Wednesday, May 21, 2008

SaaS Platforms For ISVs - Who Wins?

McKinsey & Company published a report predicting the market size for Software as a Service (SaaS) will exceed $37B market over the next 5 years. In particular, the report described the need for Independent Software Vendors to SaaS-enable their products using special-purpose SaaS development tools. Matt Asay also wrote recently that the growth of the top 60 software companies is driven by SaaS.

McKinsey claims that traditional J2EE and .NET platforms are poorly suited to building SaaS applications. According to McKinsey, this opens up a $3B market for Platform as a Service (PaaS) products from new entrants like WaveMaker, Coghead and SalesForce. From the article:

Although SaaS development platforms like SalesForce and Coghead have gotten a lot of attention, this market has so far been remarkably closed and proprietary. The Platform as a Service leader, SalesForce, has both a draconian hosting policy (host your apps and data anywhere, as long as it’s with us!) but also a proprietary language (who needs Java when you’ve got Apex!?).

Moving forward, the same trends driving open source adoption everywhere else in the industry will ultimately drive SaaS adoption of open source, particularly by ISVs whose business plan does not include a low multiple sale to their proprietary hosting provider. Future SaaS platforms will converge with traditional tools, offering on-demand development based on traditional programming languages with built-in tools for mash-up based development for basic users.

Development Problems for SaaS

SaaS is highly disruptive for existing hardware and software providers. SaaS platforms are different from traditional computing platforms like J2EE and .NET in three ways:
  • SaaS platforms contain new core components, such as web services APIs to integrate to other applications and usage-based billing capabilities. This disrupts existing platform providers like BEA and Microsoft.

  • SaaS platforms are designed for multi-tenancy, including global and tenant-specific data schemas, multi-layer administration and virtualization for scalability. This disrupts traditional ISVs like Oracle and SAP.

  • SaaS platform are delivered on-demand, not on premises. This threatens the business of traditional hardware providers like IBM and HP.

  • SaaS products need on-demand customization tools. As SalesForce has demonstrated, a complete SaaS application needs its own customization tools if it is to compete with enterprise solutions like Siebel and SAP.

  • SaaS products need on-demand integration capabilities. This includes ability to integrate with on-premises data (a notorious weakness of pure-cloud solutions like Force.com) as well as with on-premise and on-demand web services.

SaaS Architecture Requirements

McKinsey identified three elements of a SaaS architectures:

  1. Development environment: an on-demand development platform for creating SaaS applications. This platform should be able to ship along with the application itself to allow customers to customize their application.

  2. Run-time environment: an on-demand infrastructufre to deliver applications. This can be a proprietary hosting environment like SalesForce, or an open hosting environment like Amazon EC2. Ideally, the customer should be able to deploy applications on-demand or on premises depending on their security, data integration and other requirements.

  3. Ecosystem for adding new capabilities to applications (e.g., SalesForce AppExchange). This ecosystem should also be able to access enterprise data and services located inside the enterprise firewall.

SaaS Is Make or Break for ISVs

According to McKinsey, SaaS has greatest impact on ISVs, delivering a 50-70% improvement in the level of features that can be delivered for a given investment in development and infrastructure.

For ISVs, SaaS platforms offer low upfront cost, rapid time to market (productive tools + pre-built components like billing) and high quality service delivery. In short, existing ISVs have a limited window to migrate their offerings to the SaaS platform or risk being obliterated by newcomers who get there first.

The lesson of SalesForce versus Siebel Systems is clear: existing ISVs should migrate their presentation layer to SaaS quickly while preserving their existing back end servers. Preserving existing back end logic requires a SaaS platform that supports traditional languages like Java.

Which Platform Will Win the ISV Business?

A battlefield is emerging between established mega-vendors and pure play SaaS vendors. The following factors will separate the winners from the losers in this market:

  • Build a robust offering: cutting edge technology, reliable, high quality.
  • Enable extensive customization: provide additional components that address SaaS-specific needs (e.g., authorization, billing, monitoring & management).
  • Monetize effectively: McKinsey identifies this as the most important success factor. The winning platform vendor will be the one which most effectively creates economic value for its ecosystems!
  • Drive ecosystem growth: enable partners to make money within the platform vendor’s community through collaboration, sharing of tools and best practices.

Although many of the early SaaS platforms are based on proprietary languages and tools, Gartner predicts that 90% of SaaS software will be based on open source within 2 years.

Evaluating SaaS Platforms For ISVs

Here are important criteria for ISVs to consider in evaluating SaaS platforms (sometimes called Platform as a Service, or PaaS):

  • Open hosting: can I move applications I build to another SaaS hosting providers? Many SaaS platforms lock the ISV into a proprietary hosting provider (e.g., SalesForce). ZDNet says that ISVs need to offer their SaaS software both on demand and on premises.
  • Full platform: does the SaaS platform offer a complete development solution with presentation layer, business logic, security, database and web services? Some SaaS platforms only offer part of the development stack (e.g., DabbleDB, Tibco GI)
  • Standard language: does the SaaS platform support development using a standard language such as Java? Many SaaS platforms are based on proprietary languages (e.g., Apex, the proprietary language for SalesForce).

Table: A Comparison of PaaS Vendors

saascompare
* Proprietary language

Peter Laird also has a good SaaS platform review and Phil Wainwright’s has a good comparison of PaaS providers.

SaaS Platform Product Review - WaveMaker

WaveMaker is an open source, visual development platform for building Web 2.0 applications. The WaveMaker studio can be installed on a developer workstsation or delivered on-demand. WaveMaker creates standard Java applications based on Spring, Hibernate and Dojo that can be deployed in a SaaS or on premise architecture.

For ISVs, WaveMaker offers several compelling benefits:

  1. WaveMaker's visual studio provides a faster and more natural way to build rich internet applications than traditional hand-coding using Java and struts
  2. WaveMaker is completely open, making it portable across hosting providers and even enabling applications to be deployed on premise
  3. WaveMaker includes a complete development platform based on open source standards such as Spring, Hibernate and Dojo
  4. WaveMaker is based on the Java language, making it an ideal choice for ISVs who already develop in Java and don't want to migrate their existing server code.

WaveMaker can be downloaded here.

Summary - What ISVs Need From SaaS

Every ten years there is a dramatic shift in the development tools world: in the 80’s to client/server, in the ‘90s to three tier and now in the 00’s to SaaS. In each of these shifts, the dominant development tools providers have been supplanted by a new generation. This time around, the seismic shift is being driven by the on-demand architecture and the ISVs have the most urgent need to rebuild their solutions to remain competitive.

Over the next five years, we will see the 500 pound gorillas of the development world like Microsoft’s ASP.NET and Sun’s J2EE unseated. In their place will be new software platforms based on traditional languages that are specially designed to enable development of SaaS applications.

5 comments:

Kevin said...

Chris-

On what basis do you claim that Aptana Jaxer hosting is proprietary?

That makes no sense at all.

Aptana Jaxer is open source and anyone can deploy or host it (and many have).

Please do your research before making such claims.

Further please correct the above.

--Kevin Hakman at Aptana

Christopher Keene said...

Kevin -

I am very sorry to have mis-characterized Aptana Jaxer and have revised the offending chart. That's the beauty of blogging - when you make mistakes you can learn about them quickly and fix them just as quickly!

- chris

Ranjit Nayak said...

ISVs considering SaaS offerings must clearly understand, plan and execute on the monetization of the offering. And by the way, this is a moving target and constantly updated.

I would therefore characterize the stages a little differently than listed in the blog. The three stages for an ISV would then be a) Build b) Run and c) Monetize. The monetization step could include using an existing ecosystem such as Salesforce.com.

The monetization capability must include subscription, usage based pricing or a hybrid of the two. Services such as eVapt provide this out of the box or should I say out of the cloud.

- Ranjit

Christopher Keene said...

Ranjit - you are absolutely right, its hard to have a business model without a way to make money (althought that oesnt seem to be slowing facebook down)

us vpn said...

I'll definitely choose SaaS platforms over ISVs. Thanks