Wednesday, June 12, 2013

Why "Enterprise SaaS" may soon be a misnomer

One of the most exciting developments to hit the enterprise software world in decades was the rise of SaaS.  Companies like Salesforce.com blazed a trail that built enormous amounts of wealth and improved the lives of end-users.

Prior to SaaS, most enterprise software was sold based on perpetual licenses, to CIOs and IT departments, with little to no input from end-users.  The result was generation after generation of shelfware.

In contrast, SaaS made it easy to adopt new software packages, especially for line-of-business managers, shaking up what had become a rigid market dominated by three players (Microsoft, SAP, and Oracle).

A second wave of SaaS companies rode the freemium business model to even more rapid success, as exemplified by the "Box Brothers," Box and Dropbox.  These cloud storage companies used the consumerization of the enterprise to build 9-figure businesses.

There's only one problem--as Box and Dropbox turn their attention to true enterprise sales, they're going to find their way blocked.

Quietly, "Enterprise SaaS" has been beaten to the punch by "Hybrid Cloud."  These companies provide a web/mobile front end that runs on a back end contained in the customer's data center.

CIOs have jumped on hybrid cloud like a starving man on a pizza.  SaaS promised to make datacenters (and the CIOs who run them) obsolete.  Hybrid Cloud lets them offer the CEO and business heads SaaS-like apps (consumer-y, web/mobile) while still keeping the keys to the kingdom (the datacenter, hardware, and data).

Faced with a choice between paying the Box Brothers $1 million+, or spending most of that on their own datacenter and staff, which do you think the CIO is going to choose?

It ain't pretty, it ain't in the best interests of the business, but it's going to happen.

6 comments:

UzoAgu said...

Completely agree with you.

Was a bit taken aback by how prevalent/in your face "the protecting our turf" mentality was in some of the places I visited/worked in the past 2 years And also how aggressive Microsoft/SAP/Oracle/IBM play there.

MsUzoAgu said...

Completely agree with you.

Was a bit taken aback by how prevalent/in your face the "protecting our turf" mentality was in some of the places I visited/worked in the past 2 years. And also how aggressive Microsoft/SAP/Oracle/IBM play there.

Chris said...

Microsoft SharePoint is a piece of garbage that allows CIOs to build up an empire of developers separate from Engineering. Despite its numerous flaws, it is highly successful as a business...provided you don't make end-user satisfaction a criteria

Foobarista said...

My impression is that there are three sorts of "enterprise" software:

1. "Consumer enterprise" that can be adapted individually. It may have an enterprise use, but since it's typically cheap and useful to individuals, it can be marketed and sold like consumer stuff. The "box" guys are at this level.

2. "Group enterprise", which is typically larger scale, but not "galactic" targeted corporate software. Desktop and most generic infrastructure tools (such as databases, as well as most computers, networking gear, etc) play at this level.

3. "corporate enterprise" that is at the strategic level. Things like SAP, most of the stuff IBM does, and domain-specific apps (shop floor mfg, oil&gas specific apps, financial stuff, etc) are at this level. They're specific enough and expensive enough that they require a strategic commitment by the enterprise to adapt, take a long time (and expense) to sell, and often require a political effort and internal champions to successfully deploy.

The cloud is easiest with (1) and actually (3), but (2) is the hardest since it's typically stuff you just have to have internally, or it requires a big culture and political shift but only incremental profit potential.

It's actually easier to sell a total cloud story for domain-specific expensive software (provided the SaaS provider isn't itself also using the cloud).

One aside: needing to host data internally isn't always about Neanderthal empire builders looking to preserve their jobs and perks: there's a ton of regulations around sensitive corporate data that make it harder to store in the cloud. Also, recent hacking episodes and the NSA nonsense won't make the "total cloud" Kool-aid taste any better.

I work at an enterprise SaaS "type 3" company. We had to do a ton of work, spend megabux on audits and certifications, and have dozens of white papers on exactly how we satisfy the alphabet soup of regulations around the data in our business. We briefly thought about using Amazon or one of the other cloud data worlds ourselves, but quickly realized that we couldn't pass regulator audits if we did so.

Chris said...

Great points, Foo! Though I am somewhat skeptical of the security argument when people still operate email systems which are remarkable unsecure.

Foobarista said...

In the market we're in, auditability is as important as security, in terms of actually closing a sale. The regs are mostly about auditability, ie the ability to say with precision where all data is at all times. One could make a strong argument that the regs are out of date with this requirement, but that's a question for lobbyists, politicians, and bureaucrats, not people trying to build businesses.

One could also say that almost nobody is actually complying with the full letter of the regs, but if you're a SaaS-style company in a heavily regulated market, you are forced to be more Catholic than the Pope, and using "cloud under SaaS" makes this extremely difficult.