The 80/20 Paradox: Remembering a core value of SaaS...

It is surprising to still see articles like this where people question the fundamentals of SaaS, I mean even Lawson is now talking about a cloud edition, despite their CEO publicly proclaiming SaaS's death by August 2010 a few years back.  But what Lawson and others are doing, known as "cloud washing", helps me understand why people question the value of SaaS.

Here is the clue; whenever you see the phrase "cloud edition" tacked onto the end of a product name, you are most likely being cloud washed.  9 times out of 10, a "cloud edition" is the same old software (Good job Phil, 2005, and still relevant today), just running in a cloud, typically Amazon, with a new name and maybe a new price.  Instead of getting the software on a CD, you turn it on in the cloud, but everything else is the same, read on to see why this matters.

One of the realities that CIO's face today is what is commonly referred to as the 80/20 paradox.  This is the notion that CIO's spend 80% of their IT budget maintaining stuff they already have, and only 20% in new innovation.  Why do they spend so much on maintenance?  Lots of reasons, but a great example is large footprint enterprise applications.  Companies spend huge amounts of money implementing, customizing and integrating these applications with the rest of their enterprise.  Once done, the thought of doing it again is untenable.  Yet regardless, they must continue to pay annual maintenance fees year after year, whether they take advantage of the new features the vendor is releasing or not.  So costs go up, meanwhile they are stuck on outdated products and inflexible to adapt to change.

Think about it from the vendors perspective; on-premise vendors have no incentive to think about upgradability and customizability of their products when they design them, because there is no financial incentive for them to do so.  They collect the license fees and the customers pay the maintenance fees whether they take the upgrades or not.  And it is this problem that has born the necessity for change!

So a cloud washed product does nothing to address this paradox, and does not change a vendors fundamental behavior.  All it does is the move the same old problem into a new data center.  Contrast that with a true multi-tenant SaaS offering.  Upgradability and customizability MUST be designed into the product architecture from the beginning, otherwise the SaaS vendor knows they will never scale their business, and ultimately never make their customers happy.  So as a result the ISV upgrades your product for you and makes sure it still works.  And customizations you make are built to be upgradable, because every customer is customizing their tenant of same instance of the application, so the customization fundamentally has to be upgradable or the ISV knows they would be upgrading their customers one at a time.  Imagine salesforce.com performing 70,000 individual upgrades 3 times a year?

So when thinking about your cloud strategy and talking to vendors, make them sell you on how they will solve your 80/20 paradox!

Comments

[Will]

Rick - Great article, especially your term 'cloud washing'. One of the problems with moving to SaaS though is the portability issue. Many OnPrem ISV's don't have the resources to move from onPrem to SaaS in order to compete, so they find themselves having to at least move to a DC and SPIN'ing' their marketing to at least get on the SaaS bandwagon.....

I guess its short term pain for long term gain!

[Darren Cunningham]

Rick, your readers might be interested in this article I wrote on the topic:
http://www.sandhill.com/opinion/editorial.php?id=313

It's hard, but not impossible!

Darren

[SaaS]

The cloud takes care of all these concerns. New innovationsa are addressed by the ISV and so is maintanance. All in all the SaaS model is better all the way around. And the prtability issue... if the software is in the cloud, where is the portability issue? You should be able to run the software on any device from anywhere. Thanks for the post.