Well, actually it's to rent or to buy, but it reads better if you paraphrase The Bard.
If we want electricity in our homes, we don't dig up the garden, build a generator and produce our own power. Instead, we go to a power company, buy as much or as little from that company as we need and then pay a bill on a monthly or quarterly basis. If we need more electricity in any given period, we pay more s we use it, but if we then need less, we pay less. That's how we have been conditioned to buy energy.
The enterprise software model encourages organizations to 'build their own generators' - often at some considerable cost. Buying an enterprise solution from a software vendor incurs considerable up front expenditure: the software licenses, the hardware to run it on, networking, project management costs and so on. On top of that, add maintenance and support costs year on year as well as the inevitable upgrade whenever the vendor decides to add a new piece of functionality....it all becomes very expensive and inflexible. That's how we have been conditioned to buy CRM software...until now.
"Essentially, (Software as a Service) SaaS can be described as software delivered through an on-demand business model," explains Robert Bois, senior research analyst in AMR Research's customer management practice. "It is important to distinguish that SaaS is fundamentally different from traditional application hosting. This leads us to the concept of single tenancy, multi-tenancy, and mega-tenancy.
"In the traditional hosting model referred to as single tenancy, a service provider licenses an application from an Independent Software Vendor (ISV) and remotely hosts and manages the application, typically for a start-up charge and a monthly maintenance fee. In contrast, the SaaS model makes use of software architecture called multi-tenancy, in which one instance of the software and data model is provisioned to multiple customers, and can continually monitor and adapt to changing customer usage on demand. Some vendors now refer to multi-tenancy as the more impressive sounding mega-tenancy. The two are fundamentally the same, but 'mega' helps imply the ability to scale, particularly to large enterprise deployments with thousands of users. In practice, SaaS vendors often provide blends of these models to balance cost effectiveness and scalability.
Benefits derived from SaaS have helped overcome a number of stumbling blocks, most notably in customer relationship management (CRM)." Highly publicized implementation failures and rumblings of user adoption problems with on-premises projects have left a wake of shelfware, frequently coloring customer management as a riskier investment. The SaaS model, however, directly addresses many of these objections, therefore making it an attractive, lower risk option for small and large enterprises alike."
So what conditions are creating the new market opportunities for SaaS vendors? For a start there's the radical disruption in the existing industry landscape. Among the traditional market leaders in the enterprise applications space, there has been considerable consolidation, led by - of all companies Oracle, whose CEO once famously - and perhaps now regrettably - sneered that it was easy to write checks, not so easy to write software. Oracle is now working to pull the multiple code streams that it now finds itself with in its CRM portfolio under the banner of Fusion. This will eventually result in the emergence of a single code base and a next generation applications suite and many in the industry see this as a direct response to the rise and rise of web based and hosted CRM solutions.
Analyst firms are taking a softly softly line on such grand schemes and advising a degree of caution in new investments. But companies can't just stand still with their IT implementations. The SaaS model offers a way for organizations to deploy tactical CRM implementations to complement existing investments without having to commit irrevocably to a new vendor. From a SaaS provider's point of view, this is a way into an enterprise and a chance to prove the viability of the on demand model.
Then there's the economic argument. Every CIO in the world faces the same demands from his or her senior executives: do more with less. Every time the CIO goes to the board and asks for more money for another CRM implementation or an extension to an existing deployment, eyebrows are increasingly raised. Didn't we pay for CRM last year? Or five years ago? And where's the return on investment?
Millions of dollars have been spent on applications from the likes of Siebel and SAP, yet much of what has been spent sits unused on shelves. According to figures from market analyst firm Gartner Group, over a one year period some 42 per cent of CRM licenses went unused at an estimated waste of $1.2 billion that could have been spent more effectively elsewhere.
One of the reasons for this is the pricing model that most applications vendors have adopted over the years. Users have grown accustomed to having to buy in bands of licensed users - e.g. up to 50, 50-100, 100-500 and so on. That means they need to calculate not only how many users are likely to require access to a particular application, but also predict some slack so that they can add more on easily as needed.
Most companies err on the side of caution, particularly in good economic times. So a company that needs a 251 seat licence will end up buying a 300 seat licence because that's the user bracket they fall into. That 49 of those seats are never filled is an unfortunate fact of life.
Such questions do actually play into the hands of the pure play SaaS vendors. Essentially, all the hosted applications providers make the same basic claim: it's cheaper to do it this way. Using a hosted model, you pay a monthly fee per user. You pay for as much or as little as you need at any given time. And if you no longer want to use the software, you give notice and switch it off. With a hosted model, companies can scale up and down as their needs dictate and you pay for what you use and only for what you use.
The dog that hasn't yet barked in the great debate is Microsoft. Officially the party line is that Microsoft CRM is deliverable on a hosted model, but through third party partners, not directly through Microsoft. That said, Microsoft is making more moves to making it easier for these partners to host its applications.
But if you want a clearer idea of Microsoft's long term ambitions, consider Bill Gates warning to Microsoft developers: "This coming 'services wave' will be very disruptive," he said. "Services designed to scale to tens or hundreds of millions will dramatically change the nature and cost of solutions deliverable to enterprises or small businesses." In other words Microsoft perceives a threat... and when Microsoft perceives a threat, things start to happen very rapidly. The last company to underestimate Microsoft's ability to turn on a coin was Netscape...and we all know what happened there.
It seems clear therefore that the SaaS model is rapidly coming of age and that web based CRM solutions are at the forefront of that wave because they are so easy to roll out and define separate to the organization's main operations.
Chic McSherry
CEO
iport4business.com
sources: Gartner; CMC; AMR Research
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