SmoothSpan Blog

I’ve been enjoying a spirited exchange with some of the Enteprise Irregulars around SaaS and Big Software for the Enterprise.  I won’t bore you with too many of the details, but we wound up in one of the classic cul de sacs these arguments often do.  Big Software was expressing their annoyance that once again incredible magic was being claimed, “Because it was SaaS.”  They were so annoyed at all the hype they percieved SaaS to be, and felt it was duping customers into believing too much in the name of SaaS.  If you read this blog at all (or have had a look at my resume), you will know I am an unabashed SaaS supporter, so when I hear someone shaking their head and bemoaning that SaaS is just a lot of hype, I spring into action.  Like any good evangelista, I launched into a long sermon about the many innovations SaaS has brought about that would be appropriate for any Enterprise (Big Software) Software to adopt regardless of whether they have a SaaS offering.

As it was happening, I was surprised myself at how it was coming out.  I’m not sure I ever heard anyone say SaaS had innovations that should be copied back into on-prem software before, but as I was waxing forth on the topic, I realized it was one of those things that had been germinating in the back of my mind for quite some while.  Let’s talk about that for a minute and then I’ll get into the whole Cloud Babies thing. 

What innovations has SaaS created that others would do well to adopt?  I’m talking about product architecture and functionality here.  Largely, it boils down to the idea of making software that is flexible without requiring expensive custom SI work.  Big ERP is legendary for the amount of expensive SI work that is required to install it.  The cost of such work is extraordinary, and the price tag when that work goes awry has created some legendary scandals in the Big ERP history books.  Getting away from all that is one of the promises of SaaS, and as I was quick to point out in that debate, it’s not just hype.  The economics of SaaS won’t support the expensive SI customization work. 

So how do SaaS vendors deal with the problem?  First, let me be the first to admit that a lot of them don’t.  They just restrict the scope of their offering and you live with that.  Sometimes that means the offering can only be successful for Small or Medium sized businesses and Big Enterprises can’t make use of it.  But that’s not the best answer.  The best answer is to find a way to deliver the flexibility in a way that doesn’t require expensive custom work.  There are two ways the SaaS world tackles this–for some problems metadata is the answer, and for other problems end user-approachable self-service customization works.  Let me give some examples of each.

Metadata is literally “data about data“.  As such, it is a beautiful thing.  Let’s consider the database.  It is very common for different organizations to want to be able to customize the database to their own purposes.  Let’s say you have a record that keeps information about your customers.  A lot of this information will be common, and could be standardized.  We all want the customer’s name, their address, phone number, and perhaps a few other things.  But then there will also be a lot of things that differ from one organization to the next.  Perhaps one wants to assign a specific sales person to each customer.  Another wants to record that customer’s birthday (obviously this is a much smaller organization than the first!).  And so on.  Without metadata, each database has to be customized and changed.  With metadata, rather than changing each database, you build the idea of custom fields in, and then you can just tell the database what the custom fields will be in each case but the structure needn’t change.  Metadata is not unique to SaaS, but it is an important part of the “multitenant” concept.  It makes it possible for all those tenants to live in the same database, but still get to have all their custom fields.

Metadata can also make it possible to enable that second method for flexibility.  Customizing a database without metadata is going to require someone to get into the database, modify the schema, make sure reports are modified to deal with the new schema, make sure the schema changes don’t break the product, and on and on.  Such work is definitely the province of expensive and highly technical experts.  However, once we have metadata, we can create a simple user interface that lets almost anyone add new fields, and that handles all the rest of it automatically.  Suddenly we have made what had been a difficult and expensive technical task approachable in a self-service way by non-technical customers.  Not only that, but they can make these changes quickly and easily, and they can even iterate on them until they get it just right.

Hopefully you can see why making expensive “flexibility customization” easy like this is essential to SaaS.  It makes no sense to sign up for cheap monthly Software as a Service and then have to spend millions to get it customized before you can use it.  Salesforce.com and others have done a fabulous job figuring out how to deliver this kind of thing.  There were a few non-SaaS companies doing this earlier, but nobody had made it an end-to-end requirement for the whole application install experience before the SaaS world came along and its economics made it imperative.  One example of a company that did this sort of thing to good effect was Business Objects.  It’s essential BI innovation was to make it possible to have the DB experts define the metadata needed to make querying the objects easy.  My old alma mater Callidus Software was another.  Our software computed Sales Compensation, which requires a lot of complex business logic.  Most of the players required expensive custom work to create comp plans, but we offered a product where business analysts could create the comp plans using formulas a lot like what you’d find in Excel.

The time is ripe, I would argue, for Big Software to be examined for opportunities to apply the same lessons.  Much Big Sofware is a couple generations older than the SaaS products of our time, so it isn’t suprising there should be some innovations worth looking at.  And in fact, Big Software are no dummies either.  See for example this discussion with Henning Kagerman of SAP’s changes in thinking about how to customize business processes.  Their Business By Design offering is not only a SaaS offering, but also a new generation concept for On-premises, and it is ripe with these sorts of ideas.  SAP has long been one of the customization heavyweights, but the pendulum seems to be swinging to the idea that next generation architectures might need to find ways to maintain flexibility while reducing the cost of customization. 

Adoption of these new ideas by the mainstream even outside of SaaS will be a good thing for all concerned.  But such adoption usually signals the maturation of an area, and this triggered little warning bells in my head.  If Big Software is upset and annoyed at the SaaS upstarts, who will upset and annoy the SaaS guys?  Who will unleash not just all the hype and disruption, but like SaaS, a set of innovations that SaaS, Big Software, and others will want to adopt too.  We’ve got a billion dollar SaaS leader in Salesforce, a gaggle of successful SaaS public companies still growing rapidly, an economic climate set to magnify the SaaS advantage further, and a number of exciting SaaS startups such as my own Helpstream.  The other thing is I’ve noted that when bubbles burst and everyone is wringing their hands in anguish, just as the hype from the last binge is dying down and consolidation is setting in, that’s usually when the next cycle is being born.  You just have to look around for it and it’s probably right there in plain sight.  Enter the Cloud Babies.

I call them Cloud Babies not out of any desire to denegrate, but because the Cloud is still in its infancy.  I am intentionally distinguishing SaaS from the Cloud too.  I mean the Cloud in the sense of Amazon, and perhaps Force.com.  The Cloud as a platform and a datacenter that is not only not the customer’s datacenter, but not even the software vendor’s datacenter.  I mean utility computing and everything that implies.

The Cloud Babies will be just as annoying to those not yet on the Cloud as SaaS is for those not yet selling (or buying) SaaS.  It’s going to seem ridiculously over hyped.  It’s going to seem like it isn’t real, that it won’t last, and that it will only matter to certain market segments or to small businesses but never large enterprises.  In fact, you can already ready most of that out there.  But I have already seen enough of the Cloud (Helpstream moved to Amazon recently) to know that there is a lot more to it than that.  There is a kernel of hard reality to it.  The Cloud is disruptive.  It will lead to innovation.  It will lead to architecture changes that give fundamental advantages.  If you thought the Sequoia memo of doom about what startups should do in this economy was serious, they missed an important point.  Any startup running their own datacenter today is at a huge disadvantage to those who are already in the Cloud.

I saw on Twitter earlier today that Fred Wilson means to sell GOOG and AAPL tomorrow and buy AMZN.  I agree.  If the SaaS Guys were annoying, you ain’t seen nothing yet.  The Cloud Babies are really gonna piss you off!