Learn.com SaaS vs. ASP TM The Knowledge Platform
Introduction As the momentum for software-as-a-service (SaaS) continues to grow, many vendors are rushing to claim that they offer SaaS solutions. Unfortunately, a significant portion of these companies are not offering SaaS solutions at all, but rather application hosting. For all but the most sophisticated of buyers, these distinctions may be difficult to spot. Given the vast differences in the business benefits, risks, and costs of each model, it s imperative that buyers better educate themselves regarding the benefits and characteristics of a true SaaS solution. 1
Definitions Multi-tenant SaaS? ASP? Hosted? One of the problems buyers face today is the fuzziness of the language. When a vendor says web-based, on-demand software, many buyers assume a multi-tenant SaaS solution. But most of the time, the vendor is really just describing a prettied-up version of application hosting, which has none of the benefits of an SaaS model. Application Hosting Application hosting started in earnest with the widespread adoption of enterprise resource planning (ERP) and customer relationship management (CRM) solutions. Many organizations realized that they didn t want to be in the business of maintaining the databases and information technology (IT) infrastructure necessary to support their ERP and CRM implementations. In response, vendors offered to host these applications over the web, effectively taking ownership of significant IT costs and overhead. Since these vendors could share databases and infrastructure, the application hosting model provided cost savings to the clients with minimal downside risk, provided both parties properly addressed security, bandwidth, and service level agreements. While the application hosting model provided limited cost savings and some efficiencies of scale, many of the core challenges related to traditional on-premise software persisted: Clients were still using their own particular version of the software. The only significant difference was that the software was installed at a vendor site and not locally. Clients still demanded their own specific customizations, resulting in code changes and custom software. Clients upgraded to new versions on their own schedule. To support these client behaviors, vendors typically maintained and developed multiple versions of the application for years, and with each passing year, the disconnect between a particular client s version of the software and the latest vendor version grew greater. To reintegrate a client s custom version of the software with the latest core version, vendors typically charged clients hundreds of thousands of dollars if not millions to merge custom and core code. Continued on page 4... 2
Vendors development resources were fragmented across multiple versions of the software as they continually created patches and point releases for versions that were often 12 to 18 months old. Vendors support and services personnel were fragmented across multiple versions; support and services teams often took calls not just on the current version but historical versions that might be several years old. Amazingly, these problems still persist to this day. What has changed is that many vendors are now claiming that these kinds of solutions are SaaS and on-demand. Worse, they claim all the benefits of SaaS solutions and fail to disclose their true nature as a hosted applications provider. Multi-tenant SaaS A true, multi-tenant SaaS offering is entirely different than a hosted application model. In a hosted model, each client is effectively running their own version of the software, but instead of being installed at the client site, it s installed at the hosting site and run from there. With multi-tenant SaaS, all clients are running the *same* software using shared databases, shared servers, and shared resources. Aside from even greater efficiencies for both vendor and client, the other key advantage is the unity of the code line. Unlike hosted models which often maintain multiple years of product lines, a multitenant SaaS model maintains *one* code line. One. One and only one. All clients use the same version of the software. All developers write code and innovate against the same version of the software. All support and services personnel train and become experts on the same version of the software. All partners integrate and build against the same version of the software. SaaS solutions eliminate all of the core challenges of both on-premise and hosted application models, and extend all of the key benefits, resulting in much greater value to the client and a stronger client-vendor relationship. 3
SaaS Benefits One Code Line Every Developer is Rowing in the Same Direction: Yours With a single code line to maintain and develop, the vendor development team can innovate faster, fix defects more quickly, and push these changes to clients with greater speed and frequency. Unlike on-premise and application hosting models, SaaS product enhancements can be delivered as soon as they are through QA. There is no need to schedule upgrades and install new versions against hundreds or thousands of clients. When the master software is updated, everyone gets it. The efficiency of the SaaS model enables SaaS vendors to provide big updates more frequently, but it also means that small updates, like bug fixes and minor releases, can happen more frequently too. Consider the following ERP research from Knowledge Infusions, a leading human capital management consultancy, describing the difference in software releases from Workday, a SaaS ERP provider, and established on-premise and hosted vendors: EXHIBIT 1 The State of Human Capital Management Solutions PRODUCT RELEASES 11.1 0 8.9 ERP 2004 1 2 3 4 5 6 7 8 9 9.0 12 ERP 6.0 12.1 9.1 Workday Oracle SAP PeopleSoft SaaS On-Premise 2004 2005 2006 2007 2008 2009 Source: Knowledge Infusion, 2009 Workday is a relative upstart in the ERP space, yet they have done nine releases over two years while industry leaders Oracle and SAP have done just three combined. The nimbleness and efficiency of the SaaS model has enabled Workday to innovate in ways that Oracle and SAP cannot match given their on-premise and application hosting models. 4
SaaS Benefits, continued A key benefit to this kind of speed and efficiency is client satisfaction. Given the frequency of updates to the core code line, it s not surprising that clients would be generally happier with SaaS models. What is surprising is how much happier. According to a recent survey by Bersin & Associates, LMS (Learning Management System) client satisfaction was four times higher for clients who were running the latest version of their vendor s software, something that is almost never true with on-premise or application hosting models, but is always true with SaaS models. Another advantage of a single code line is focus. Consider a software team of 30 developers. In a SaaS model, all 30 of these employees are dedicated to product enhancements, bug fixes, and innovation that will benefit every client. In an on-premise or application hosting model, many of these team members must be dedicated to maintenance and even point releases against previous versions of the software. Many others must be dedicated to merging custom code into the current code line as legacy clients move into new releases. On any current release, it may be that just half of a development team is actively working on innovation and product enhancements. In a SaaS model, they all are, not just on a particular release but on all releases. Multi-Tenant SaaS Versioning Version 1 Version 2 Version 2.5 Version 2.5.1 Version 2.5.1a Version 3 One Version All clients are on the same version, all development is on the same version. Upgrades are clean, version numbers are obvious, and clients always benefit from the latest enhancements and fixes. On-Premise or Application Hosting Versioning Multiple Versions Application Hosting models lead to the same-old problems: clients on multiple versions, customizations against old releases, and fratcutred development team focus and effort. Version 1 Client 2 Client 1 Version 2.0 Customization v. 1a Customization v. 1b Customization v. 1c Customization v. 1d Client 3 Version 2.5 Customization v. 1a.1 Customization v. 1d.1 Customization v. 1d.2 Customization v. 1d.3 Customization 2a Customization 2b Client 4 Customization 1a.1.1 Customization 1a.1.2 Customization 1d.2.1 Code Merge for Client 1 Client 1 finally decides to move to the latest version, but now has multiple instances of customizations to merge into a version that is five releases further along. Result? Big $$$$$. Version 2.5.1 Version 2.5.1a Version 3 At each fragmentation of the code line through customizations and maintenance releases, the core team shrinks. In SaaS models, the entire core team is always focused on innovation and quality in the current release. 5
SaaS Benefits, continued One Product Every Support and Services Person Teaches and Supports the Same Product: Yours Another key benefit of a true multi-tenant SaaS model is product and solution expertise among support and services personnel. Every member of the support and services teams can become experts on a single version. In hosting models, support and services teams are often just as fractured as software teams with some personnel dedicated to specific clients, some dedicated to specific versions, and all of them dreading the next time a major client needs to merge their custom code into the mainline. Among hosted providers, support and services personnel have incredibly difficult jobs as they try to support multiple, customized versions of the same software. It s also very difficult for clients who might only have a single dedicated support representative or service representative who really understands their customizations and how they work. This is why in some situations, services people are required to be part of the upgrade team they ensure that very specific and highly custom code changes are maintained as the software is upgraded. All of this means more money for upgrades, higher risk, and less client satisfaction, no matter how well intentioned the support personnel. In SaaS models, customizations are handled as configurations. Clients don t get custom anything their requests are turned into configurable options in the core product that benefit the entire client base. In a SaaS model, new releases are cause for celebration among support and services teams as new features and functions come to market, client-reported bugs are fixed, and the product continues to evolve in ways that benefit all users. Clients too, see new versions and product upgrades as the positive events they are. Among hosted clients, upgrades are painful, drawn out, expensive, and incredibly stressful. Among SaaS clients, upgrades are painless, immediate, cheap (maybe even free), and stress-free. 6
SaaS Benefits, continued Millions of Users With All Clients Using the Same Version, You Can Connect and Share Best Practices with Thousands of Other Users Another key benefit to SaaS is the size of a client s professional network. In a SaaS model, all clients are in each other s professional network and can provide expertise, best practice, knowledge sharing and new ideas to help each other. Since all clients are on the same version, any workaround, tips, or tricks etc are just as valid in any other client s situation. In a hosted environment, clients are often lumped into user groups, not by geography, but by their current version. And if they upgrade, they lose all of their connections and relationships because they are now among a different cohort group. With SaaS vendors, the entire client base is the cohort group. A key indicator for SaaS vendors is the size, robustness, and frequency of user group meetings. With every client on the same version, SaaS user groups tend to be broken down by geography or interest areas rather than software version, resulting in larger, more active groups. Frequently, SaaS vendors will also host online client portals and even client communities with discussion boards and profiles to facilitate connections among their client base. In some cases, vendors will also create idea submission areas that enable clients to rate and rank new feature ideas or enhancement requests. Since all clients are on the same version, SaaS vendors typically can do a much better job listening to clients and responding to the will of the people. 7
Summary SaaS models out perform traditional, on-premise and hosted models in every important enterprise software category: Speed and pace of innovation Client support and satisfaction Long-term maintenance and upgrades Short and long-term costs Professional networking and peer support Hosted models served a purpose as a transition technology that helped organizations see the benefits of outsourcing their IT and software infrastructure to third-party vendors. SaaS models have continued this innovation by fully realizing the benefits of a purely web-based IT and software infrastructure through new architectures and new software models. These changes have all but eliminated the central challenges found in most on premise and hosted software models, resulting in higher levels of client satisfaction and more rapid innovation. 8
Gotcha Questions to Ask SaaS Vendors 1 2 3 4 5 6 7 8 9 10 What percent of your client base is on your current version? If the answer is less than 100%, they aren t SaaS. What percent of your software team is dedicated to developing new features or fixing issues against your next release? If the answer is less than 100%, they aren t SaaS. What percent of your services team is dedicated toward providing services to your current version? If the answer is less than 100%, they aren t SaaS. How long does a typical customization take and how much will it cost? Any answer other than we don t do customizations, we do configurations means they aren t SaaS. How many user groups do you run per year and how do you organize them? A SaaS company will typically run at least 24 user groups per year across multiple topics and geographies. Any answer than suggests that user groups are organized by version means the vendor is not SaaS. I understand that I might get a dedicated support rep for our account, but what if that person is not available? How many other reps will know my version well enough to help me? The answer should be all of them or they are not SaaS. Do you have standard SLA terms or dashboards that show uptime? A true SaaS provider will provide these as part of every deal. How fast can you spin up a site? The answer should be minutes or hours. In many cases, vendors and clients will need to configure a site and tailor to the needs of specific users, but the actual site spin-up should take little more than a few button clicks and identifying information. Can I spin up my own sub-site? A true SaaS provider typically offers self-provisioning off the main site, often at no charge. Do you have standard terms that would enable me to pay monthly or even by the drink? A true SaaS provider will typically offer an option for shorter contract terms, but discount longer-term contracts to encourage longer commitments. Hosted providers typically won t offer shorter contracts because of the higher IT costs associated with this model. 9