Industry veterans are familiar with the application service provider (ASP) concept. The idea is that a business software company, or its designated partner, hosts an enterprise software offering for end-user IT organizations. This eliminates the need for IT to plan, deploy, support and modify the software in-house.
While the ASP concept has always seemed like a good idea, it never really took off. Now, we’re hearing about the same concept with a new name: software as a service (SaaS), a phenomenon whose poster child is Salesforce.com. Is SaaS just hype, or is something really going on here? And if there is fuel behind these flames, what’s different? Why has a model that has languished for a decade suddenly gained steam?
SaaS and the Marketplace
Advocates insist that SaaS’s time has come, and after attending the Software as a Service Conference (SaaSCon) in Santa Clara in April, I tend to agree. It is clear an emerging industry is quietly but steadily gaining ground and that SaaS may be on track to change the face of enterprise computing.
Salesforce.com CEO Jim Steele believes the SaaS market will represent 25% of the software delivery marketplace revenue within four years. If this is true, SaaS will have an enormous impact on the way IT does business, and on the fortunes of enterprise software companies.
Before Salesforce.com rolled out its first services in 2001, companies that wanted to keep track of sales leads and pipelines installed customer relationship management (CRM) packages such as Siebel’s Sales Force Automation. These products were notoriously difficult to implement, with some estimates putting the percentage of CRM licenses relegated to shelfware as 50-to-75 percent. Why? CRM packages are expensive to buy, they are more expensive to deploy, and can be unwieldy to use.
Industry experts estimate that between 65-and-85 percent of CRM project implementation attempts end in failure. The reasons are numerous and varied but when the costs are totaled, a failed CRM implementation is an expensive proposition. Licensing costs start at six figures, and the total deployment costs can hit seven and eight figures with everything factored in.
With a track record like this, it’s not surprising companies are seeking alternatives. These deployments are considered to be both high-cost and high-risk, with a history of failures and cost overruns. It’s only natural that a paradigm that promises to mitigate both cost and risk has proven attractive, and that is exactly what is happening with SaaS.
Almost 30,000 companies have already exited the CRM obstacle course in favor of Salesforce.com. Although some say that’s just a drop in the bucket—Salesforce.com’s revenues are growing at a rate of 50-to-75 percent, per year.
And although the enterprise resource planning (ERP) side of SaaS is not quite as well developed as the CRM side, Dave Duffield, the ERP heavy-hitter who founded PeopleSoft in 1987, is in the process of addressing this shortfall. After Oracle acquired PeopleSoft in January, 2005, Duffield went on to found Workday.com. Duffield’s Workday is now in the process of developing an ERP package designed specifically for delivery via the SaaS model.
The track record for ERP implementations approaches that of CRM. Because of the complexity of implementation, many ERP companies actually took a hands-off approach and relegated deployment to IT consulting firms. Although this is certainly one way to get rid of a headache of your own making, thousands of “Big Four” consultants put their kids through college on earnings from ERP implementations; some of which were successful and some of which were not.
Popular wisdom says, “What goes around comes around” and it looks like Workday could have the same impact on the ERP marketplace as Salesforce has on CRM. Workday is already starting to sign clients and Duffield indicates that his platform is on track to be fully competitive with SAP (with the exception of a manufacturing module) by Q2 2008.
Enterprise Software and ASP
There is no doubt SaaS is on track to garner increasing market share, but many insiders are wondering what has changed. The good news is products like Salesforce and Workday are not just ASP re-packaged, but totally new products engineered specifically for SaaS delivery.