What is SaaS? Can it Exist Without the On-Premises Comparison?
Posted by Bob Warfield on October 17, 2007
I had two different conversations recently where the people I was talking to were reluctant to use the term “SaaS”. To them it equated to something a non-SaaS ISV was trying to get to, but if you didn’t have that non-SaaS Enterprise ISV background, you thought more in terms of calling it “Web 2.0” or just “web software.” Interestingly, they were kind of uncomfortable with the whole “Service” component of SaaS as well. We’ve all heard the dramatic artifice that says there is no Good without Evil, because Good is only a relative term and it needs an opposite to give it meaning. These folks seemed to imply SaaS was the same.
On a somewhat related note, a lot of folks who will answer to the name “SaaS” actual prefer “On-demand.” I can’t quite get to the bottom of why, but the feeling I get is that SaaS is a little too caught up in Marc Benioff and Salesforce.com, or maybe its more a question of which term they grew up with. Note that the “service” piece is once again missing from On-demand.
After more back and forth, I was able to boil out two issues that relate to this.
First let’s talk about Service. While a SaaS (or On-demand or web software) provider wants to deliver to the customer the benefits of service, at the same time they want to relentlessly eliminate the cost of service delivery. They do this through economies of scale, but more powerfully, they do it by writing software that eliminates the human component of the service. This is the prime function of multitenancy. It’s possible to manage a bunch of instances by hand, but it would be very expensive to do so. The first step is to write a bunch of scripts and perhaps use virtualization to reduce those costs. That still is not cheap. The next step is to actually build the necessary automation into the fabric of the application itself. This dramatically lowers the cost of the service by replacing manual activity with software.
The result is that companies in the SaaS business often do not think of themselves as Service companies. They’re actively trying to eliminate service by replacing it with software so that they can scale more efficiently and pass the savings along to customers. These folks want to be known as software companies and not just companies that added service to software. It’s an interesting nuance.
The second issue is simpler, and has to do with the customer. Companies selling B2B are much more likely to consider themselves as SaaS, while companies selling to consumers think of themselves as having web software.
This business of putting computing in the cloud has a ways to go before we’re all on the same page about exactly how to talk about it. The good news is I’ve talked to many companies using the model and they’re nearly all doing quite well without having to spend a fortune on marketing. There’s a tremendous appetite among potential customers and everyone agrees it’s gotten a lot easier to sell over time.