is even greater: Jettison the resource intensive package and roll out NetSuite for literally pennies on the dollar for what is costs you to run and maintain SAP or Oracle.

The press has covered the announcement pretty well here,  and here and our friend Vinnie Mirchandani has also jumped in. Whatever the take by the press, NetSuite is absolutely correct in doing everything they can to highlight the awesome efficiencies they can offer in the business unit/division space.