There is a prevailing view that I see in the press and blogging world that business application software is moving inexorably to the SaaS model. It is true that you would be hard pressed to find a vendor who started in the HCM software market in the last five years that did not utilize the SaaS model. However, does that mean that vendors that started with a single tenant, perpetual license, on-premise installed solution are tomorrow's legacy vendors? No, not necessarily. The implication has been that if those vendors do not rearchitect their solutions (or create next generation, multi-tenant solutions) they are going to be displaced. I am not going to address this perception directly. Instead, I want to try to make the case that a vendor can offer a hosted solution that delivers many of the same benefits if the vendor has the right discipline.
Let's take some of the key perceived benefits from SaaS and see how a hosted solution might meet those needs:
- Lower up front costs - There is nothing that would prevent a vendor from offering an on-premise or hosted single tenant solution with a subscription license (some vendors already do it)
- Easier upgrades - There are things that vendors with single tenant solutions can do to make upgrades easier for customers. First, they can offer remote application management services to customers (some are doing this already) where they can apply patches, updates, and new releases for the customer at their site. They can also host the solution for the customer and do those activities as well. This does not deal with the difficulty of the upgrade (if there are many customizations or changes in the data model with the new release), but it can help. There is no reason that vendors of single tenant solutions cannot work with customers the same way (at least moving forward) as SaaS vendors do - just do not allow customizations that impact the ability to upgrade. If they host the solution, they can enforce that discipline
- More frequent new functionality delivered - There is no reason that traditional vendors cannot do this. SAP has demonstrated that it can do it with its switch framework and enhancement packs (they started with enhancement packs every 3-4 months, but have scaled back to every ~9 months because SAP felt customers were having trouble adopting the new capabilities that quickly). It becomes more of a question of resetting customer expectations and patterns. SaaS sets this expectation and enforces the discipline, but that does not mean the discipline cannot be applied with a hosted solution.
I think you can see where I am going with this argument. The effectiveness of SaaS is as much about the discipline it enforces in implementation and upgrade practices as it is about technical architecture.
Now, I also know I am going to hear about the ability for vendors to cost effectively deliver this - SaaS has inherent advantages right? There is truth there. However, there are technologies that can help lower hosting costs. Virtualization technology can make it easier to manage multiple instances (and keep them in sync in terms of release levels). Grids and Blades can make the hardware environment less expensive and more scalable. Cloud computing also can help make the compute services used more elastic (think development and test environments that do not use production data).
Does that mean a hosted, single tenant solution can match SaaS on economics? Maybe not, but I am not sure it has to, it just needs to be in the neighborhood. The real challenge is the discipline. Can the vendor resist the temptation to allow customization and increase the tempo of new functionality delivered?
So, what am I missing? I did not try to detail every benefit of SaaS, but is there a flaw in the logic? Let me also mention that I am a big fan of SaaS as a delivery model (before the flames start to be thrown). I just do not think it has to be the only game in town. As far as I know, no single tenant solution vendor has ever tried to do hosted offering where they enforced these disciplines. If you know one that has, please comment.