Is the death blow to traditional enterprise software coming?

Published March 4th, 2010 by Doug Colbeth 8 Comments

I believe it is. What I refer to as SaaS 2.0 will be the “dagger in the heart” of the traditional enterprise software model. The first incarnation of SaaS, which was popularized by SalesForce.com, created a totally new value proposition for enterprises. It was a “knife in the stomach” of traditional enterprise software as it triggered a much slower growth rate in big, fat enterprise software sales. SaaS is just a much more efficient model for both the customer and vendor.

I believe what I call SaaS 2.0 will change the enterprise software model forever. Software vendors will take the entire risk of deploying major SaaS based software offerings – before the customer has to commit any monies. The SaaS 2.0 vendors will have to prove the value of their offerings in a production environment – not just some trivial demonstration.

When you think about it – enterprise software vendors have been getting away with the business equivalent of murder. If you think this is an exaggeration – how about getting away with fraud?  There have been billions of dollars and millions of man years wasted on failed enterprise software projects. Consumers do not buy any kind of other products (homes, cars, buildings, airplanes, etc.) under such a crazy business model.

CIO’s are justifiably sick and tired of an enterprise software model which is ludicrous. CIO’s also hate enterprise software offerings which are only useful to a very small user community. SaaS vendors have already addressed this issue.

How could a vendor offer such a riskless value proposition? The SaaS vendor must have a very strong balance sheet (to fund initial deployments), shorter more efficient deployment cycles, and more importantly have an offering which they know works!

Look out for SaaS 2.0 – it is coming!

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8 Responses to “Is the death blow to traditional enterprise software coming?”

  1. Kerry Zuber

    The existing model for deployment requires huge investments before the value of the offering can be tested. This typically not only includes the standard services for deployment, but the subscription fees during the deployment process. By the time the system is ready to prove it’s value, hundreds of thousands of dollars has been invested without a cent in value returned. This often sets the stage for finger pointing and recriminations when the value fails to materialize. With the Saas 2.0 model, the value is proven BEFORE the customer is required to begin paying for the solution, and if it fails to deliver the promised value, then the customer can walk away without incurring any external costs. This fundemental change will transform the buying process and bring new hope for evaluating important supply chain capabilities in a risk free manner.

  2. Hugh Akston

    I’m slowly becoming a SaaS convert but my concern is on the back end. Even with the SaaS model, I still have a significant investment in time and money to make it work in my enterprise. What happens if the provider goes under or othewise fails? Am I dead in the water? Do I need to start over? And what happens to my data? With the traditional enterprise software model, at least I can keep by business running (assuming I got the enterprise software to work in the first place), and I have my data.

  3. Frank Geric

    Interesting and thought-provoking blog. I do not view SaaS as the death knell of the “traditonal enterprise model” but rather the next evolution for enterprise tools. As anyone who has worked with ERP knows, the real benefits of implementing ERP is not derived from the software or the mode of deployment, but rather from the changes that it facilitates. That’s the policies, practices and procedures dirty work that is the messy part of every implementation – that will not change.

    To your point that it changes the customers’ expectations and they will demand to see the software in a production environment rather than a meaningless demo: I believe that change is already taking place and it has nothing to do with SaaS as a means of deployment. Customers are already demanding more specialized product demonstation and greater demonstrable “day-in-the-life”, bottomline impact in product presentations. This is a function of a need for faster, clearer ROI as well as buyers using their position of leverage in a buyer’s market to demand more from ERP vendors.

    SaaS will be a good deployment model for a lot of companies, as evidenced by the fact that all mainstream ERP vendors are embracing a SaaS model for their products. But like all models, it will not be for everyone. There will always be companies that will not want to give control of their vital business information to anyone outside of their 4 walls.

    Thank you again for an interesting, insightful blog!

  4. Doug

    Regarding the back end of a SaaS relationship a vendor can provide protection for the customer in the event a vendor experiences financial trouble or the service would get shut down. Their can be provisions for the back up of data, etc.

    The more likely event would be a SaaS vendor being acquired (even if they are small) by a larger company because SaaS vendors provide consistent revenues to an acquiror. In those rather rare situations they would want to continue the service to secure monthly revenues.

  5. Greg

    Very insightful blog.

    As Frank said, on the down side, there is no confidentiality with Saas software, regardless of the safeguards. Many companies will be wary of that regardless of the guarantees. ERP has given business a new perspective on data analysis that has let many companies compete where previously they couldn’t. The security of data may not be the only issue, the security of the analysis and reporting may weigh in big as well. Never mind outside their four walls, many companies restrict their own personnel.

    On the up side, with current risk analysis, business continuity shouldn’t be a problem, but a new challenge, especially if it saves costs.

  6. Ken Perry

    I agree with Frank that while it is a major shift, it is not the death nell, just the next evolution.

    The era of the huge manufacturing plants and mega systems is quickly coming to a close. A number of software comapnies are moving to Web based systems that appeal to smaller companies that can not afford to have big IT departments and support networks.

    Also, being able to pay for only what you use as opposed to a monster system (like SAP) where you pay a hefty price, but may use only a fraction of the features available is cost prohibitive. I beleive we are seeing a shift and the software companies, as in the past, are adapting their software accordingly.

  7. Arnaud Morvan

    Major software companies will probably offer SaaS, in addition to the traditional solutions:
    - SaaS offers recurrent revenues, and avoids “picks and valleys” revenues.
    - SaaS decreases significantly the cost of support and maintenance supported by the ERP companies

    The customers will be the ones deciding the trend of the software industry. Large companies will keep investing in ERP implementations to improve the business visibility, to manage their end-to-end processes and to keep their data more “confidential”. Smaller companies will probably go to SaaS, as their needs are smaller and the infrastructure is not as big as the one for ERPs.

    One other potential trend: the implementation and integration of dependant best-in-breed software, every one answering to specific business needs.

  8. Gelu

    Here is more on how people look at data integration in the cloud: http://www.readwriteweb.com/cloud/2010/03/managing-data-in-the-cloud-is.php

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