In a recent piece at SandHill.com, venture capitalist Matt Miller argued that the Software-as-a-Service (SaaS) movement is presently overhyped and that progress on this front will prove slower than expected.
"The vast majority of enterprise software does not lend itself to SaaS pricing," he argues. "My thought is that the only time you are likely to succeed with a use-based model is when the vendor is continuously delivering new value and service beyond the traditional software upgrades."
Further, he argues that many enterprise application categories don't lend themselves to subscription or use-based pricing. "Companies buy an app, customize it to their unique needs and try not to change it," he adds. "This applies in general to Supply Chain (too much custom integration here to use a vanilla app) and ERP (also the need for secrecy and security favors a behind the firewall model)."
The CRM exception, SalesForce.com, succeeds because, writes Miller, "the best practices sales process is very similar across many companies AND the hosted architecture is a natural for geographically distributed sales teams. I have bought SalesForce for 3 companies now and barely had to modify it...perfect for SaaS. Other software types which do not favor SaaS are all forms of middleware or many infrastructure products like Network Management."
The question for us to ponder is whether Mr. Miller -- and other SaaS skeptics -- are trapping us in conventional app categories when we need to think beyond these boxes. Arguably, the SaaS and SOA movements enable us to start rethinking our categories of business process automation -- even ushering in new subcategories that might not have lent themselves to automation through the conventional software pricing and implementation models.
Treb Ryan, CEO of OpSource, is one executive encouraging us to think different. "I think it’s a matter of imagining what the nature of truly ubiquitous connectivity now allows us," he says. "While enterprise software has largely been targeted at horizontal apps for large organizations, SaaS allows much more vertical apps that can be used by anyone with a connection (which these days in anyone)."
One example of the potential impact of new SaaS software is "franchisee tools." As Ryan explains it, "Franchisees are essentially a bunch of small businessmen operating under the marketing umbrella of the franchiser. Software as a service would be an ideal way for those two organizations to stay connected. In addition, the constantly updated nature of SaaS offerings would allow the Franchiser to much more effectively keep their franchisees updated on price changes, new offerings, or special promotions."
The point is that the SaaS model has the potential to change the economics of and open up new opportunities in all sorts of application areas. We shouldn't merely wrap ourselves up in the same old three-letter acronyms.