So this evening, I got to dine on some very nice flesh courtesy of Callidus Software. They sponsored Tim C.K. Chou talking about the “End of Software”, otherwise known as Software as a Service (SaaS).
Interesting talk, confirming what I have thought for a long time and something that Salesforce is making millions on… installed software is costly to maintain. But the funny thing is that Tim missed one of the key reasons why installed software sucks and costs so much -vendor indifference!
I used to work at (nameless), which sells enterprise software.. For the longest time, (nameless) was in the business of big installations, long roll-outs, long sales cycles. Of course they had long training classes where legions of people (who had no say in the original decision to purchase (nameless)’s solution) were compelled to remember the cryptic commands and button clicks that would insure they would be able to continue to do their job. These people dread the next release of the software because invariably the magic would change and they would be thrust back into a world where they were worse off than before (nameless) was introduced and their quarterly bonus that much further out of reach. Of course the source of the pain was the software engineers toiling away thinking of nothing more than ‘improving’ the software.
When I asked about just making the software more usuable and more obvious… here was a sample answer:
Well we colored the buttons yellow to make our product easier to use.
(pause for the screaming)
So anyhow when (nameless) decided to shift to the SaaS model, all of a sudden they discovered and felt directly the pain only the customers felt before. Now (nameless) was at least incensed to make the software easier to install. Time will tell if they move beyond yellow buttons.
So back to the talk. Tim talked about the reason he rejoined Oracle (and he admits that at first he didn’t see the value of SaaS), but it was to help create Oracle’s SaaS solution.
One of the first key question Oracle faced was that of security. But this is interesting, which company is better about securing their Oracle databases: Oracle or some random paper company — obviously Oracle. But also there is some data that is more secure outside the company than inside. For example, salary and HR data. A company’s DBAs have access to every employee’s salary if that information is hosted internally. However, if the data is hosted by Oracle then the vulnerability to internal hackery is gone.
People don’t have a good idea of the cost of software. According to Tim the cost of maintaining the software is between 70-80% of the total IT budget. In some companies the IT budget is completely devoted to just maintaining the existing software.
Oracle found that 4x-8x the cost of the original “price” of software is spent per year to maintain the software system. This means that if the software cost $1million. Maintenance costs were $4million/year so with in 5 years the true cost of the software was $21million. Apparently ‘free’ software has just resulted in increasing the multiplier, but there is still real and significant costs.
So what is the source of these costs: patches, backups, hardware upgrades, os upgrades, hard disk crashes, configuration management software, etc. But the other reason for the cost is that each system at a customer site is different than the one next to it. The OS is at a different rev, the hardware is newer, older, or from a different manufacturer. These differences mean that nothing is ‘standard’. This non-standardization means that opportunities to use automation to reduce costs are few…. and the quality of the result is low. Now as a fan of the agile programing model — I loved the next statement “High quality = low costs, low quality = high costs”….
SaaS steps in
SaaS is all about standardization, repetition and automation — at a level beyond that of which an individual company can achieve.
Three interesting things about SaaS: Specialization, Games matter, Knowledge is king.
SaaS is all about heavy degrees of specialization. The service does one thing and does it well. Ostrich farming software or search (google) — SaaS means that many of the mechanics of getting the utility of the software (notice — not the bit of code themselves) disappear. If ostrichfarming.com is based in Australia – they can still offer value to the ostrich farmer in Russia or Colorado.
Specialized providers know the market – the generalists don’t.
In World of Warcraft, a player can see if the other character is a mage or a fighter, their race, and in general there ability. But most importantly, in WoW, teams of various skills interests, language, and abilities from all over the world come together to achieve a goal and then they go away. In WoW this happens automatically and all the time. SaaS and game theory are very similar in this regard. WoW has a currency-based system, SaaS-based business such as seriosity are exploring applying this to business problems.
Service matters and information means better service
Amazon is arguable able to offer better service than the corner bookstore because Amazon can answer the questions: “What do other people think of this book?” and “Will I personally like it?” So this is the next step beyond SaaS. No longer is the question about what feature to add, but now people are interested in the question “Which sales compensation plan works best?”
Interesting stat: Google/Yahoo see 100 terabytes of data in the visible web. 100,000 terabytes of hard drive storage was sold last quarter alone.
Interesting afterwords: Shanker Trivedi of Callidus (SVP Marketing) said one of the biggest issues they face is educationing the customer on the value of the service they can offer. This says to me that the value of SaaS is still being realized and there is a long way to go for the average non-geek executive to really realize the impact and potential. I also suspect there will be more turmoil in the IT ranks as more and more software isn’t sold as such but offered as a service. SaaS lets customers really see the value of the solution they are buying not just a blizzard of marketing promises.