SaaS, Governance & The IT Bypass

My last SaaS posts were mostly about SaaS from a SW company's strategic perspective. This one is as a SaaS consumer - from the viewpoint of business and IT users.

As a business user, SaaS represents a wonderful opportunity to find and start using new applications that make my job easier. All I need is a credit card, a computer and an internet connect. Great - after 10 minutes I can hit the ground running with my free trial. One monthly price and I have no IT budget hassels (hence the bypass), no servers to install, no backups to worry about and no datacenter costs. Personally, at IQ, I use a variety of SaaS solutions and wouldn't want it any other way. Neither would our technical team - they are too busy building innovative technology. So, for a small to mid-sized business or department of a large organization, the model is cost effective and works well.

The picture is not so rosy for larger IT organizations. Imagine this very real scenario: Mary in accounting needs a better way to organize and store invoices, so she get a SaaS subscription to InvoicesAreUs (a SaaS startup) for herself and 5 other team members. Bob in marketing wants to store his collateral online and make it available to the sales team, so he gets a Google Sites account and creates a quick intranet. Meanwhile, the CIO has just paid $10 million dollars for an enterprise Documentum license. Fast forward 3 months, InvoicesAreUs goes out of business and Bob gets fired? There is suddenly a crisis. Nobody has a record of the invoices, since Mary scanned the hardcopies into InvoicesAreUs and then destroyed them (naturally the InvoicesAreUs database is no longer available); Bob still has access to the online Google Sites since nobody has revoked his authorization (there is no tie-in to a central LDAP or similar security directory); and the CIO suddenly has to figured out why employees are paying monthly fees for something that he has already bought.


Could this fiasco have been avoided? Well, yes with 3 main governance components:


(1) All SaaS purchases must be approved to ensure that there is no overlap with existing or planned systems that the purchaser is unaware of;

(2) All SaaS user accounts must be authenticated against a central LDAP (or similar) directory so that users can have their access to the systems withdrawn;

(3) All SaaS data must be provided on a backup schedule with a mechanism to view and manipulate the data outside of the SaaS application.


So, what's the bottom-line? SaaS can be incredibly useful, valuable and cost effective, but to be successful, SaaS vendors need to support coporate IT's governance and security requirements.

Nucleus Research misses the mark on Saas vs ASP

I have been an interested reader of the Nucleus Research's studies since they launched. For the most part their analysis is insightful and balanced but they really missed the mark in their "Hosted versus on-demand" study.

http://nucleusresearch.com/research/notes-and-reports/hosted-versus-on-demand/

If you have ready any of my other posts on Software as a Service (SaaS), you will realize that I consider SaaS to be a strong business model and a great deployment option, but I do not consider it to be the best model or the death of SW as we know it. It will be a delivery model, but not the only delivery model available. Yes, this runs contrary to a lot of pundits (like Nucleus Research), but let's face it - there are a variety of attributes that make a product successful in a SaaS model, while there are other attributes that would make it less successful. For example, highly integrate applications are not well suited to SaaS given volumes, latency, etc. On the other hand, services with additional value-add components like GSX / Celarix or Constant Contact are perfectly suited. Also, hell will freeze over before government entities and a lot of large organizations use SaaS as the only delivery model for their applications. There are just too many compliance, legal and security issues that they would have to overlook or ignore to make it feasible. For many organizations, economics is also not a good reason - the US Government and Fortune 100 companies each have significant enough data center expertise and economies of scale that very few, if any, SaaS providers can compare to.

Most importantly, just providing a solution in a "multi-tenant architecture" is not enough justification for a SaaS model. Multi-tenant architectures work well, that is how we deployed Celarix, but they also have downsides (which Nucleus forgot to mention). Everybody has to get upgraded at the same time, regardless of organizational change management impacts or interfacing issues. If the application is down or performing slowly, everybody is impacted. I have experienced these issues at Celarix (fortunately very seldom). At IQ, our applications are provided either on-site or on-demand (ASP / SaaS). Each customer gets their own virtual instance of their application run from a cluster of blade servers. The cost economics work well AND the customers can define their own backup, interfacing and security requirements. The choice of deployment option is up to our customers (which is where it should be).

At IQ we use a variety of SaaS solutions such as ADP, ConstantContact and GoToMeeting amongst others. Each of these solutions deliver financial value - I don't need to get servers, communication lines setup or IT resources involved. Each of these solutions also deliver unique business value (e.g. ConstantContact takes care of message delivery and SPAM compliance), but that doesn't mean all applications deliver additional benefit from a SaaS model. That I believe is the fundamental issue I have with Nucleus' report - software that delivers unique value as a SaaS solution should be delivered as one. Otherwise give the customer a choice.

Wow!!! What a brilliant philanthropic idea.

While reading the March edition of Fortune, I came across Kiva, a philanthropic "company" that is truly brilliant. I am seldom wowed by an innovative concept or business but this has been a good week. First I stumbled across Mint (http://www.mint.com/) to manage personal finances, and now Kiva.

Using a network of Micro finance organizations, Kiva enables individuals to fund specific entrepreneurs around the world. I liked the idea so much that I have just invested in a handfull of individuals. Not only is the Kiva concept impressive, but so is their execution - everything from their homepage through loan payment is well done.

A couple of paragraphs on this blog cannot do the concept or organization justice -visit http://www.kiva.org/ to learn more and participate. You can also click the banner link on the side of this blog - it's not advertising, just a way for more people to get involved.

Become a loaner - I did.

Nicholas Carr Grades Out At A "B"

I recently read an interview with Nicholas Carr of "Does IT Matter?" fame. His general position, is that as Utility Computing takes-off, IT will become redundant.
http://www.cioinsight.com/c/a/Expert-Voices/Nicholas-Carr-Why-IT-Will-Change/


All in all, I think that he is going for headlines rather than taking into account the distinction between "powering IT assets" versus "delivering computing resources and applications". Powering IT assets has already changed, and IT organizations already use external providers to "power" their technical operations.

Using IQ as an example, our SaaS offering is used by a variety of Fortune 1000 customers and we run it from a third-party data center. In each of the sales to these customers, an IT representative had to bless the deal, knowing full well that they are 2 degrees removed from the actual applications. From an internal perspective, our production websites are run by a specialized service provider as virtual instances. I would much prefer to have them take on the responsibility for bandwidth and HW capacity provisioning.

In each of these examples, the production assets are managed by an IT operations group. So, the staffing of these IT resource may shift somewhat from service users (i.e. business users) to service providers (i.e. grid computing providers), but they are not going away.

Sharpening The Saw Ends In Spider Webs

An old mentor of mine has always preached that life is a journey and that you need to constantly "keep your saw sharp", implying that periodically you need to pick your head up from the grindstone and learn about evolving strategies, trends and techniques. Given the incredible pace in which options for marketing promotions [Kotler's P #4] are evolving, his advice is an absolute requirement to be effective.


Over the last couple of months [mostly between Xmas and New Years] I did a deep dive into the most current thinking on SEM and SEO. Gotta love Marketing Sherpa, Marketing Experiments, vendor white papers and easy access to thousands of online opinions. Well, it was encouraging to see that the techniques we have been using at IQ are current and in some cases "leading edge". We have moved beyond focused website optimization and scoring, landing page testing, conversion tracking and lead nurturing.


I see one 'gap' in current online practices.....current B2B approaches seem to be focused on either Instant Gratification or Long-term Nurturing. There is very little attention on the step after Instant Gratification but before actual sales team engagement. For IQ, given our sales cycle, a sales person is always involved in the purchasing process. So, let's compare a Typical B2B Lead Capture Best Practise (current IQ approach) to what I will call a Spider Web (potential IQ approach).


Typical B2B Lead Capture Best Practise

• Marketing campaign run [online / offline]
• Prospect is sent to a landing page with analytics tracking
• Landing page has a focused call-to-action (CTA)
• Prospect enters their information
• Prospect information is added to CRM system [lead scoring may happen]
• [Instant Gratification]
• Screen shows a "thank-you somebody will be in-touch" message
• The End

An Alternative Spider Web Approach

• Marketing campaign run [online / offline]
• Prospect is sent to a landing page with analytics tracking
• Landing page has a focused call-to-action (CTA)
• Prospect enters their information
• Prospect information is added to CRM system [lead scoring may happen]
• [Enter The Spider Web]
• Screen shows a "thank-you" message + contextually relevant additional information for the user to click-on / learn more about
• The End

What's the big difference between Spider Webs versus Typical B2B Lead Capture Best Practises? Maybe the following points can illustrate them:

1. When a prospect lands on a landing page, the message is tuned to where they are coming from (i.e. what campaign were they targeted with? what keyword did they click on?)

2. Once they have entered their information into your online capture form, you have additional knowledge of who they are (i.e. role, organization size, geography, etc.).

3. With this additional information, contextual content can be presented, engaging the prospect to learn more and to be better informed, ideally accelerating the sales cycle once the sales person speaks to them. For example, a person that self-identifies themselves as working for a manufacturing company, will be presented with a manufacturing specific case study.

Spider Webs are nothing more than a concept of mine but I feel strongly that success comes to those who innovate [and work bloody hard]. My IQ team still needs to refine how we implement and test the Spider Web concept, but the bottom-line goal is increasing the efficiency of our marketing campaigns. Test data will quickly identify whether it is a worthwhile concept or not.

Google - the amazing perpetual revenue engine

Google is truly an amazing revenue generator. In the last six months, our PPC advertising costs on select key-words have risen almost 300%. So, in order for a specific key-word to show on the first page of search results in positions 3 - 10 we are now paying $3.50 per click versus ~$1.20 in July 2007.

The cost increase can be attributed to Google's AdWord tools that prompt advertisers to optimize their campaigns and increase their positioning. Typically, all this means is that you need to increase your per word spend. Each time an advertiser optimizes their campaign, all other advertisers in the category suddenly need to re-optimize theirs. To add insult to injury, the optimized results are typically broad matches with inefficient campaign structures. A bit of a vicious and expensive cycle.

From a business standpoint, the efficacy and cost-effectiveness of Google AdWords is starting to go down. Given Google's higher CPC we have begun to shift advertising $$$ to other vendors and other mediums. While there are oversight and reporting costs of managing campaigns across multiple engines and mediums, financially it makes sense. Over time, I would expect a similar reaction from other advertisers. There is no such thing as a perpetual motion engine and given the alternatives, I don't expect Google to become a perpetual revenue engine either.

SaaS - One Size Does Not Fit All

While getting my MBA from Kellogg, I co-founded a supply-chain and logistics software company (Celarix) that delivered the "software" as a web-based service. We launch the company in 1998, and we were one of the first in our space to offer a solution as a hosted application. When setting the strategy and defining the delivery model, I didn't realize the buzz around SaaS that would come a decade later. At the time, the unique approach made strategic sense, provided a compelling model to customers and resulted in the company being acquired around four years later.
For Celarix, SaaS was the best and only viable delivery model. In a nutshell, the service provided visibility to global supply-chain activities by integrating with hundreds of the world's leading logistics providers. Given the effort required for each integration, it would have been very difficult for any customer to replicate the network that we could develop. By offering the solution via SaaS, we were able to provide software + valuable logistics data.

Today, I see a lot of hype around SaaS but not a lot of business models that provide value beyond just the backend IT blocking and tackling. While there are benefits to SaaS, there are also issues and it is not as a one-size-fits-all option however.
SaaS Benefits
1. Somebody else takes care of the technical "plumbing"
2. Barriers to switching are low
3. Costs can be spread over a longer period of time
4. Time to value can be accelerated



Saas Issues

1. Everybody is up or everybody is down
2. Everybody must run the same software version
3. All change management is on the vendor's schedule
4. SLA's are still scarce - (even Salesforce.com, the poster child for SaaS doesn't offer them)
5. More expensive over the long-term
6. Corporate governance takes a back-seat [i.e. backup, disaster recovery, archiving, SOX compliance, etc.] are mostly outside your control
7. Capabilities for integration into legacy systems is still not widespread
8. Vendor "sustainability" and access to the application is not guaranteed (i.e. with installed SW, if the vendor goes out of business, you still have the SW to run. With SaaS, you have limited recourse)

For some, SaaS is a great options, while for others, on-site deployment is a better alternative. The dogmatic industry drum-beat that SaaS is the best solution for everybody is downright wrong.