Amy Wohl's Opinions on SaaS

The PC is No Longer the Center of the Universe

At IBM's Business Partner Leadership Conference, held this week in Los Angeles, IBM CEO Sam Palmisano and Google CEO Eric Schmidt spoke on the state of computing and their vision for its future, both separately and togehter.  The big news is that they agree:

• We are moving from a PC-Centric world to a Network-Centric world filled with millions of devices of every shape and description.
• In this Network Centric world, the PC is just another device, of decreasing importance as the emerging economies come online with their preference for mobile platforms which more closely ressemble smart phones.
• In the Network Centric World, Open Standards and published APIs are very imortant so that new innovations can easily be attached to the network and become new platforms for deelopment.
• The cloud (very large scale shared computing, available for hire) will become uibiquitious, probably sold by platform providers who will recruit ecoosystems of ISVs and provide a well-managed, secure platform, freeing both customers and ISVs from the need to implement hardware where they lack the skills or capital.
• This networkcentric Computing model will require tons of storage and new interaces and methods to discover the information and manage it.
• This enables everyone to have more access to information.  Some of it will be stored in the cloud, but some of it will continue to be stored on site.  It's a hybrid world.

Large traditional vendors like Microsoft will have to choose between adopting the open standards, network centric, cloud approach, finding a new market niche, and slowly becoming less relevant.  That's why Microsoft's chsing so hard after the consumer market with the Yahoo.

Beyond Web 2.0

Charles Cooper (whom I used to write a column for in another lifetime) has written a superb column on where the Web is going (and where the companies who build Web-based applications might land in a tough economy).  That's well worth reading, but the real reason why you won't want to miss this gem is his timeline on Web 1.0 versus 2.0, versus where we are now (which he calls Web 2.5) versus where we might go next and when.

I've written about what Coop calls Web 2.5 before, the notion of Platforms on the Web, and we have just now reached their moment, with platforms breaking out all over.  Of course, not all of them are entirely ready -- and some people who announce platforms will be too small to be able to support the broad, deep-pocket activities a platform requires.  But here we go:

• Amazon's E3 is well on its way.
• Google has its Cloud albeit less for business and more for consumers (more about that in a moment.
• IBM has its Blue Computing, HW to support giant cloud, and it has long supported cloud computing through its ISV-partnering activites.
• Microsoft is moving to Live Mesh (again, more about consumers for now) and has some cloud activities for its business applications.  (I promise a piece on Live Mesh shortly -- it's in the works.)
• SalesForce, of course, may be the grandfather of the platform notion.
• Smaller companies like OpSource offer platforms of their own.

Our blue skies will be filled with clouds, so that anyone -- consumer, small business, or business activity in a larger business of any size will be able to avoid the capital, skill, and time costs of implementing software internally, and simply reach out to an appropriate cloud for instant (or nearly instant) gratification.

Of course, we have much to do.  We are at the beginning of this idea, not in the middle when everything has been decided and everything works smoothly.  Some things have to be thought through:

1. Will there be separate platforms/clouds for business and consumer computing?  Do there need to be?  (Hint:  Amazon manages to sell a single paperback book to a consumer while accepting an order for thousands of dollars worth of office provisions from a business, using vastly different rules, as required.)
2. Will you want to use one cloud for everything or will  business be willing to buy its applications from many different clouds and either provide a coordination function itself  (perhaps through a portal) or will businesses demand that its cloud provide the coordination function?  (It's also possible that coordination could be a third-party function, with billing, service, etc., being handled by someone other than the platforms, allowing the offerings of smaller platforms to be succsessfully integrated with big ones.
3. How will new applications enter the market?  Will choosing the right cloud partner become  critical or will standards allow them to ally with multiple platforms?
4. How much of this infrastructure will be visible to users and how much of it can be masked behind an easy-to-use interface such as a catalog?
5. Will software vendors understand that they have to modify their pricing to live in the cloud?  No one is going to buy a full license to something that they want to use a small part of for a single time -- or at rare intervals.

All of this will give us lots to ponder.  In the meantime, consider Charles Cooper's article.  I especially want to consider his Web 3.0 scenario -- both what it might contain and when it might occur.

Microsoft Continues to Go Live

At the Microsoft SharePoint Conference in

Seattle

(which we’re attending together with some 4,000 customers, partners, analysts and press), Microsoft is announcing a broadening of the availability of its products in the on line environment. 

Last fall, Microsoft entered the enterprise SaaS environment with Exchange and SharePoint offerings to companies with more than 5,000 employees.  It is now offering these products and others to businesses of any size, available in the 2^nd half of 2008, with a beta starting now. 

This takes Microsoft’s on line offerings much more directly into the heart of its target audience, an indication that Microsoft no longer believes that it can compete with Web 2.0 vendors with on line offerings without an Internet-based offering of its own.  Of course, compared to a group offering like Google’s Site, announced last week, Microsoft’s more mature offerings look much more polished and feature rich.  Microsoft will attempt to also give them the flexibility of Web 2.0 style applications with its SilverLight application development environment, available for download now.

Pricing (and reseller arrangements) have not yet been announced and appear to be still under discussion.  That’s not surprising given that Microsoft has the tricky job of making the Live offering look competitive against Web 2.0 offerings without disturbing its existing customer revenue very much.  Given that many Web 2.0 offerings are “free,” with revenues based on advertising, Microsoft will have to convince Live customers that superior, more richly featured and refined products, with support, are worth more money.

In that context, Bill Gates comment, in answer to a question from the floor during his keynote yesterday, makes Microsoft’s position clearer.  “For most of these Google products, the day they announce them is their best day.”

Now we will see, I suspect, whether what customers want is good enough (at free or a very low price) or better (some would say much better) at a higher price.

Why can't Enterprise SW Be Reliable and Sexy?

There's a raging debate going on over at ZDNet.  You can pick up a corner of it at Phil Wainewright's site, where you can read Phil'a comments (good ones) and check into the original argument from Scoble and the Enterprise Irregulars. 

It started out with BIll Gates wondering why enterprise software doesn't get mentioned much iin the blogosphere.  (I'd note that he doesn't read the right blogs, but I know what he means -- the sexy, big readership tech blogs are all about Facebook, Twitter, and the latest Web 2.0 software.)  Scoble replied that's because the user interfaces on Enterprise sw are awful.  The enterprise guys said enterprise software is about reliability and scalability and not about nice user interfaces.

Everyone is, of course, missing the point.  First of all everyone uses both kinds of software.  Business users have a life outside the office where they shop and socialize and consumers have to bank and rely on the back-ends of big systems, written with big, complex enterprise software.

Now that we've been forwever spoiled by the introduction of good user interfaces on consumer software we want that same ease of use for business applications (enterprise or elsewhere).  A few enterprise application vendors are trying, but it's pretty early in the game.  Software vendors keep telling me they want to show me an application that the users can customize themselves, but they must have different users in mind than the ones I know.  And even the user interfaces (without fooling around with customization) can be pretty grim.

The recipe is clear.  A user interface is user friendly when the user can step right up to it and do what he wants or needs to do without getting someone to help him.  Of course enterprise applications will always have tons of geekware in the basement which users will never understand -- and don't need to -- but we need to be able to get the interface intuitively.  After all, I don't need to understand how to fix an internal combustion engine to drive a car.

And don't think the CIOs who buy enterprise software don't care.  Of course they put reliablility and other enterprise priorities first, but they pay for the help desk that supports users who have to cope with less than friendly interfaces, so whoever builds great enterprise applications with great user interfaces should get lots of customer attention.

WORKDAY IS WORKING OUT WELL

When I first heard (in 2006) that David Duffield, the founder of PeopleSoft, was going to start a SaaS company to build a full-blown ERP portfolio I was really excited.  It made me feel that SaaS was finally coming of age, moving to mainstream, enterprise-oriented, and mission critical software. 

(Of course, there are lots of contradictions here.  SalesForce.com certainly thinks of themselves as mainstream, enterprise-oriented, mission critical software, but perhaps less so in 2006 than today.  And Workday, Duffield’s new company was not quite so ambitious; the initial goal and the current focus is to build ERP software for the mid-market (focusing on 100-600 employee companies) [update, I meant 1000-5000 employees], but there are enterprise customers already, a year after the first software shipped.

Let’s not talk about contradictions, but rather examine Workday’s plans and see how well things are going.  I got an update this week from Stan Swete, Workday’s CTO, which placed Workday right on schedule for their roadmap.

Workday’s plan was to provide software services in four areas:

(1)  Human Capital Management

(2)  Resource Management

(3)  Financial Management

(4)  Revenue Management

Human Capital Management was scheduled to be available first and went into production last November.  It includes modules for organization, lifecycle, compensation, and payroll management, and workforce development.  Workday is currently using ADP for payroll management, but expects to have its own offering by 2009.

Resource Management includes Supplier Accounts, Expenses, Resource Management, and Procurement.  It is scheduled to ship in 2008.

Financial Management includes Financial Accounting and Reporting, Cash Management, Planning and Budgeting, and Management Accounting.  The Financial Accounting and Reporting and Cash Management modules are shipping now; other modules are expected to ship next year.

Revenues Management includes Customers Accounts, Orders, Billing, and Revenue Recognition.  It is scheduled to ship in 22008.

Workday is currently shipping to about 25 customers, a mixture of technology companies (about two-thirds) and non-technology companies (one-third).  It’s Workday’s strategy to target technology and services organizations, especially those in food services and professional services.  Swete seemed a little surprised but very pleased to note that they are seeing a smaller number of bigger deals than they had planned.  They already have two much larger customers, Lifetime Fitness (17,000 employees) and Chiquita (25,000). 

Generally speaking they expect to be selling to customers who are new to sophisticated ERP solutions, rather than replacing existing implementations, but they have already replaced Peoplesoft/Oracle at McKee.  Of course, they do expect to move into replacement mode later on, just as they expect to garner more enterprise customers.  (SaaS is generally becoming more appealing to larger firms as we’ll talk about in an article on SalesForce.com soon.)

Why, one might ask, are they seeing such early success?  Workday and I are in pretty violent agreement on these.

·        The ERP solutions built by traditional software vendors are expensive to buy, very expensive to implement, and expensive to upgrade (since customizations must often be entirely rewritten).  That makes them not only expensive but inflexible, a barrier to the more agile and dynamic world of the Internet.

·        Rewriting a traditional ERP solution to a SaaS platform is tough.  ISVs have to address both business model and architectural issues.  Efforts often flounder on the unwillingness of ISVs to understand that they’re writing an application that might be used by an enterprise (whom they’d like to keep on their current, more expensive software) as well as an SMB.  Applications are often written to be deliberately less appealing to enterprise customers, shooting them in the foot.  Of course, it’s a lot easier to write a great SaaS application if you have no existing business model or installed software to consider.

·        David Duffield has a great reputation.  Many customers are delighted to consider any product he’s associated with.

We asked if Workday had to sell SaaS before they could sell Workday.  It’s clear Workday’s experience mirrors what we’re seeing elsewhere:

•         Prospects are much less concerned about going to SaaS; concerns about security have stopped being the barrier they once were.

•         On the other hand, customers are much more concerned about whether they can get enough integration with their data and applications.  Workday is confident they can supply these needs.

•         Customers are also looking for the ability to use configuration of the application as a way to provide some customization.  Modern SaaS applications are designed to provide this.

We still think that Workday’s presence – and success – in the marketplace are evidence that SaaS is growing up in both maturity and in the size of customer who will find it compelling.  We expect to see more companies join it in the business software marketplace over the next few years.

IBM's Blue Cloud Platform

A while ago I noted that we would see the emergence on the web of platform vendors, each providing a set of services and APIs and each collecting an ecosystem of partners around them.  I noted that the first platform was SalesForce.com and that we were likely to see more, including IBM, Microsoft, Oracle, and Google -- and perhaps a few that don't exist yet but rise, Google-like, from the web.

Of course, for this to get started in a big, enterprise-specific, way, someone like IBM had to make a move.  They have, announcing their Blue Cloud utility service.  Now we shall have to see how, over time, this platform evolves and how richly it is surrounded with IBM and partner services (and applications). 

Nothing matters unless customers decide they like this idea, but I would be amazed if some large IBM customers (and quite a few smaller ones, up and down the mid-market) didn't find this a tantalizing proposition.  Getting IT for less from a first class vendor who will provide what you need and want and offer it with a QoS guarantee will be very appealing. 

We'd guess that a lot of IBM's efforts to enrich it's already bulging software portfolio (such as its recent announcement to acquire Cognos) are designed to provide the broader integrated offering that a web platform vendor needs.

There's a great article on the subject by Dan Gardner at ZDNet, if you'd like to read more.

SaaS as a Platform

Sitting in the audience at the Office 2.0 conference last week (you can read my musings on that at my Amy Wohl's Opinions blog), I was struck by the thought that SaaS is going to move in a new direction.

In fact, it's moving in that direction already.

There is no possibiity that customers, particularly enterprise customers, are going to agree to buy dozens of individual SaaS applications from individual very small vendors and then try to deal with their different user interfaces and APIs to say nothing of how to provide any level of interoperability.  We doubt that standards will ever provide a satisfying level of interoperabiity and integration across all applications -- there are just too many ways to make improvements and not be standard.

So we think you should look at SalesForce.com and realize that it isn't really an application vendor any more (although it does, indeed, sell a popular SaaS CRM application), but rather a platform vendor, providing a SaaS platform on top of the web.  In SalesForce.com's case theiy have chosen Model A -- they provide a platform and APIs and make the rules and build an ecosystem on top of that platform where partners gather.  They then make substantial revenue from the success of these partners.

But there's a Model B coming.  That will be vendors who provide not just the platform but a large portfolio of applications.  It might be a horizontal portfolio (perhaps with partners providing vertical market specialization) or it might be a vertical portfolio, aimed at a specific market.  In this case, the platform vendor will also own the appications, probably buying most of them from the hundreds of applications now available in the Web 2.0 marketplace.  This platform vendor could choose to provide any level of integration and interoperability he choose to support, such as a single user interface, single sign-on, and application integation.  He could still offer APIs for further refinement of his applications by business partners -- or by the customers themselves.

We don't expect too many platform vendors.  It's a role that calls for deep pockets and the ability to do significant technical work and systems operations and management.  We wouldn't be surprised to see such vendors as Google (some might argue that they're already at work), IBM (they have the SaaS infrastructure complete with rich middleware, which they offer to SaaS ISVs), and perhaps Microsoft and Oracle.  Of course, there's always the chance that one or two next generation Googles might appear.

Eventually, we might begin to see interoperability across the major SaaS platforms, but never the same level of integration as you'd see within a single platfrm vendor's portfolio. 

Reports of SaaS's Death are a Bit Premature

From time to time we have had a SaaS provider fail to provide his promised services.  Usually it's because of a server or software failure.  Occasinally it's because of an inability to handle increased volume (scale) or an act of nature (power outage).

Each time, naysayers use that as an occasion to say that SaaS can't work.  Perhaps it might be better to use it as a way to look into the failure and figure out a way to evoid it n the future.

SaaS Naysers will enjoy John Dvorak's article on the occasion of the failure of Microsoft's WGA Server, which provides authentication.   It took them most of a day to get back in business.  Personally, I wouldn't judge the SaaS business on Microsoft's performance -- they are scarcely a seasoned performer here.

But it is good advice to consider where your applications are running in the distant cloud and just how secure the system behind your delightful software might be.  Happily, the days when ASPs insisted on running their own (tiny) data centers is over and most SaaS ISVs take advantage of specialists who make sure that the services they provide can keep up and running even when a server goes down or a power outage requires transferring users to a server in another physical location.  If the application is criticl to you, asking who and how its infrastucture works is cheap insurance.

Bombarded by Innovation

Last year I attended two Office 2.0/Web 2.0 conferences and I left them feeling overwhelmed, humbled, and totally delighted.  For a technology junkie like me, there's nothing like spending a day or two being bombarded by technology and trying to sort it out on the fly.

You stand there in the aisle thinking:

• Is this really new and unique?
• Is it valuable? So valuable that everyone will want it?
• How does it fit into the way the market is evolving?Does using it demand rearranging all our ideas and plans?
• How much is it going to cost?
• Who are the people who are going to bring it to market?  (Tricky -- the people who invented it may have brought it to the conference in the hopes of finding a buyer or a marketing partner)
• And -- most important - would I kill to have one now right now?  (I remember feeling that way the first time I see the pre-alpha version of PowerPoint, back when we did slides by using an Orator Typeball on our selectric or paying a graphics artist to create the slides.)

So, once more into the fray I go at Office 2.0 in San Francisco (at the St. Regis Hotel, September 5-7).  They are expecting more than 50 of these goodies in two jam-packed days.  Since they will have multiple things going on at once (no fair:  I want to see it all), I will no doubt be zipping around like a maniac trying to be certain I haven't missed anything amazing.  If you want to join me, click here:  http://www.o2con.com/

And bring your roller skates.

Workday Challenges the ERP Market

Sitting in the SaaScon audience last April, listening to David Duffield of Workday speak about their ambitious plans to have not only an HR product, but a full business suite, including financial and customer resource management, we perched eagerly on the edge of our seat, watching the roadmap unfold.  We knew that Duffield and his PeopleSoft team had a great track record and had, in fact, brought the HR applications up and to the market very quickly, but it still sounded very ambitious.  Since then, we've been waiting for the other shoes to drop.

Today, Workday dropped the shoe.  They announced the beta of their financial software, inclulding both Business Measurement and Revenue Management.  The offerings start out as substantial but incomplete, when judged against offerings from major vendors, but the rest of each offering is on the roadmap, so beta users (none have been announced yet) can be reassured that they're coming. 

Who will these customers be?  Workday targets customers in the upper mid-market, from firms with $500 million to $2billion in revenue, especially in the services industries.  They're not targeting government, education, or manufacturing, all SAP territory, and they're staying away from large enterprises.  We'd expect initial customers to come from some of the 20 customers who are already using their HR software.

Workday intends to go to market with a direct salesforce, but notes that its had some difficiulty hiring -- we suspect that's because of it's aggressive pricing.  Workday expects to be able to provide its financial for $100,000 per year, a small fraction of what traditional financial software would cost.  Implementation costs for SaaS software are also usually much lower than the multi-million dollar cost of SAP implementations. 

Of course, the devil is in the details:

1. Can Workday finish its software offering on time?  (its track record suggests it can)
2. Will the functionality of its products be competitive?
3. Will it be able to integrate legacy applications into its SaaS model? 

The last is the most intriguing.  Workday is using an Object Management model rather than the SQL database model that other ERP packages rely on.  This, they claiim, makes it far more flexible in being able to offer infinite variations and in being able to integrate legacy software.  Still, they admit, the legacy software is the hardest part.

I'd recommend an excellent overview article in ZDNet and an excellent analysis by Phil Wainewright.

I'd also like to recommend that you check out the survey on Saas at SoftLetter, if you're an ISV and participate so you can share the results.  Click on http://www.softletter.com/survey/saas_2007.htm?sm=zokfa7246nv7oosNOtwl6w_3d_3d

And check out the seminar SoftLetter is holding on SaaS October 3-4 in Santa Clara, CA at http://www.softletter.com/pages/marketing_and_selling_SaaS_seminar.shtml