SaaS is a licensing and delivery model which is built for low-cost (to both ISV and user) delivery. Users believe that the single-instance, multi-tenant stack helps to make their services less expensive, but if Oracle (or SF, or NetSuite) were to move to managed single-tenancy and were still able to provide the services at the same cost to users, I don't think anybody (except Marc B.) would cry foul. In fact, they aren't. In IDC surveys, when we ask "SaaS-savvy" users about the value of MT the message is pretty clear: they save money, and they see MT as the reason. But what I don't understand is the notion that "SaaS purists would argue that by...(building MT pods with tiered patch and upgrade schedules), Lye misses out on some of the most significant economies of scale of the multi-tenant model."
If Oracle can serve the needs of its customers - which it knows well - and still provide a TCO which is very competitive, what exactly is the point in clinging to a rigid taxonomical distinction around MT SaaS? Lye knows how to build a profit plan, and Oracle knows how to run a datacenter, and Oracle customers have choice between ST or MT (or another vendor), and Oracle is growing the On-Demand business at a very healthy clip (although at 3% of 2008 revenue, it's still a drop in the bucket). Questioning Oracle's MT purity may make for good Tweets, but it's hard to argue that they aren't serving their customers...
Oracle today announced a new centrally managed single-tenancy option for its SaaS CRM OnDemand application, along with various other features including unlimited custom objects. Existing prices remain the same, at $70 per user per month for the multi-tenant version and $125 per user per month for the previously available single-tenant enterprise version, which is a completely independent instance for which the customer can dictate its own upgrade and patch schedules.
The new ’standard’ single-tenancy option comes in at $90 per user per month. It’s still a dedicated server but, unlike the ‘enterprise’ option, Oracle decides when it gets patched and upgraded. “You can get your own stack of the application but we’ll still manage it and maintain it on our standard schedules,” Oracle’s SVP of CRM OnDemand Anthony Lye (pictured) explained to me in a briefing late last week.
What’s the benefit? Lye says that it’s having single-tenant instances of each component of the application stack, including the database, enabling benefits such as custom performance tuning. He calls this option a ’sweet spot’, perhaps reckoning that most customers will be happy to stump up this small extra delta to have a server (even if only a virtual one) that they can call their own.
What I found interesting is the way Oracle has effectively put a price-tag on single-tenancy, all other things being equal in terms of shared management and data center infrastructure — and it’s set it at $20 per user per month. Assuming Oracle is operating on the same gross margins as Salesforce.com, that suggests the vendor has calculated the extra cost of managing separate instances at just a few dollars per user per month more than the multi-tenant version. But that may not be a viable assumption, because the single-tenancy option has a minimum of 350 users, so maybe Oracle has calculated that it breaks even once it’s covered a cost of $7,000 per server per month.
The other consideration here though is that Oracle’s pod system, which runs its multi-tenant instances on small clusters that often have slight variations from one another, isn’t multi-tenancy as practised by the SaaS purists. Lye points out that Oracle’s pod infrastructure can never succumb to the kind of total outage that Salesforce.com’s servers sometimes undergo. “I’m patching and upgrading the infrastructure seven days a week. I’m just not doing it all at the same time.” But the SaaS purists would argue that by doing so, Lye misses out on some of the most significant economies of scale of the multi-tenant model.
Lye’s riposte is to claim that Salesforce.com adds on so many extra charges it works out far more expensive for customers. “We’re not nickle-and-diming our customers here,” he said. In illustration, he pointed out that in its new release, the CRM OnDemand application, with business intelligence, sandbox testing, disaster recovery and unlimited custom objects, costs $160 per user per month; whereas he has calculated an equivalent set of functions from Salesforce.com — including a third-party BI tool — would cost more than $400 per user per month.
