In a recent discussion regarding SaaS meta-data and the potential for using it to provide benchmarking solutions to customers of multi-tenant services, Liz Herbert, an analyst with Forrester Research in Cambridge, Mass., said “That’s where SaaS has a huge advantage.”
What is the background and why is this so important? SaaS has moved through two generations and is now entering the third – one that promises to deliver even greater disruption to the software industry and even bigger benefits to customers.
First generation: ASP and Hosted Solutions
During the 90’s as the majority of applications migrated away from mainframes to open systems, customers lost passion for the perpetual software licensing model and started demanding more flexible licensing solutions. As a result, the “subscription economy” was born. Software vendors responded to the new demand by simply taking their existing on-premise software applications and hosting them on a server while offering customers the ability to subscribe to these applications. There was very little innovation in this generation as most of the change was around pricing and delivery of existing products.
The ASP or Hosting model was born, and surprisingly enough, it still exists today.
Second generation: reducing TCO with multi-tenancy
The next generation of SaaS vendors emerged with vendors such as Salesforce and Netsuite. These “pure play” SaaS vendors did not have the baggage of supporting a legacy software code base. They built web applications from the ground up and delivered a substantially better software and service architecture in the form of SaaS multi-tenancy. Multi-tenancy allows sharing of infrastructure resources among customers (“tenants”) to achieve scale at growth.
The efficiencies in this approach and the ability to further contain service delivery costs have made the multi-tenant approach the unchallenged best practice for modern SaaS vendors. Multi-tenancy also provides the ability for vendors to offer self-service, pass operational costs savings back to customers in the form of lower subscription fees and better manage the tenant’s data.
Next generation: meta-data based products
Because of the inherent architecture where all customers are in a shared infrastructure, the aggregated data can be analyzed and shared across the customer base to deliver value never seen before. Benchmarking is a prime example. Consider a SaaS financial applications vendor delivering a service that compares a customer’s days-sales-outstanding metrics or average order size against the average of all data in the system. Areas for possible improvement will quickly be identified and because the benchmarks are real time, continuous improvement strategies will become a reality to customers of multi-tenant SaaS solutions.
Yes, there are privacy concerns, but the significant customer advantages and the fact that only aggregated data is used will quickly negate these issues. My prediction is that we will see more and more SaaS vendors starting to offer meta-data based products. SAManage will offer a benchmarking capability to our customers in the near future.