Glassey On SaaS

SaaS Market Collapse in 2010? Get Real!

OK, I didn't see the article until yesterday so I'm a little tardy on this one but it definitely warrants a response.  In an interview with ZD Net, Lawson Software CEO Harry Debes predicts that SaaS will collapse in 2 years time.  Clearly this stance was crafted as an attention getter (and it worked) but I'd like to make a few of points in response:

First, this type of arrogance and willful blindness to a massive trend foreshadows significant business problems for Mr. Debes and Lawson. Think DEC ("PCs will never replace minicomputers") and all the software companies that missed the DOS to Windows wave for whatever reason.  The person about to repeat history's mistake is Mr. Debes and, unfortunately, his shareholders.

Second, Lawson's economics aren't its customers' problem (ie. it takes Lawson years to recover their R&D and marketing investments and he can't guarantee that his customer will stick around for five years).  Well, many other companies are willing to take that risk and so he will lose his customers to his new competitors.

Third, I do agree that building the best possible software is the key, and not necessarily just building something in order to have a SaaS offering.  As I've written before, customers buy solutions that meet their needs.

And finally, regarding Mr. Debes' remark that "people are stupid", I couldn't disagree more, especially when it comes to SaaS customers. They know what they want and they're adopting SaaS solutions across the globe and at a rapid pace.  At Projjex we receive a constant flow of intelligent feedback and great ideas from our customers.

Nice try Harry, but belittling your customers isn't going to derail the SaaS locomotive!

Alex Glassey

We Need a "TRUSTe for SaaS Apps"

SaaS is exploding and is well on its way to a $19.3 billion market by 2011, according to Gartner. Most of this, Gartner says, will go to new entrants rather than established software vendors.

So what are prospective customers supposed to make of the certain deluge of SaaS providers offering everything from HR applications to CRM, payroll, project management and more?  How will they ensure they are making the right decisions -- not only in terms of the application, its features and compatibility with existing systems but also in terms of security, reliability, customer service, corporate viability and more?

The Internet faced a similar scenario back in the late '90s with the boom in ecommerce sites. The big issue then was user privacy (or lack thereof). Consumers didn't know which sites they could or should trust with their personal information with and it was, many contended, hurting ecommerce adoption. So industry players stepped in to address the problem by creating certification and seal programs like TRUSTe and BBBOnline. Though they hit some early snags on enforcement, these programs proved to be valuable screening criteria for users of a wide array of web sites. Even though they are not as visible today, TRUSTe and BBBOnline are still around, have thousands of customers and are providing a valuable service for web consumers (as well as businesses).

Carnage Up Ahead
As the number of SaaS providers grows along with the market there will no doubt be some carnage along the way. Imagine the small business that wakes up one day and finds their SaaS provider has gone out of business and taken their data with them. Or the sole proprietor who's CRM app is suddenly down for hours on end. Or the mid-sized enterprise that discovers its customer records have been compromised.

While some SaaS apps are what I would call "Commercial Grade" - meaning they meet expected standards in key areas like reliability and security, etc. - many, perhaps most, are not.

It is time for the industry to step in NOW to validate commercial grade SaaS application providers and help minimize the potential damage that businesses will surely experience as the market continues to grow.

We Need a Certification Program for SaaS Applications
TRUSTe was created to "help consumers and businesses identify trustworthy online organizations..." While the focus was on privacy this is just one piece of the puzzle with SaaS. In addition to privacy, commercial grade SaaS certification should focus on the policies and procedures SaaS providers employ for security, reliability, data protection, backup processes, uptime guarantees, and customer service. Look at any survey and these are the biggest obstacles to further SaaS adoption, especially in the enterprise. Greater transparency is a good thing for customers and a certification program for business class SaaS would be a huge step in this direction.

As I mentioned in a previous post, there are SAS 70 audits that verify a service organization has been through “an in-depth audit of their controls and safeguards with respect to hosting or processing data belonging to their customers.” But again, this is a long and expensive process and is an unrealistic standard to hold smaller providers to. Something akin to a “TRUSTe for SaaS Apps” would be great for the industry and for business and would be an invaluable screening tool for customers.

What do think?  What are your experiences with your SaaS vendor?

Alex Glassey

Are "simple" apps irresponsible?

"Simple is best" is a siren song that is sung by some SaaS application software vendors.  They say that simple applications are easy to learn and use and that complicated things just get in the way.

Perhaps simple is best for some computer users.  But for others, and I would suggest most others, simple isn't best.  In fact, simple SaaS apps can be frustrating when they don't do what you need them to do and expensive when you have to replace them.  Those who continue to preach "simple is best" as SaaS panacea are, at best, short-sighted and, at worst, irresponsible to both their customers and the wider computing community.

The work that most people use a computer to do isn't simple. Appropriate software applications must support all of the functions that are needed.  Otherwise the user needs to resort to other methods which will naturally be slower and more cumbersome.

SaaS applications are no different than any other software in this regard.  While they can offer some compelling additional benefits (ie. lower TCO, collaborative features, availability) if they don't provide the minimum functionality required then they shouldn't be used.

To give it some historic perspective, any new computing platform has to develop appropriate infrastructure and development tools to support increasingly better-featured apps.  Remember DOS in the early 80s? Slow and small or non-existent hard drives and an absence of development tools meant that early products were simple and less functional.  The same was true of early Windows applications which were hampered by insufficient RAM, slow CPUs and primitive development tools.

Development of browser-based products has followed the same path: early infrastructure, development tools and browsers weren't sufficiently capable of creating or running sophisticated applications.  Developers therefore created simpler, less functional applications and, perhaps, developed a "simple is best" mantra in order to promote and defend their products.  That time has now passed.

There are now no impediments to creating and deploying full-featured, fully functional browser-based applications.  Customers should approach these products as they would any other:  by defining their own needs carefully and then searching for applications that meet all of their needs.  And for many customers, this will mean resisting the siren song of "simple is best".

Do you know where your data is?

On August 4, a Businessweek article described "how cloud computing is changing the world."  The piece confirms that the use of cloud computing, including SaaS applications, is quickly rolling through organizations of all shapes and sizes.  It also warns of some of the most obvious issues and risks.  However, the article could have gone further.

In order for SaaS applications to become mainstream, several additional things have to happen, for example:

- Applications must have more appropriate functionality.  Many SaaS software companies operate on a "simple is better" philosophy.  Unfortunately, business needs are often more complex than these "too simple" tools can handle.  This can lead to frustration before the inevitable (and expensive) replacement process. 

- Applications need better "look and feel" for customers to use them to their potential.  Computer users are accustomed to the instant performance and finely-honed niceties of desktop applications.  They can quickly become frustrated and stop using a slow, clumsy SaaS application.  SaaS software companies are still working through these issues - even Google, with massive R&D budgets, doesn't have perfectly smooth applications yet.

- SaaS vendors need to improve their customer service.  There are a lot of SaaS providers out there that don't have the headcount or infrastructure to scale up customer service along with the adoption of their service.  Many rely on user forums and email support to help customers resolve issues.  More can and should be done with things like granular and searchable tutorial and troubleshooting videos.  Phone support is expensive but should be provided for high value enterprise customers that are paying handsomely for the service.

- SaaS applications must be more customizable.  One of the tremendous benefits of traditional enterprise software is the ability for users to customize it for their specific industry and company needs.  With today's SaaS apps you get what you get and that's it.  Some providers are beginning to do interesting things with configurability but this needs to be taken to the next level for SaaS applications to be of maximum value to businesses.   

- We need more transparency about SaaS vendors and their applications, especially with respect to security.  Thousands of software development companies are pouring into the SaaS application space with their new offerings.  Customers need to know more about these applications than they did when they purchased desktop software. 

For example, where is the application and data hosted?  A single server in an office somewhere can reasonably run several hundred or even several thousand customers - but it's also remarkably easy to pick up and carry off.  So, is the server safe?  Is the data safe?  Is the power supply reliable?  Can their employees get access to your data?  Is your data being backed up?  Where to?  How often?  What's their disaster recovery plan?  What happens to the application and your data if the worst happens and they go out of business?  What happens if the best happens and they become phenomenally successful - can they scale their application appropriately?

These are important questions but unfortunately they're difficult to get answers to.  Perhaps we need a rating system that assesses SaaS applications and their vendors. There are SAS 70 audits that verify a service organization has been through an in-depth audit of their controls and safeguards with respect to hosting or processing data belonging to their customers.  But this is a long and expensive process and is an unrealistic standard to hold smaller providers to.  What the SaaS industry really needs is a "TrustE for SaaS" -- some kind of independent third party that evaluates a SaaS provider's systems and procedures and provides a seal or certificate verifying they meet certain standards.

Is there an independent standards organization out there that will step up to the plate?

Customer 1.0 = Customer 2.0

In a recent blog post, Gabriel Morgan described how today’s software creators need to be aware of changes in the software sales environment.  To do this, he suggested that a new type of software customer has evolved, “Customer 2.0”, who has different needs than traditional software customers (“Customer 1.0”).  Customer 2.0 he argues has the following characteristics:

•    Has optional purchase models (flat rate-based and consumption-based subscriptions)
•    Pays only for what they use when they use it
•    Adds features to the experience seamlessly
•    Expects upgrades to be free and continuous
•    Swaps providers easily
•    Has flexible software budgeting
•    Expects a rich internet application experience
•    Accepts ad-based features
•    Expects Self-service Problem Resolution and Service Management
•    Accepts internet/cloud based software that is not installed on-premise
•    Has data locally and in the cloud
•    Has a direct relationship with the Service Provider
•    Instantaneous purchase and activation

While I agree with much of Mr. Morgan’s thoughts on recent changes in the software landscape, I believe that there is only a single customer.  This customer bought software 10 years ago, then 5 years ago, and will buy software today.  In each purchase decision, the customer looks at four primary attributes:  macro functionality (what the software does), micro functionality (the user experience), performance and value.

I’ll briefly explain these now and then expand on them in the next couple of entries particularly as they relate to SaaS software:

-    macro functionality is the features and functions of the software or what the software does.  My word processing software must let me apply bold and italics in a variety of fonts, copy and paste, spell-check, and print WYSIWYG.  These are my minimum functional criteria when I’m evaluating word processing software, regardless of platform.

-    micro functionality refers to the look and feel of the software;  how it lets me do things;  how it responds when I’m performing functions.  For example, when cutting and pasting text in the old days, I highlighted the text, pressed the “cut” command (which made the text disappear), moved to the insertion point and pressed the “paste” command.  Modern versions allow me to highlight and then “drag and drop”.  Both methods are equivalent from a macro functionality perspective;  however many would argue that the “drag and drop” method “feels” better because you never lose sight of the text.

-    performance refers to how quickly the software responds.  This can be further sub-divided into how quickly it responds to a particular command (ie. print this report) and also how responsive it “feels”.  Are there delays when I grab something to drag and drop it?  When I move my mouse, is there an immediate visual cue, such as the cursor moving or a highlight bar changing?  Performance and feedback mechanisms aid tremendously in how comfortable the customer feels when using software.

-    value is the benefit received by the customer divided by the product’s cost.  Increase the benefit, increase the value.  Decrease the cost, increase the value.  Some software creators decrease the functionality of their product (which decreases the benefit and therefore the value) and then compensate by decreasing the cost to maintain value.  Customers are wise creatures indeed and are able to determine value very effectively – even without fancy formulas like this!

With that all said, I believe that Gabriel Morgan and I share much of the same understanding of the environmental changes in software.  But I prefer to be crystal clear that customers act the same regardless of whether they’re buying packaged software, SaaS software or a new car.  And it’s this crystal clear focus on the customer that will help software designers make appropriate product design and pricing decisions.

Hello, Again!

I last wrote in my original SaaS blog about 18 months ago.  Since then I’ve been on hiatus working on a couple of things (more on this below) and now I'm returning to  writing about the SaaS world on my new blog, “Glassey on SaaS.”

A quick recap:  to me, SaaS (Software as a Service) is roughly defined as software applications that run in a browser, are hosted by third-parties, and are paid for through some kind of usage fee (ie. a monthly service fee is one example).  There are many more nuances that deserve to be discussed more fully and I’ll discuss these in up-coming posts.  In the meantime, my very strong feeling is that SaaS applications, which are still in their early days, are here to stay and will ultimately be the way that most software applications are deployed and used.

In the time since my last post, SaaS applications have come a long way.  There's been a ton of investment and development activity in the SaaS world, lots more SaaS applications are available, and they provide an all 'round better user experience than they did a couple of years ago.  SaaS apps certainly haven’t hit Main Street yet, and I think there is a lot of work to be done before that happens.  In fact this will be the basis for several upcoming posts.  But they're clearly the first choice of Geoffrey Moore's innovators and early adopters and this is a critical step in the process.

So where have the last 18 months gone?  I’ve been working on two projects primarily.  The first was to get my MBA which I did through the Kellogg executive MBA program hosted in Canada by York University’s Schulich School of Business.  Great program which I thoroughly enjoyed.

The other project, more relevant to this discussion, was to put my money where my mouth is and create a SaaS application.  My team created a commercial-grade collaborative project management application called Projjex.  It’s in the market and being well received by customers.

Lots of lessons learned along the way, both from the design and development of a SaaS application, and also from the customer feedback.  I’d like to share these experiences and lessons with you in this forum.  If you’re a developer or marketer of SaaS apps, or if you’re a SaaS user or potential SaaS user, then I hope you will visit regularly and participate in the discussion!