Software as a Service

Don Dodge has a great post on the software as a service (Saas) business model. Here is his list of things a potential SaaS provider must focus on:

• Cashflow - VCs must be patient and willing to fund you to break even.
• Sales compensation - Look at metrics, total compensation, and cash flow.
• Engineering - Have an open architecture that supports end user customization
• Hosting - Partner with a solid, well funded, hosting company
• Legal contracts - Automatic renewals, termination clauses, SLA (Service Level Agreements), privacy issues, data loss, data export, and a variety of other issues must be addressed in your subscription license.

With traditional enterprise software, consultants configure the system, tailoring it to the customer’s requirements. In far too many cases, some sort of project problem results — delays, cost-overruns, lost ROI opportunities, and all the other evils that this blog describes.

In contrast, the SaaS model relies on products that are simpler to use and easier to deploy than traditional installed applications. Clearly, lower cost is an immediate benefit to the software as a service customer. Of course, lower cost means that the elusive software ROI becomes more easy to achieve. It’s enough to make even the most hardened CFO smile.

However, is this a fool’s paradise, and can a generic system really support a company’s business as efficiently as a richer installed application suite? Without doubt, the implementation will be far simpler with SaaS. But, over time, will that SaaS application enable the kind of benefits that users expect from installed applications? It will be interesting to watch both the SaaS vendors, and the traditional software suppliers, to see how they come to grips with each other in the medium term.