Viewpoint -- There's a Gathering Storm on the Horizon and SaaS is at its Center

July 30, 2008
Watch the financial results and growth numbers of SaaS companies vs. those with only traditional, on-premise solutions.

Wang, Data General, Digital Equipment Corp., Prime, Burroughs, Perkin Elmer.

Think about it. When was the last time you heard any of those names? The late 90's -- maybe?

The point is, today they're GONE. "Gone, like Frank Sinatra. Gone, like Elvis and his Mom," to quote the band Switchfoot.

And they're gone because they didn't change with the times. They all had winning formulas in the eighties. They didn't adapt their technologies or their business models or, most importantly, their vision of computing's future. They didn't see the writing on the wall, and now they're gone.

A Storm is Coming...

As I look at the software industry today, particularly in the ERP market space, I am convinced we are in the same position that the entire computer industry was during the 1980s. We are headed for that same kind of a shakeout again.

I am seeing many companies who have not invested in their technologies beyond first or second generation. They were the big names of the '80s and '90s. They have been coasting along just by putting a new .Net front end on a very old data structure and outdated, cumbersome business logic.

That's just lipstick on a pig. They have not moved ahead, and now the ground is shifting under their feet. The landscape is changing dramatically. Totally new names are appearing -- like Plexus,, Netsuite, RightNow, Ultimate and a host of others.

The industry is beginning another massive metamorphosis and the Software-as-a-Service (SaaS) model is the catalyst.

The SaaS Landscape Today

The stuttering launch of SAP's Business By Design is a great indicator of the magnitude of change coming and the role that SaaS plays.

When CEO Henning Kagermann announced Business By Design, SAP's on-demand ERP product for small and medium businesses, he said it was the most important announcement in the history of their company. That was no exaggeration.

SAP has seen the writing on the wall. The fact that they have pushed Business By Design's delivery out another 18 months shows their commitment to the SaaS model and the importance they attribute to getting it right. They have taken a big gamble by validating the model and the market and then giving their competitors a big window of opportunity, but they are clearly committed to developing a sound product.

SAP's current transformation and the upheaval of the '80s serve as a cautionary tale for all of the other technology companies out there who are resting on their laurels and not aggressively investing in their own SaaS applications right now.

Oracle is saying SaaS is not the future. Yet I'd say their chief executive, Larry Ellison is hedging his bets because he is a majority owner in NetSuite, one of the larger SaaS companies around today.

I don't see any true SaaS strategy at QAD, Consona, Infor, Lawson or Epicor. I would be very interested to know how they plan to move ahead. They should take a cue from SAP. How much time has SAP spent on developing Business By Design? How much money? The train has left the station and these guys are still back at the platform with their baggage (literally) at their feet.

Some of the established players are scrambling. First they were denying it, thinking SaaS was a fad or for small companies or point solutions only. Now they're hustling to catch up. But I think they're facing such a daunting challenge by starting this late that some of them aren't going to make it.

That's why I predict this big-time shakeout. It's going to be bloody and ugly. SaaS just makes sense. A fully-integrated suite - rather than solutions from several partners - just makes sense. I am confident that Plexus and some of the other players who are investing the time, money and energy required to build true comprehensive SaaS solutions are going to come out on top.

True SaaS Delivers Real Value

Not surprisingly, I'm still seeing the SaaS pretenders out there. And unfortunately many analysts and media types are still fooled by software vendors who say they have a SaaS solution. With that said, it's worth repeating what true SaaS is.

A true, robust Software as a Service application:

  • Is a multi-tenant system with many companies accessing one copy of the software on a shared infrastructure
  • Can be accessed over the Internet from anywhere at any time with just a browser
  • Is hosted at a proven, reliable, audited data center that can guarantee availability and response time
  • Allows software changes and system software and hardware upgrades to be completed and available rapidly -- avoiding the new version release treadmill and customer downtime for upgrades and staff retraining
  • Has software that is more bandwidth-friendly than older applications since it was written directly to the web
  • Ensures 100% of the screens are accessible via the browser, not just 'portals' for suppliers or customers.

A true SaaS solution brings real value to your business because, by its very design, costs for infrastructure and development are shared by all tenants enabling each to focus investment on its core business rather than building and maintaining an IT infrastructure.

The pretenders will first try to talk you out of SaaS. Failing that, they will try to sell you aging client-server applications running on dedicated (single customer) equipment in a third party data center. This just adds cost to the vendor-customer relationship. The third party needs to make money and each instance of the software still needs to be upgraded for each customer. SaaS evolved to drive out costs and complexity in the relationship between the software vendor and the customer.

Now with all that said and with a clear picture of what SaaS is, it's important to note that the tremors are just now beginning to shake the foundation of the ERP marketplace. Watch the financial results and growth numbers of SaaS companies vs. those with only traditional, on-premise solutions. That will give you a hint of what is to come.

Mark Symonds is CEO of Plexus Systems, Inc . Plexus Systems serves a global cross section of manufacturing industries (OEM and suppliers), particularly automotive, defense, medical device and aerospace companies. Plexus Online is an on-demand software for the manufacturing enterprise.

Sponsored Recommendations

Voice your opinion!

To join the conversation, and become an exclusive member of IndustryWeek, create an account today!