Tailored software becomes key to Saas model’s success

July 4, 2007

No licence fees to pay, no hardware to install and no maintenance burden to shoulder. It is no wonder that the concept of software-as-a-service, or Saas, is changing the way many companies purchase and deploy enterprise applications.

Take, for example, Allianz Cornhill, the insurance company. In 2006, it rolled out a CRM system to 350 underwriters and sales staff, so they could track and manage the process of converting sales leads into policies.

Rather than deploy the software in-house, however, Allianz Cornhill opted for a suite of hosted applications from Saas provider Salesforce.com.

As a result, its CRM tools and data are hosted, managed and regularly upgraded by Salesforce.com staff in the provider’s own data centre. Allianz Cornhill staff, meanwhile, access them over the internet and pay a monthly, per-user subscription fee for the privilege.

It was not hard to convince senior executives of the attractions of the Saas model in terms of cost and convenience, says Phill Harding, broker development manager at Allianz Cornhill. For a start, the roll-out of the software took six weeks, where an equivalent inhouse deployment might have taken months, he says.

“In fact, once the concept had been adequately explained and demonstrated and the solution was in place, we were asked by senior executives: ‘Why haven’t we used this approach before?’,” he says.

Others are wondering the same thing, and demand for Saas applications is soaring. Recent estimates from analysts at IT market research company Gartner, for example, suggest worldwide sales growth of 21 per cent this year, to $5.1bn. By 2011, they say, Saas will account for one-quarter of business software sold globally.

“Ease of use, rapid deployment, limited up-front investment in capital and staffing, plus a reduction in software management responsibility all make Saas a desirable alternative to many on-premises solutions, and will continue to act as drivers of growth,” says Sharon Mertz, a research director at Gartner.

Some potential users, however, still have reservations about Saas. If information is power, and data among the most valuable of corporate assets, they ask, then why would we put them in another company’s hands?

How can we customise software that is hosted remotely by a third party to fit our company’s unique business processes? And how can we possibly integrate Saas applications with the core in-house systems that remain vital to our business?

These are all areas that leading Saas providers, such as Salesforce.com and NetSuite, are working hard to address.

In terms of reliability and availability, for example, NetSuite offers a money-back guarantee of 99.5 per cent uptime. “Most companies would really struggle to achieve that kind of uptime inhouse and yet we offer it consistently to our customers,” says Zach Nelson, chief executive of NetSuite.

And, following well-publicised outages in early 2006, Salesforce.com has upgraded its architecture and can now promise uptime of 99.999 per cent, according to Lindsey Armstrong, the company’s European president. In addition, it has committed itself to full disclosure of performance metrics via a website that was launched in response to those outages, trust.salesforce.com.

Other obstacles to Saas are “more perceived than real”, says Robert Bois, an analyst with market research company AMR Research. “Integration and customisation are still common concerns that our clients raise with us, but in fact, the larger Saas suppliers are pretty good at solving those problems and the technology of the multi-tenant architecture that underpins Saas solutions has matured sufficiently that they’re no longer a big issue,” he says.

At one time, a “one-size-fits-all” Saas approach was the norm, and “plain vanilla” functionality (where the same product is deployed by all customers) was viewed as the necessary trade-off for relatively low cost of entry.

But recent technological advances have changed all that. “Not only can you customise pretty much anything you need to in NetSuite, but those customisations carry over every time the application is upgraded – and we upgraded NetSuite 400 times last year,” says Mr Nelson.

“You certainly don’t get that when you customise on-premise software and then need to upgrade it,” he adds.

“We do a huge amount of customisation,” confirms Andy French, head of information systems at NetSuite customer Opal Telecom, a division of Carphone Warehouse. “These tweaks and changes range from making certain data fields mandatory to installing Java scripts that drive system logic and user behaviour,” he says.

In fact, the only limitation facing Carphone Warehouse, which has more than 3,000 users of Netsuite company-wide, is the number of skilled IT people available to do that configuration, he says.

Integration between Saas tools and inhouse applications is also more commonplace these days. Most Saas companies publish application programming interfaces (APIs) based on web services standards, which allow disparate systems to exchange data whether they are based inside the firewall or on a third party’s premises.

According to Ms Armstrong, more than half of all API calls to Saleforce.com applications come from non-Salesforce.com systems.

Analysts at Gartner, meanwhile, predict that by 2010, three-quarters of large enterprise Saas deployments will have “at least five integration or interoperable points to on-premise applications”.

But with increased scope for customisation and integration of Saas products comes greater demand for outside help – a point not lost on a number of leading systems integrators, including Accenture and Deloitte, who have already set up dedicated practices in this area. Mr Bois of AMR Research says other IT services firms are “eager to tap this market, but less willing to go on record with details of their Saas strategy. They’re taking more of a ‘wait and see’ approach.”

One company that is certainly not holding back is Saaspoint, a specialist Salesforce.com implementation and consulting partner led by John Appleby, who previously worked for Salesforce.com and was that company’s first EMEA employee. “Demand for help with Salesforce.com implementations far outstrips supply and, as long as Salesforce.com continues to grow so quickly, we don’t see that demand drying up,” he says.

For Saaspoint, buoyant demand currently translates to year-on-year quarterly sales growth of between 250 per cent and 300 per cent, fuelled by projects at leading names such as P&O Ferries and pharmaceutical company Quintiles.

This flurry of progress suggests a rosy future for Saas, not to mention the consultancy ecosystem that is fast springing up around it, says Mr Bois of AMR Research. “Already, there are few areas of the enterprise applications industry untouched by Saas,” he says.

And as software companies associated with more traditional models of software delivery, such as SAP, Oracle and Microsoft, catch up, he says, the case for Saas deployment can only get stronger.

By Jessica Twentyman


The Friendly Face of Business Software

May 3, 2006

By Sarah Lacy

Last fall, AMR Research analyst Bruce Richardson was sitting on a couch in San Francisco’s Moscone Center during one of Salesforce.com’s many customer conferences thinking about the phenomenon the software company had become. As a scrappy upstart, it took the industry by storm, offering a cheaper and easier to install program to manage sales teams.

Dancing in Richardson’s head was a conversation he just had with the chief information officer of a large industrial company who was planning to ditch Salesforce.com’s (CRM ) software for one of the market leaders, Oracle (ORCL ) or SAP (SAP ). But when he ran into a chatty conference attendee from the same company, he asked her about the CIO’s plans. “Over my dead body,” she exclaimed. It was fierce loyalty unlike anything Richardson had encountered in his 26 years covering business software. In fact, it was downright Apple-esque, he says (see BW, 9/19/05, “An eBay for Business Software”).

Such fierce user loyalty may be the first spoils in a growing design renaissance in business software. The feature wars are over. The new software upstarts have a powerful one-two punch: cheap startup costs and drop-dead ease of use. While much of the attention in the software industry has focused on inexpensive applications that undercut pricey traditional business programs, it’s the new design movement that could prove more important. In fact, it could end up reshaping the user experience across Corporate America.

THE GEEK FACTOR. Forget what the corporate IT department thinks about business software. The actual users will tell you programs like those offered by Salesforce.com may be the first truly intuitive pieces of business software they’ve ever used. “My mom could pick this up in about three or four minutes,” says Chris Corcoran, CEO of Sunset Companies. He’s a customer of NetSuite, another on-demand company that’s getting ready for an Initial Public Offering this year (see BW, 2/13/06, “Giving the Boss the Big Picture”). “Most salespeople will tell you to take their right arm before you take away Salesforce.com,” jokes Kim Niederman, senior vice-president of worldwide sales for Polycom, a Salesforce customer.

To really appreciate the change, consider just how frustrated the buyers of business software had been. Companies spent buckets of money in up-front costs, and then more dough getting that software to work. Even more galling for tech managers is the reality that a lot of people outside of, say, the accounting department, never bother to use the products because they’re too geeky and complicated.

That’s why two big software movements have been gaining steam. The first is on-demand computing, where companies such as Salesforce run the program for the customer, selling use of it over the Internet for a monthly fee. The other big trend is the open-source software movement, where vast communities of coders collaborate to build software that’s freely available online.

POSITIVE IMPRESSIONS. It’s not that all of those open-source contributors are great designers. The key to the appeal is the try-it-before-you-buy-it nature of the open-source movement. When the software works and it’s easy, it catches on fast within companies and quickly builds a grassroots following. Increasingly, open-source designers understand that their audience is counting on them to develop easy-to-use programs.

Take customer relationship management company SugarCRM. It even seeks to provide some entertainment with different “skins” it offers for its interface. Sales people can log client meetings and organize contacts against a backdrop of palm trees or a golf green. “It seems a little silly at first, but they smile the first time they see our application,” says Clint Oram, co-founder of SugarCRM. “That’s an important first impression.” (See BW Online, 10/3/06, “Open Source: Now It’s an Ecosystem.”)

Good design is becoming more than a nice-to-have feature. Thanks to slick Web sites like Amazon.com, people are coming to expect software that takes no or little training to use. In fact, Salesforce’s first prototype bore an intentional resemblance to Amazon.com. The only difference: The tabs were changed from categories such as “Books” and “DVDs” to things like “Contacts” and “Sales Leads.” Says Parker Harris, Salesforce’s co-founder: “We want to get a toe-hold, and once people start using us, we know they’re going to like it. That’s our secret sauce.”

TALENT SHORTAGE. It shouldn’t come as a big surprise that on-demand software is focused on the user experience. The down side of letting customers pay by the month is that they can more easily switch to a rival. So on-demand software providers have to keep their customers happy with uncluttered, user friendly designs that, at least for now, the old guard can’t match.

“SAP and Oracle may be the standards, but if you get something that works, people will hold onto it forever,” Richardson says. Security software company IronPort Systems is one of several who tried to switch from Salesforce and faced a full-on revolt from the rank and file. “We’re stuck,” says CEO Scott Weiss.

That’s a good news/bad news scenario for usability companies such as Adaptive Path in San Francisco. Jesse James Garrett, director of user-experience strategy at Adaptive Path, says his business is booming and it’s near impossible to find good freelancers to bring in to meet all the demand. If they haven’t taken jobs at Google (GOOG ) or Yahoo (YHOO ), they have taken jobs with the new software up and comers.

ALWAYS EVOLVING. A lot of these are consumer-oriented Web sites, but just as many are Web applications aimed at businesses. The talent pool of good designers is getting so dry that venture-capital firm Sierra Ventures has hired Adaptive Path on retainer to consult with startups on usability and design before they even write a line of code — a big departure from the way software is usually crafted.

It’s not just a greater focus on usability. Companies like Salesforce and NetSuite have a natural advantage. Since they host the software, they can track every mouse click, just as an e-commerce site can watch how shoppers navigate the virtual aisles. So user feedback is almost instantaneous. If people are getting stuck, companies can make real-time changes to the site. It’s like the entire user base is in a real time usability lab. “We actually host companies’ Web stores, so we learn how great Web stores work,” says Evan Goldberg founder and chief technology officer of NetSuite.

Such constant tweaking — largely invisible to customers — represents another major difference in the way software is made and maintained. Traditional software companies do one big release every few years, and the upgrades are time-consuming and expensive. Hosted software is more an eternal work in progress. It’s continually updated, based on traditional focus groups and on watching how people use the software.

ADVANTAGE: SMALL FRY. That kind of direct connection struck Todd McKinnon immediately when he became vice-president of development for Salesforce.com. He previously worked for PeopleSoft, now part of Oracle — a company known for its good user interfaces. “At PeopleSoft we couldn’t get a release out in two years,” he says. “Here, we do it every four months, and a day later it’s being used by hundreds of thousands of people.”

Adds usability guru Garrett: “The big guys just handed this advantage to the smaller players.” And, as the overbooked calendars of usability experts show, scrappy upstarts aim to make the most of it.