Sightings in SaaS

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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.

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.

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.