In the beginning there was customer relationship management (CRM). After years of costly implementations of applications that delivered poor return on investment (ROI) and left unused licences gathering dust on IT departments' shelves, software as a service (SaaS) allowed companies to pay for applications on a monthly subscription model, access them via a commodity Web browser and to pay for as much or as little as you needed, scaling up and down the number of seats.
Chief among the early evangelists was Salesforce.com, which specialised in sales force automation (SFA) and annoyed market leader Siebel, which itself made a short-lived SaaS pitch with Sales.com. Around the same time, Oracle CEO Larry Ellison funded the launch of NetSuite which combined CRM with back-office enterprise resource planning (ERP), while elsewhere RightNow Technologies offered its own SaaS customer service to complement its on premises offerings.
"CRM/SFA being the first major area where SaaS blossomed helped to establish a level of user acceptance of and comfort with the new deployment concept," reckons China Martens of analyst firm The 451 Group. "CRM/SFA was a comparatively safe place for customers to experiment with on-demand and assess its appropriateness. It was also an area that they could move out of relatively easily if SaaS wasn't working for them, although that's probably less true now. The SaaS delivery model is popping up in every single kind of application from ERP, particularly HR, to business intelligence (BI), to supply chain management to security-as-a-service applications. It's like any application, vendors now have an additional box to check: 'What's your on-demand strategy?'"
For their part, CRM/SFA firms Salesforce.com and NetSuite are expanding the SaaS ecosystem by encouraging third-party firms to develop applications that will run on top of their own platforms through the Force.com and N-BOS initiatives respectively. "Our strategy is to enable third parties to build verticalised versions of NetSuite to solve specific business problems related to agricultural dealer equipment, for example, or electronics distribution or computer resale," says NetSuite CEO Zach Nelson.
Salesforce.com CEO Marc Benioff comments: "Our users have created 44,000 custom applications. It's amazing what they are doing: they are modifying the system to make it just for them. They're creating new SaaS applications that we didn't even dream of."
Early examples for this in action include Coda, which has developed a SaaS version of its financial products using Force.com. "There's a whole untapped market for on-demand accounting software," argues Jeremy Roche, Coda CEO. "On-demand is becoming a much more acceptable and appreciated way to deliver and consume software. The next breed of financial director will grow up with Facebook, and GoogleApplications and so on. Companies will entrust accounting systems to the Cloud."
What's more interesting is that a new breed of SaaS supplier is emerging that addresses other critical areas of enterprise business. These include Workday and SuccessFactors in the HR and Talent Management markets, Zuroa in the billing and invoicing space and LucidEra in the business intelligence (BI) sector. Some of these are in early days mode (such as Zuora) while others are the proverbial best kept secrets - SuccessFactors boasts the largest SaaS implementation in the world.
"The enterprise business is our bread and butter," says CEO Lars Dalgaard. "Nokia Siemens Networks, one of the world's largest network communication companies with 60,000 employees, is rolling out integration performance for alignment and compensation in 97 countries. Another great story is CadburySchweppes where we helped the company drive alignment for 11,000 employees in 10 languages in business units in Europe, the Americas and Asia/Pacific."
Zuora is an interesting example of the new breed of SaaS supplier in that it has been partly funded by the CEO of one of the original SaaS firms, Salesforce.com's Benioff. Zuora is a SaaS billing and invoicing firm that came to attention earlier this year. Early adopters include web analytics firm Coremetrics which uses it to manage 27 different pricing models, but Zuora's services can be used at any company with a subscription-based business model. "The idea of SaaS is growing like a weed," says Zuora CEO Tien Tzuo. "Two years ago people were a bit sceptical, but there's been an epiphany. Our goal is to create a market, not just to service an existing market. We are trying to do what Amazon and eBay did for online retailers. That is the business model of the future."
There are similar ambitions at LucidEra, a providers of on-demand business intelligence. "Our ultimate goal is to be to BI what Salesforce.com is to CRM and all kinds of transaction applications," says Ken Rudin, CEO of LucidEra. "Traditional BI has been very complicated to deploy and maintain. I've said that BI stands for 'bloated integration'. The focus for us is simplicity. We want to offer people analytics that are simple to set up and use."
So has SaaS broken free of its CRM/SFA origins to become a viable enterprise delivery model? Perhaps the last essential endorsement came with the arrival of SAP and Microsoft to the party. Both can be kindly described as reluctant converts to the SaaS cause, but both have ticked what the on-demand box (although neither has matched their theoretical commitment with deliverable product in the UK). But their embracing of SaaS may be the final push needed for sceptical CIOs to cast an eye over on-demand alternatives to traditional applications, especially as the credit crunch takes a hold.
"It may sometimes be less about on-demand being cheaper in the long term, but more about flexibility in terms of easier customisation or reuse or easier integrations," concludes Martens. "We also see interest from customers in having the ability to move between on-demand and on-premise applications. If that preference becomes widespread, it could be interesting times for SaaS pure plays."
SaaS in the Enterprise: Human Resources, Talent Management
The Allianz Group is a global insurance, banking and asset management services provider, with 180,000 employees worldwide, which faced a challenge in matching talent demand with supply and managing talent quality and risks. To tackle this, it has begun deploying a SaaS solution called SuccessFactors 360 Review which is based on the Allianz competency model and Succession Planning modules across all 65 operating entities.
The choice of deploying a SaaS approach was taken for business reasons. "We didn't look at this from an architecture point of view, it was about focusing on functionality," says Brenda Leadley, head of Group Human Resources at Allianz. "The criterion was how well it would meet our business needs. It was the SaaS functionality that won us over."
But Leadley concedes that selling the idea of SaaS involved a degree of internal evangelism. "There was some resistance at first from the IT department, but they have now bought into it for what we use it for," she says. "The idea on the business side is that we will use SaaS much more comprehensively as we go forward."
This was first published in August 2008