Often, we run into opposition from the IT departments at potential customers. A frequent refrains goes: “We should just go with our ERP vendor. It’s the safe bet.”

Remember the old saying that went: “No one ever got fired for buying IBM?” Well in this industry, the corollary is that no one ever got fired for buying Peoplesoft or SAP. IT groups at many large companies have embraced this mantra fully and completely.

The problem? It’s just not true anymore.

We hear frequent stories about companies joining our customer ranks after trying (sometimes for years) and failing to implement solutions from ERP competitors. The reality is that buying Peoplesoft/Oracle and SAP just isn’t as safe as it used to be. Furthermore, those solutions are not any more flexible or secure than those offered by On-Demand vendors. In fact, there are numerous arguments to be made that in fact SaaS solutions are MORE flexible and secure.

There’s a concept in the technology world called FUD that is a core component of sales strategies for ERP companies. It stands for Fear, Uncertainty and Doubt. ERP salespeople plant these seeds of FUD in IT groups around the world to cement their incumbent positions.

I’d like to suggest that we’ve reached the point where the FUD is facing the wrong way.  The danger is not in On-Demand, where if it doesn’t work, you shut it off. Where vendors are aligned towards customer success, because they have to win the business again and again, year after year. Where professional services employees are domain experts who can ensure business results and not software consultants who can ensure software roll-outs.

The risk is shifting towards the incumbents. The installed, behind-the-firewall guys who require big hardware and software purchases with some consulting and implementation fees for dessert. Where you’ve got to pay for the software before you find out if it works and are between a rock and a hard place when it doesn’t.

The FUD, my friends, should be with the ERP solutions. Make a wrong call there, and you’ve spent untold amounts on failure. So, good IT folks, fear not On-Demand: We’re on your side.

Oh, and here’s an article from an IT guy that makes the point a little differently.

Quote:

For its part, on-demand is relatively neutral. But when coupled with something that enhances value or functionality, it’s an amazing solution that should be at the top of managers’ must-do lists. In the end, on-demand will make careers, not break them. It’s just too hard to keep a good idea down.

In business, but especially in the technology world, you can sometimes figure out what a company is planning by looking through their job descriptions. As an example, here’s an old post from one of my favorite gadget blogs, engadget, about Apple potentially making Ipods wireless – based on a job description they found on the company’s website. (The company later worked with Motorola to put Itunes on a cell phone)

The point is, you can sometimes divine a company’s intentions by seeing who they’re looking to hire and what skills they want those people to have.

I was directed to this job posting for a consultant at a company we are sometimes compared against. It includes skills such as:

• BS in Computer Science with related experience
• Significant Web Application Development experience (SQL Server, Oracle and/or DB2, HTML, Java script, Server-side scripting ASP JSP)]
• Interaction with client IT directors and managers

Now, here are some bullets from a requisition for a consulting position at SuccessFactors:

• Several years of experience in software integrations within or for a Human Resource Department.
• Experience in HR practices, as well as PeopleSoft, Lawson, Oracle or other HR software preferred
• Extensive HR background in Organizational Development, Leadership Development, Succession Planning, 360 Review, Core Competencies, etc.
• Experience with managing the Quality Assurance processes for software implementations
• Excellent oral and written communication skills
• Technical understanding of software operating systems and ability to work comfortably with HRIS engineers.

The difference should be plain. SuccessFactors consultants are hired because they know HR – and are focused on solving HR business problems. Others are hiring software focused consultants because they are focused on delivering a piece of software.

Who would you rather have on your side?

For further reference, you might want to check out this piece at ZDNet about the real meaning of on-demand versus traditional software.

A great post at ZDNet on the reasons why on-demand applications are truly different from traditional software. The models are so fundamentally different, it’s virtually genetic, as this quote explains:

The focus of a conventional software sale is getting the customer to buy the software. When conventional software executives talk about customer success, what they have in mind is helping customers install and run their software successfully.

The focus of an on-demand application sale is maximizing usage. When on-demand executives talk about customer success, they really do mean customers’ businesses operating more successfully — which, as I said earlier, is the real reason why businesses buy applications in the first place.

The lesson, really, is to buy the solution that lets you expend the majority of your energy on solving your business problem and not on the details involved in customizing, testing and deploying software.

This is really well written piece (as I’ve come to expect) from the Software as Services blog at ZDNet. I highly recommend a quick read. I’ve also written about this before, here.

At the ZdNet SaaS blog, Phil is listing the analysts he thinks really get the on-demand model. I’m not familiar with everyone on the list (I’m working on it). Though it could be misconstrued as blatant cow-towing, I’d vote for some of the guys who cover our space.

The small business trends blog has a list of the top technology trends for small business. One of them (they aren’t numbered) is hosted applications. The author points out that:

A pretty good article in the San Francisco Chronicle on Christmas day about On-Demand software. More or less a primer on On-Demand, it profiles a number of SaaS (Software as a Service) companies including RightNow, Salesforce.com and NetSuite. Here’s a snippet from the article in which On-Demand is explained. My favorite part is at the end, when the approach is compared to buying electricity from a power plant instead of installing a generator at your business:

The movement sweeping the business software field is known by a pair of interchangeable names, "on demand" or "software as a service." These refer to a change in the way software is sold. Instead of software that is delivered by CD or bought in a bulky package, on-demand software is delivered over the Internet.

The software resides on servers operated by the company that sold it. That allows many users to have access to the software at the same time. It also allows the company to update the software whenever it wants or needs to, without hawking an expensive upgrade.

Sometimes companies pay up front for this service, but often it’s sold as a subscription: Companies pay a monthly fee for however many users they want to have access to the software, and the host keeps the system working.

Michael Topolovac, CEO of Arena Solutions, offers the analogy of the power industry. If you don’t have power, you could buy a generator. As your business grew, you’d establish a generator room, have fuel trucked in and keep mechanics on staff to run it. But wouldn’t it be nice if someone would establish a power plant and run lines to your business, so you don’t have to have all that distraction?

"On-demand software," he said, "is the power plant." 

Interesting report from AMI Research showing that On-demand HR applications are taking off among small and medium sized businesses. There’s a very strong case to be made for software as a service (SaaS) use among SMBs – low upfront costs, easy implementations, high configurability, super-quick time to real value and so forth. We released a couple of completely new products recently to serve these markets – Professional Edition and Manager’s Edition. I’ll spare you the commercial (you can click on the links if you’re interested).

From the report’s press release:

According to Sau Lam, Research Analyst at AMI-Partners, “Several factors are fueling this trend. Traditional on-premise HR applications are often too costly, time-consuming and resource-intensive for most SMBs to deploy and manage. Full-service HR outsourcing can also be too expensive. Plus, it requires that customers sacrifice visibility and control. Web-based solutions can potentially provide SMBs with a more viable option for servicing their HR needs,” Ms Lam continued. “At the same time, SMB HR needs are growing. They need to automate operations to meet increasing regulatory requirements, and compete more effectively to maintain a dwindling supply of skilled personnel in a shrinking labor force.”

Much has been made about the Internet as a force of democratization, and that’s true even in the world of enterprise software. As a former small business owner, I loved SaaS applications becuase they gave me functionality that similar sized competitors could only dream of. In that way, they lent a real competitive advantage. That advantage is especially true with HR software.

Workforce performance management is, in some ways, more impactful in smaller companies in which there is less margin for error. Good HR applications can reduce administrative burdens that can bog you down. They can also provide the benefits of goal alignment and performance management processes that make sure everyone is pulling together and that the company is getting the most out of its employees and vice versa.

Is the era of traditional enterprise software (Hardware, Software, Configure, Integrate, Test, Deploy) ending? Our customers think it is, we think it is, and now Wall Street is coming around, too. In an article on thestreet.com called "Software’s Eve of Destruction," Kevin Kelleher talks to Gordon Ritter – a Partner at Emergence Capital (one of our investors) – about the downfall of the old, expensive enterprise software model that’s already underway.

From the article: 

"The whole software industry is being disrupted by the software-as-a-service approach," says Gordon Ritter, an Emergence partner and a former vice president at IBM . Ritter says that the rise of Salesforce.com came shortly before the decline of Siebel, and its subsequent purchase by Oracle — and it’s no coincidence.

"Salesforce.com is taking down Siebel and pulling biz from it. You have a giant coming to its knees with a start-up disrupting them with a better value proposition," Ritter says. "We see new entrants coming in with this software-as-a-service approach. We see a giant industry with disruptive forces hitting it."

Software as a Service (SaaS) is a catchy way of describing the model that companies like SuccessFactors and Salesforce.com use to deliver our applications. But, the important part is not the name. The important part is the reason that the model is so disruptive – that customers get a total experience that is simpler, less costly, less time consuming, more usable and generally better than the old way.

SaaS companies have to work harder to make sure their customers are happy. You know why? Becuase if the customers don’t like it, they SHUT IT OFF.  They export their data and move along. Of course there are some costs associated with switching, but they aren’t abandoning some huge implementation investment like they would be with old school enterprise software.

SaaS companies are often compared to utilities becuase you switch on the services when you want, and shut them off when you stop needing them. But SaaS companies are innately more customer focued and friendly. They have to be – you can’t shut your electricity off, can you? Or your gas? Of course not. You can’t switch, or do with out them. But with SaaS, you can shut off your CRM system and move to another one you like better.

So what we’re left with is that SaaS is a business model that’s completely dependant on customer satisfaction. Traditional enterprise software meant that customers spent so much money implementing and customizing (see the difference between customizing and configuring) that the cost of switching to another system was so high that it virtually never happened. They had you locked in.

On the other hand,  SaaS companies MUST do what they do faster, simpler and better. Saas companies MUST stay focused on keeping their customers happy. Saas companies MUST provide real value consistently – or else their customers shut them off. How’s that for a win-win proposition? That’s the real value of SaaS for customers and at least one reason why SaaS is becoming such a disruptive force in software.

Anita at the Small Business Trends blog is talking about the impact Software as as Service (SaaS or SaS) is having on small business. She does a great roundup of some of the discussion going on right now and talk about the benefit to be reaped by small businesses.

Money Quote:

If you are a small business that is a user of technology, your choices of affordable, easy-to-implement services are going to become much bigger. You will have access to ever more powerful software, without the need for involving your already-stretched — or non-existent — information technology staff.

From individuals using Google, to the Enterprises and Small Businesses using services like SuccessFactors and salesforce.com – SaaS is a powerful movement. When Microsoft comes around like it has in the past few days – you know it is truly the future of software.

Via Be Excellent

 

Further justification for the on-demand model: get bug fixes faster. If anybody tells you software doesn’t break – they’re lying. Software is fallible. Sometimes the best QA misses the most tiny error that only one person in a billion will ever come across. But with SaaS it gets fixed fast, and it gets fixed for every customer simultaneously.

From the post:

Of course, conventional on-premises software vendors already realize that this is an advantage and are straining to rearchitect their legacy code along service-oriented lines. These projects, variously named Fusion, NetWeaver, Nexus and Dynamics are due to bear fruit sometime between 2007 and 2012, if anyone can be bothered to wait that long.

Read more at the Software as Services blog at ZDnet