It’s Not About the Web Browser

by

ERP Analyst,

The primary innovation behind software as a service (SaaS) is the web-based architecture – users accessing the system through a web browser rather than, say, a Windows application. Proponents of SaaS have trumpeted the benefits of this technological shift. Meanwhile, vendors with older client/server products have evolved their architectures to offer web-based deployment. Some systems are more elegant than others, but today just about every enterprise software vendor offers a web access option.

Why then, is the new class of SaaS (or cloud) application vendors racing ahead with great momentum while the rest of the enterprise apps market ambles along with limited growth?

To put it simply, it’s not about the browser.

Sure, the browser makes it all possible. However, what makes SaaS unique – and what’s changing the industry – is how SaaS companies are bringing to market new applications that are developed, marketed and consumed in a new way. Here are five reasons why I think the real impact of SaaS goes well beyond the web-based architecture and browser-based user interface.

1. Cloud Companies Have Momentum & Attract Great Talent

SaaS companies have an intangible that’s working to their benefit – they’re recruiting exceptionally bright, young talent. The culture of innovation at SaaS companies attracts some of the brightest minds from top-tier engineering universities like the Ivies, CalPoly, Carnegie Mellon and Stanford. This youthful talent understands web-based technology in a totally different way than employees from earlier generations. This provides a tremendous advantage given that a software company is only as good as its development team and their ability to innovate.

Why are SaaS companies such a talent magnet? Many of these cloud apps companies are relatively new start-ups and offer recent grads an opportunity to be part of a nimble, evolving company. These talented individuals feel like they can make a bigger difference at a company with a couple hundred employees rather than one with several thousand. It’s an environment that gives young people more room for professional growth and the ability to see their ideas implemented. To sweeten the deal, they get to spend their time creating new technologies – essentially from scratch.

2. Multi-Tenet Architectures Enable Smoother Scaling

Most SaaS firms develop on a multi-tenet architecture that’s radically different from legacy architectures. With multi-tenancy, every customer operates off the same code base, rather than each having their own implementation. As a result, multi-tenet architecture affords developers several conveniences – such as the ability to roll out a system update to all customers at once – allowing SaaS companies to scale development more efficiently. This drastically changes the way buyers update and customize their software.

Because every company shares the same code, developers are able to roll out their updates to all their customers at once. This turns the process of deploying a software update, which sometimes took years with single-tenant, on-premise systems, into an overnight affair. A further advantage of multi-tenancy is that company-specific customizations are left in tact when the system is updated. This is because customizations are made in metadata. For the non-techies out there, metadata is data that defines the settings and customizations for each customer, but is maintained separately from the core application code.

Taken together, the benefits of the multi-tenet architecture greatly reduce the need for professional services and support personnel. And those savings can be re-invested in research and development. The train keeps rollin’ rather than waiting for customers to keep up.

3. Cloud is Changing Enterprise Software Consumption

In addition to shifting back-end development, SaaS companies are also changing the way enterprise software is evaluated and purchased. The typical SaaS vendor’s subscription-based pricing model is simpler and makes software more affordable. It changes a software purchase from a capital project needing CIO, CFO and IT approval to a simple budget line item that business users can spend at their own discretion.

However, the shift in consumption isn’t just about a different pricing model. I see three other ways SaaS is changing enterprise software consumption. First, most SaaS companies publish pricing on their website – something that was unheard of 10 years ago. This let’s buyers know upfront exactly what they can expect to pay and what they’ll receive in return. Secondly, SaaS companies allow buyers to pay for their software license by credit card (gasp!) – and for shorter licensing terms. This makes paying for, and getting out of, a software license much easier. Finally, SaaS vendors can provide potential buyers with a functionally complete trial version of the software to test out – often for free. In the past, this often wasn’t possible given the amount of configuration and up-front investment typically required.

4. Great User Experience Equals Happy Customers

Historically, enterprise software hasn’t been overwhelmingly friendly when it comes to the user interface (UI) or user experience (UX). It’s why a standing army of consultants and professional services firms exist to help buyers customize their systems and learn how to use the software.

For SaaS companies, the UX is an obsession. They’re intensely focused on how to make the UI better, faster and more intuitive. More specifically, SaaS companies focus on the look and feel of the software to create the best experience possible.

These companies have learned their UI/UX lessons from the tech giants that have made the web such a user-friendly place – Google, Amazon and eBay, among others. SaaS companies focus intensely on A/B testing, eye tracking and user groups to determine which software design optimizes usability. The emphasis on usability is important because it reduces the need for employee training and helps buyers get more out of their product – which makes customers happy, which is always a good thing.

5. A Younger Workforce Flat Out Gets the Web

It only makes sense to circle back to the importance of the web. Most of the people working for SaaS companies are children of the web. That is, they’re part of a generation that grew up with Internet access. Sure, they were around for slow-speed dial up, but the Internet has always been there. As a result of growing up in this environment, SaaS companies are very comfortable using the web for business and understand how it works. This means that they’re also much more likely to aggressively utilize the Internet as a sales and marketing tool.

SaaS companies know what users expect from a website about enterprise software. They want web demos, trial versions of the system and user ratings of the product. In addition to providing what buyers want from their site, SaaS vendors are also more likely to take an aggressive approach to online marketing since they lack a legacy marketing environment. These companies are intimately familiar with online marketing strategies, such as search engine optimization (SEO), search engine marketing (SEM) and online lead generation. As more and more buyers flock to the web, SaaS companies are waiting in the wings to deliver.

This is just my opinion on what, beyond the web browser, makes SaaS companies a disruptive force in enterprise software. What impact do you see SaaS companies making on the software world? Please leave me a comment below.

Thumbnail image created by RambergMediaImages

 
  • Jack Boyer

    Derek,

    Nice post.  You really thought about this.  

    We support two non-SaaS products and have for 17 years.  Currently this involves supporting roughly 5 different versions for both products.  

    It also means clients that pay their maintenance plans annually don’t always get immediate, or sometimes any value, out of their plan.  The zero value or marginal value situation can happen when users pay for the plan, but are too busy to upgrade or too unwilling to make infrastructure upgrades (server, operating system, database) that are needed in order to upgrade the ERP program.

    We picked up support for a SaaS ERP program recently (Intacct) and are excited to see that clients get almost immediate value from the recurring payments they make with regard to staying current.

    Jack Boyer
    http://jackboyer.blogspot.com/

  • http://twitter.com/micheleaymold Michele Aymold

    Great post! #4 really got me thinking about how “beyond the browser” really applies here. A great user experience as a holistic approach has been adopted by leading SaaS providers, in terms of robust, active user communities, online and offline events, and a strong focus on the commitment to service in Software-as-a-Service. I wrote up a summary of how we extend user experience beyond our software to continuously engage our customers and enhance our product based on their needs: http://blogs.bigmachines.com/blog/b2b-sales/great-user-experience-beyond-the-browser-set-cloud-computing-companies-apart

  • Rick Blaisdell

    Hi Derek,

    I wrote a follow-up article here: http://www.rickscloud.com/more-thoughts-on-how-is-cloud-computing-changing-the-software-industry/

    Great post!

    Rick

  • David Strom

    Derek, I think you bring up some good points, but there are other costs involved that you don’t mention, so I have put together some of my thoughts here: http://www.readwriteweb.com/enterprise/2011/08/the-true-cost-of-saas-apps-isn.php

  • http://www.joukoahvenainen.com jahven

    Good points. It is interesting to see, how many “experienced” IT or software professionals have problems to see that SaaS is not only technology or way to deliver products. And they still try to sell old fashion expensive licenses for their old products, the only difference is that they are installed into a cloud. Sometimes it works, but I agree that change is actually much more, how to use, consume, and think software and company’s IT services.

    • Jeff

      SaaS is many things but to act as if up front license fees are somehow much worse than subscription fees is to basically believe that CORT Furniture is better way to furnish your house.  Renting is always more expensive in the long run and if you add up the 10 year cost of using any SaaS product versus buying an Perpetual license with a maintenance contract you will find that the present value calc will show that buying is cheaper.  Just because you have a SaaS service doesn’t mean you have to rent the software portion of the service, renting IaaS makes economic sense due to massive economies of scale, renting vs. buying the same software does not!

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