Software
as a Service, A Continuing Story
We’re
watching Software as a Service go mainstream.
This will be a continuing saga, so we’re trying to
bring you news of it on an ongoing basis.
Here are a few more. You’ll
want to note:
(1)
The emphasis
on figuring out how to do this AND make money at it – Round 2 (or
is it 3?) SPs have figured this out.
(2)
Many of the
players are offering net-native software.
We’re pretty sure this is going to be the only way to go,
but we’d be happy to hear a counter-argument – if someone can
find a convincing one.
(3)
Customers
continue to want more – more applications, more services, more
ability to customize – and smart vendors figure out how to keep
them happy without breaking the model.
Salesforce.com
Introduces Customforce.com
The
thing we admire about Mark Benioff and Salesforce.Com is that he’s
never satisfied with his current success; he’s always looking to
get bigger and better.
Having
proven that Software as a Service really works – and that CRM is a
prime example – Benioff is now thinking much more grandly.
At the recent Dreamforce User Conference, Salesforce.Com
announced that it would now offer a new application development
infrastructure, Customforce that would permit highly customized
on-demand applications to be built within the SalesForce.com and
Supportforce.com application architectures.
This
will allow business professionals to extend their Salesforce.com
applications and databases in a Microsoft Access level tool, but in
an On Demand environment. Suitable
applications might include HR Recruiting and Retention, Bug/Defect
Tracking, and Asset Management.
Customforce includes features like custom tabs, fields,
layouts, reports, workflows, object, and controls.
Customforce will be offered to Salesforce.com customers at no
additional charge and the companies hopes they will use it instead
of desktop applications. Customizations and data will be stored on Salesforce.com
servers.
Supportforce.com,
announced earlier this year, extends call center support software,
hosted by a variety of call center providers, to Salesforce.com
users. All of
Salesforce.com’s offerings are built on its Sforce platform.
Salesforce.com believes it now offers a variety of tools to
allow ISV’s, developers, and in-house IT to extend and customize
its applications and to integrate them with existing applications
such as ERP.
It’s
important to note how different this path to customization is than
early ASP attempts to please customers’ demands for customized
versions of standard applications.
•
ASP’s
lost money trying to create the customization themselves, with
tools that were ill-designed for the web environment and then lost
more money trying to support multiple versions of applications.
•
Here,
Salesforce.com is opening up a built-for-the-web development
environment and offering to let the customers (or developers and
ISVs who are working for them) to provide this customization.
•
Customizations
belong to customers and are designed, by the architecture, to be
handled by them, in a self-service environment.
•
Importantly,
these customizations ride on top of the main application so that
Salesforce.com can create upgrades and carry the customizations
with them. This is in
sharp contrast to traditional application software, where
customized versions must be rewritten, often at great expense,
with each upgrade cycle.
Changing Business Models
We
note that at the SoftSummit Conference in California several weeks
ago, there was a lot of discussion about pay-as-you go software –
which is exactly what vendors like Salesforce.com are offering.
For a
net-native vendor like Salesforce.com, it’s fine.
They never had any other business model and they always
assumed that money would come in one month at a time.
But
for traditional software vendors, who are addicted to the notion
that every new customer pays a very large up-front fee and that most
customers then continue for years, paying for maintenance an
upgrades (a kind of annuity for the vendor, if you will), changing
to a pay-as-you go model is at least painful, if not fatal.
So
traditional software vendors are often trying to cook the model.
A
favorite way is by requiring a long term commitment, typically two
or three years, which is nothing like what most customers have in
mind. While, in fact,
satisfied customers are likely to continue using a software service
for long periods of time, they buy in partly for the perceived
flexibility of being able to leave when they want to. Also, they want to be able to easily, and without penalty,
tune usage volumes up and down.
Another
trick is to get substantial revenue up front.
This might be by offering a discount for a customer who pays
for a year or more of service up front.
Or it might be by charging an “implementation fee” for
setting up the user’s account, particularly for large, complex
accounts with substantial degrees of customization.
Both of these are legitimate.
In fact, we recommended recently to a software vendor friend
that they could reduce turnover by offering a discount for longer
terms of service, paid in advance.
It just shouldn’t be the only offer if you’re really in
the Software as a Service business.
What
will happen? Not much
– until enough net-native software vendors with modern pricing
models and robust software offerings are out there competing with
the traditional application software vendors.
Then the traditional vendors may find themselves forced to
rethink their pricing policies by the inevitable forces of
competition. Of course,
a smart, traditional vendor would figure out how and when he was
going to do this in advance, starting now.
Avaya
Offers SP Solutions
Avaya
is a provider
premises equipment to enterprises for IP Telephony and call centers.
It is now extending these technologies in a
usage-based version, to Service Providers (SPs) who will offer them
to mid-sized company customers (with as few as 100 employees).
This will permit the customers to access these solutions
without the need for capital investment and provide the SPs with a
new recurring revenue stream and, of course, additional traffic for
their IP network.
Avaya
provides end-to-end support and management tools for its hosted IP
telephony and contact center solutions including building and
testing at Avaya Labs and at service provider data centers to
validate interoperability in the carrier environment. Avaya
also supports these new solutions with new polling and rating tools
developed specifically for the service provider market. The
company also provides network assessment and implementation support
for service providers and their customers through Avaya Global
Services.
SIIA’s Report On Software
as a Service
The
Software Information Industry Association (SIIA) sponsored a report
by TripleTree LLC, published in July, on Software as a Service,
Changing the Paradigm in the Software Industry.
This
looks into exactly the issues traditional firms are addressing in
trying to move to an on-demand, subscription software model.
The information on business models is particularly well
developed. I’m a
little less thrilled with which firms they picked to write about –
some of my favorite examples are missing.
However, there is a wealth of information here for software
companies trying to figure out how to get to the next version of a
rapidly changing market.
Copies
of the report may be ordered at www.siia.net/estore.
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