On-Demand - Customer Relationship Management

Sometimes all credulity is challenged. That happens to me most frequently when I’m watching episodes of Heroes (which I don’t like) or Lost (which I love). But in second place as a category is listening to CEOs of major technology companies spout what I think I really couldn’t possibly be hearing. For example, even with the enormous success of SaaS, there are still arguments deriding the SaaS model. Take a look at the following comment from Harry Debes, CEO of Lawson Software, in mid-2008:

This “on-demand, ”SaaS phenomenon is something I’ve lived through three times in my career now. The first time, it was called “service bureaus.” The second time, it was “application service providers, ”and now it’s called SaaS.

But it’s pretty much the same thing. And my prediction is that it’ll go the same way as the other two have gone—nowhere.

SaaS is not God’s gift to the software industry or customer community. The type is based on one company in the software industry having modest success. Salesforce.com just has average to below average profitability.

People will realize the hype about SaaS companies has been overblown within the next two years.

Needless to say, this is a silly comment coming from someone who you think would know better. If he doesn’t, perhaps the rest of the marketplace can set him straight. In December 2008, Gartner released “User Survey Analysis:Software as a Service, Enterprise Application Markets, Worldwide, 2008.” The survey found that out of 258 executives worldwide, 90 percent of them intended to maintain or increase their investment in SaaS in 2009.

Okay, I feel better now that I’ve gotten Mr. Debes’s rant out of the way. He may be a wonderful guy;I don’t know him personally. But he shouldn’t speak on matters he knows nothing of—apparently.

What Is It?
As I mentioned somewhere else in this book (it’s too big for me to remember where), back when I wrote the third edition, what we now call software as a service (SaaS) vendors were called application service providers (ASPs) or the much sexier “net natives.”In 2004, this was a pretty new category that was doing something that was still seen as radical. It provided software to you for the price of a subscription based on the number of users who used it. That would be paid monthly or annually, or whatever deal you could squeeze from the overeager salesperson trying to earn their keep. In return for that repeatable payment, you received financial comfort and the gift of no overhead costs and no maintenance by you. It made all the sense in the world.

At the time it was aimed primarily at small business, with even the “disruptive innovator” salesforce.com, the true pioneer of this new model, aimed at not much more than that. But from 2004 through now, something happened. The model worked so well that salesforce .com changed the customer paradigm. First, they won a large enterprise deal with SunTrust Bank. Then, back when Merrill Lynch was still Merrill Lynch, they won a 25, 000-seat deal. It became apparent that one of the prevailing myths, that on-demand was for small companies or departments of larger ones only, was nothing more than that—a myth. On-demand was proven to scale to tens of thousands of seats. Shortly thereafter, Workday, an on-demand human resources services company run by PeopleSoft founder David Duffield, won a contract to deploy 200, 000 seats at Flextronics, putting this story to rest for good.

SaaS’s popularity continued to grow. It may have begun its current incarnation back in 1999 as a curiosity, but it is easily the fastest growing delivery method for enterprise software, led by SaaS-based CRM, especially in sales force automation.

But the sophistication of its use has grown too, so that some of the more complex or high volume CRM-related functions are now provided as hosted solutions. For example, SAP’s Business Objects has a product called Business Intelligence on Demand (BIOD) that supplies complex business intelligence algorithms as a hosted service. SAS has the customer experience analytics product it.In Topic Sales and Marketing: The Customer you learned of sales intelligence product SalesView and the social media monitoring tool Radian6, and in topic Customer Service Is Our Name—and Our Game the customer service applications like Right- Now and Helpstream—all SaaS based. The list is nearly endless and covers the gamut of enterprise software, from back office to front office, from CRM to financial applications to the supply chain and logistics.

Advantages and Disadvantages
Having all these application services available doesn’t guarantee the success of SaaS—though it is indicative of its adoption as a platform and delivery model. There are some well-defined and welldocumented benefits that SaaS users tout. There are also some seriously funky disadvantages.

Information Week did a survey in June 2008 with 471 major IT users. Roughly 25 percent used SaaS as their platform. The respondents liked SaaS for reliability, upgradeability, and ease of use. They saw it as problematic for its costs, inability to customize, poor integration, and difficulty in switching vendors. For the most part, the value and the problems with SaaS are seen early on in the process, so the practitioners have very little gauze over their eyes throughout the life of the deployment.

Matt Prise, a manager at Lifetime Fitness, which is using HR SaaS vendor Workday’s services to the tune of 17, 000 seats, offers an almost perfect reflection of the SaaS paradigm: “Workday is extremely configurable but not customizable at all.” He mentioned its user friendliness and good user interface. He also mentioned that Workday is great on getting customer input for new features and functions. But he also knows its limitations. However, even customization issues are becoming moot with the release of Platform-as-a-Service products like salesforce.com’s force.com.

Okay, table time. Put away your forks. I don’t mean the dinner table. As I did with the on-premise section, Table shows a breakdown of SaaS advantages and disadvantages on its own, not against on premise.
Table: Advantages and Disadvantages: SaaS
Advantages and Disadvantages: SaaS

Giving the Myths Back to Edith Hamilton
Enough with the myths, already.
In 1942, Edith Hamilton, known as the greatest woman classicist, wrote a classic of her own, called Mythology. This book became the go-to book in high schools and colleges and in general for anything to do with the study of Greek mythology. While not updated since 1942, the book is still revered within academic circles. With all the hubbub about the “problems’ with SaaS, I think it’s time to summon the spirit of Edith Hamilton, so she can update the book to append a section on SaaS mythology—or perhaps add a new chapter entitled “SaaS Problems: New Mythologies for the 21st Century.”

There are quite a few myths, which have achieved at least the status of urban legend, if not full-blown status on Mt.Olympus. You’ll note that even though I’m myth busting, you’ll see one or two of these in the disadvantage column—primarily because the severity of the problem is the myth, not the problem itself.

Myth 1:Security Is a Major Problem
In the Gartner survey mentioned above, 62 percent of the respondents said they worried about their data being behind someone else’s firewall. That worry is not that well-founded though there is always some risk in an environment not controlled by the data owner. But the fears are generally groundless because of the totality of the security schema that companies like salesforce.com use. For example, salesforce.com has:

  • Data center security That means onsite security guards 24/7; private “cages” for their hardware;security cameras inside and outside; access screens via photo IDs and biometrics; escorts to go to machines.

  • Internet security 128-bit SSL encryption for all Internet traffic ensured via step-up certificates for any country in the world; VeriSign certification.

  • Network security Hardware firewalls; minimal routable IP addresses;Network Address Translation (NAT) for all servers;separate subnets for corporate websites and applications servers;centralized proactive log monitoring using algorithms for intrusion detection; historic log storage that is monitored for violations of multitenant security design or nonstandard URL access (something like what Google Feedburner does on blog monitoring).

  • Operating system security Hardened OS with all unnecessary ports and services shut down; untouchable root services;avoidance of native code to prevent hackers from exploiting security holes.

  • Application level security MD-5 hash encryption for all password storage; more advanced password options such as password reuse prevention;invalid password lockout; restricted access by role or profile; annual security audit; multifactor authentication.

That’s blanket security enough to provide a security blanket.
That doesn’t mean there aren’t any security issues to be concerned with. There are. For example, in the on-premise world, because of potential security bugs, there were pretty frequent security checks run between alpha, beta, release candidate, and final versions of a product, to thwart any possible intruder. But because SaaS is a set of application services, the changes are continuous and incremental, so the frequency necessary to check for security problems goes up considerably.

All in all, though, your data is safe at the host’s site—perhaps, depending on your own security schema, safer than it would be on yours. So while that might not bring you peace of mind, it will protect your data—which should bring you peace of mind.

Myth 2:Integration Is Difficult
This is a constantly debated issue that is truly a non-issue. Most SaaS providers use standard web services to communicate. The on-premise providers are increasingly using service-oriented architectures, which use standardized web services to communicate. Many vendors also use RESTful architecture. It uses a subset of standardized web services to communicate. All in all, these systems are interoperable. They can communicate with each other. Here is a case in point. Ingres is a roughly 350-person open source database management company. In 2007, they decided to go to an SaaS-based model that would apply to every single application they used. Their approach wasn’t to use a single suite. They made the decision to go best of breed. So they used Intaact for financials, salesforce.com for SFA, Xactly for sales compensation, and ADP for human resources—every one of them an ondemand service. It has worked so well that they are going to expand to SaaS-based professional services automation, on-demand vendor Silverpop B2B for marketing, and something unknown as yet for contract management. Their rationale is the pricing model: its pricing structure is the same as a utility, a.k.a. pay as you go. They didn’t see on-demand as any harder than on-premise to integrate. They also used Force.com to build custom screens, tables, and fields.

So integration is hard—how exactly?

Myth 3:The Amount of Downtime for SaaS Proves the Unreliability
On January 6, 2009, salesforce.com had a 38-minute outage. If you were to believe some of the pundits, this 38-minute outage was responsible for furthering the recession, if not the decline of civilization as we know it. My personal favorites all came from a pretty sleazy journal, the Register. They went like this:

  • “Salesforce.com . . . was unreachable for the better part of an hour.” (That would be 38 minutes—which technically is the better part of an hour—but it isn’t 59 minutes, which, when a system is out, is a notable time difference.)

  • “A single disruption paralyzes a small fraction of the world’seconomy as a whole.” (As a result of the outage, the Register questioned the validity of cloud computing—not even the same thing. I’m sure it’s a small fraction of the world’s economy— a very, very, very, very, very, very, very to the nth small fraction. A recession is a bigger disruption I would think.)

  • “Nearly a million customers” were affected. Actually 900, 000 customers were affected, but by saying nearly a million, you could imagine up to 999, 999 customers being affected. That’s a 10 percent difference. “Nearly a million” is technically not false, but stated that way for dramatic panic-mongering effect.

Aside from the general hack job that the Register was doing, it is indicative of the fear that downtime induces. The reality is that not only is downtime at a minimum in hosted environments, with the vast majority of the vendor-hosts having closer to 99.99 percent uptime than not, but more recent studies have found that there is far more downtime in environments that are on-premise.

In June 2007, Managed Objects, a business management-consulting firm with something to gain most likely by these results, found in a survey of 200 IT managers that the bulk of downtime in major corporate environments is as a result of on-premise home-grown or custom applications. In fact, 61 percent said downtime was due to applications and 82 percent said the cost of downtime, estimated at $10, 000 per hour, was significant enough to impact their business. Their estimated downtime per instance was three to four hours.

To make it more direct:Google hired Radicati to do a study of Gmail downtime versus the on-premise Outlook or Groupwise e-mail downtime and found out that in 2008, Gmail averaged an aggregate 10 to 15 minutes a month downtime, with the on-premise e-mail averaging 30 to 45 minutes a month.

Part of the problem with the downtime is that perception is far worse than the reality. Think about your Internet service provider (ISP). How much time in a given year do you lose when your connectivity is lost, either for a moment or several hours? I estimated from my own provider, Comcast, I lost about eight hours all in all last year, in increments of a few minutes to about four hours. I managed to not only live through it, but my business continues to prosper. Yet, the SaaS downtime “events” bring out the critics who attempt to mold public opinion, such as the Register did in January 2009.

Really, it’s the difference between cars and airplanes. Airplanes are among the safest modes of transportation—much safer than automobiles. But the problems are more spectacular and affect larger groups of people, so they are perceived as a more dangerous way to travel. Because on-demand outages affect multiple companies and are public, while the on-premise outages usually just affect a single company and are private, the perception of the on-demand outages is worse despite the shorter time periods.

The best way to deal with this—the only way to deal with it—is to have a strong guarantee for uptime in the SLA that you have with your host. This won’t prevent downtime, but it will provide penalties for it, which means at least you won’t pay for it.

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