Enterprise 2.0 SaaS: Customer Benefit or Vendor Convenience?

This is the second of a series of posts on my take aways from the Enterprise 2.0 conference in Boston.

My customers and I debate the applicability of SaaS to their operation on a regular basis, using garden variety criteria such as process alignment, cost, ease, integration, security and the like.

A new dynamic hit me after chatting with multiple SaaS providers at the E2.0 conference:

A good number of E2.0 SaaS solutions unfortunately had little to do with the customer. The decision to go SaaS was largely an inward convenience.

The SaaS Foundation

During 2007-2008, many Venture Capitalists bet on the model that Salesforce has proven out, hoping to emulate it in the E2.0 category. Compared to traditional on premise software, SaaS organizations proposed a reduced operational capital outlay thanks to write once, publish everywhere code, low or no-touch sales via online purchase & provisioning, and flattened marketing costs via free-mium models & platform ecosystem distribution (e.g. AppExchange). And so we see this foundation in many E2.0 providers today.

Enterprise 2.0 Market Reality

Now, superimpose this SaaS operational design on some of the current realities in the Enterprise 2.0 space. Note: I’m talking about larger customers.

• Not one vendor with whom I spoke, on-premise or SaaS, was ready to declare wide scale adoption. It’s tough stuff. And it’s clear that it requires expensive headcount to effectively drive awareness and usage, post deployment.
• Annuity pricing seems to be most palatable for the buyer whether its SaaS or On Premise. So if adoption/applicability starts to wane, don’t expect a check next year.
• Integration is not optional. Whether light weight directory integration or deep application level integration, it’s become the price of entry.
• Integration is not enough. You’re still risking contributing to a silo’d organization and that runs counter to the principles of collaborative environments that E2.0 promises. Unless greenfield, what’s needed is deep association with incumbent ERP /ECM driven activity.
• The most striking lesson from last week’s shocking demise of on-demand BI vendor LucidEra (Hat Tip: Dave Rosenberg | cnet) is this: Customers do not necessarily want simple solutions – in fact, they often need ridiculously complex, often personalized systems to effectively drive business acceleration. What they’re really asking for is simplified experiences that mask them from behind-the-scenes voodoo. Many SaaS vendors seemed to confuse these two distinct requirements.

Salesforce had 2 significantly distinct characteristics going for it that led to critical mass. An individual could drop a credit card and start using the service. Enterprise 2.0 on the other hand is predicated on network effects. Second, Salesforce is used as a standalone application in many use cases. But true Enterprise 2.0 enabled transformation without cognizance of other applications? Not very effective for many organizations.

Now, is all of this pertinent only to E2.0 SaaS providers? Nope. On premise providers need to deal with the realities stated above as well. However, from a organizational design perspective, SaaS only offerings are financed and built to do business with very few marketing, consulting and sales resources and with a one size fits all offering.

On-premise solutions on the other hand are funded like old school enterprise software companies and their financials account for head count to be successful. And so, whist they are also facing tight budgets in this economic climate, they may still be better suited to offer internal integration and adoption services. Or a financially attractive VAR/SI offering.

Product Development Motivators

I couldn’t shake off the nagging feeling that many newer SaaS vendors were more excited about the ease of SaaS being a way to reduce their own acid reflux problems. Sure, agile, iterative development is good for the customer as well. But these benefits need to be weighed against the goal of creating silo busting, well adopted, real time enterprises for customers. And that requires labor intensive adoption and clever integration assistance.

Many SaaS vendors (focused on all market segments) also seemed to be clearly seduced by the ease of integration with other cloud solutions, void of relevance to the target customers incumbent technology footprint. Google Apps before SharePoint. Wikis over ECM. More Salesforce, little to no SAP/Oracle. Again, convenient for the provider, not always relevant to a lot of customers.

Closing Thoughts

I’m in no way asserting that SaaS is a bad idea across the board. I absolutely believe that there is a model somewhere out there for cloud and SaaS offerings for large customers, despite recent high profile hiccups from Amazon and Google.

However, SaaS is not an optimal solution for every business problem and every customer. Providers need to look in the mirror and be brutally honest with themselves about the motivations around their SaaS strategy and its relevancy to the customer. I’ve already heard of instances of business changing hands between E2.0 vendors at this early stage in the game, for these very reasons.

Having had led over scores of sizable strategy and technology sourcing engagements, there’s no debate in my mind about one thing: In a bake off, a vendors true motivations become very transparent to smart executives involved in the selection process. Once you get past emergent Enterprise 2.0 embracing and it’s time for the big leagues, this stuff matters.

Bernard Lunn at ReadWriteWeb writes an excellent post (link below), asking “Why Enterprises Don’t like SaaS”. I think it’s because subconsciously Enterprises sense that SaaS purveyors are saving all the fun for themselves.  -)

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Posted On: June 30, 2009

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• SaaS and Cloud

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Written By: Sameer Patel

SVP, Enterprise Social and Collaborative Software, SAP