Why SaaS Has Better Functionality than Enterprise Software
The SaaS model is more predictable and friendlier to investors than the on-premise model
By: Joe Ruck
Jun. 3, 2009 03:45 PM
Making software is easy. You just collect the market data, generate a high-level technical specification, build the product, and test it. All marketing needs to do is put together some screenshots and sales can just kick back and wait for the orders to start flooding in. Right?
Unfortunately for software vendors, it doesn't quite work that way. It takes a long time - years in fact - to get software right, and the problem starts from the very beginning - understanding the market. Part of the issue is that the market does not understand itself. Go into any large company, and ask them to detail a business process such as order entry, and you will get a variety of differing responses.
The Process of Process
Even when the descriptions by the users are accurate, if the process itself was poorly designed, automating it will only make it worse. To put it mildly, many companies are uneven when it comes to the quality of their internal processes. They may have excellence in one department, yet only mediocrity in another. Automation of a poor process is bad business and only makes the situation worse by creating more efficient ways to fail.
A second problem with automating processes is that too often little weight is given to the value of flexibility. Allowing for a little bit of common sense can go a long way in addressing this challenge, but many applications err on the side of mandatory fields and aggressive input validation among others, which creates a great deal of user frustration.
I Know What I Want When I See It
That leaves the vendor with only one credible option: to build a series of prototypes, or pre-production versions, before settling on the ultimate product spec. This is, in a way, an application of "the wisdom of crowds." Of course, this takes time and is expensive. This often becomes the reason why this approach is not taken with predictable consequence. On the other hand, the vendor may be able to mobilize resources this way, in addition to producing a superior product outcome. Critical to all of this is customer engagement. It is at that point where the SaaS model wins because the process of rapid prototyping and rapid implementation is infinitely easier in a SaaS model than an on-premise model.
What You See Isn't Always What You Get
One problem with on-premise software is that the implementation and integration is often done by the customer's IT department with minimal involvement from the vendor. Even if the vendor's professional services team is involved, important customization lessons are rarely fed back into the product. Perhaps the area where there is the greatest misalignment between the customer and the vendor is that the software vendor frequently has little incentive to see to a successful customer implementation because shelf ware has no immediate detrimental effect on an enterprise software vendor. That stands in sharp contrast to a SaaS vendor whose revenue depends on the renewal of annual subscriptions.
The Reality of Shelfware
Renewal Rates Are the Real Gauge
With SaaS, where all your customers use the same implementation, you can have confidence in the dire as there are many voices pointing out ways the application can be improved. Of course, you will hear both good and bad ideas, but since we're in a market of ideas, the good ones win out. So over time, a SaaS solution begins to represent a consolidated set of best practices. The SaaS model has a built-in mechanism to favor the best ideas and providers for improving the product.
This same dynamic acts as the driver that improves software quality, simply because SaaS vendors can't operate for very long with a serious bug in their application. Not one, but hundreds or thousands of customers will be affected; as a SaaS vendor, you have to fix the issue now. Otherwise you will put your renewal business in jeopardy.
Repeat business is the bedrock of the SaaS business model. The startup costs for a SaaS business are high and it takes time to develop organizational discipline that the model mandates. However, once those milestones have been reached, the SaaS model is more predictable and friendlier to investors than the on-premise model. The real beauty is that the model perfectly aligns the goals of the customer and the vendor in delivering a quality, functional, and tested solution. Because SaaS operates in only a single environment, the need to support a multiplicity of different configurations doesn't exist. That means that engineering is free to focus their time on incorporating new functionality, using the constant stream of customer feedback that a large customer base will bring. In a way, SaaS customers are therefore not just subscribing to a service; they are leveraging the collected, concentrated, and distilled best practice of a whole market.
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