Virtualization Keeps Enterprise SaaS from Collapsing in Two Years


Lawson Software's chief executive, Harry Debes, is in a bit of PR hot water this week (see here, here and here and a few dozen other links that actually get nasty). It's because of an interview he did recently with ZDNet Asia about software-as-a-service (SaaS). The heat he's taking is partially for dissing SaaS and partially for dissing anyone who has ever even thought about using SaaS to acquire their enterprise software.


I believe that, for the latter offense, Debes deserves to be taken to the Xcel Energy Center across the park from the St. Paul, Minn., Lawson headquarters, where the Republican National Convention is going on this week, and forced to watch political press conference videotapes until he promises to think before he speaks. But as for his analysis of SaaS itself, I think Debes sums your enterprise-software choices up about right.


In a post last month, I called it: "Pay me now or pay me later." Debes explicitly added what I think of as a given: "And let me make enough money at it to be around in the future to keep meeting your needs. There is no such thing as a free lunch."


Dean Hager, Lawson Sr. VP of Product Management, explained it on September 3 with a little more discretion than either I or Debes. The options Lawson offers are a pretty good straw man for what you should expect from all leading enterprise software suppliers. Lawson's enterprise software is available via a perpetual RTU license for use on premise or hosted (via both partners and directly through Lawson, which uses IBM to run the actual data center). These two options are available with or without Lawson-badged employees to perform applications management. Various pricing options (fee with subsequent annual maintenance, lease, and so forth) are also available for the on-premise/hosted with/without choices so that you get up to about a dozen or so permutations.


The dissing of SaaS is because some analysts (I am not one of them) believe SaaS means as a minimum both multi-tenancy deployment and a pay-by-the-transaction (or some other similar discrete metric) pricing scheme. It's this definition of SaaS that will be short-lived. (As I read it, Debes did not say the SaaS market will collapse in two years, only that "People will realise the hype about SaaS companies has been overblown within the next two years.")


Multi-tenancy SaaS might make sense for you where the enterprise software functionality is very focused (e.g., sales force automation) and/or commodity like (e.g., payroll processing), but basically multi-tenancy is a plus for the supplier, not for you. Multi-tenancy means you have to upgrade when the software supplier upgrades, even if you are not prepared. You also lose customization and modification flexibility. Similarly, pay by the transaction makes sense for some applications (e.g., procurement) but becomes very complex and or inflexible for a whole suite of enterprise software functionality. See my analysis of NetSuite at Research 2.0 for more detail.


An option to multi-tenancy (and one that Lawson is exploring) is virtualization of your applications. An option to pay by the drink is more traditional pricing schemes. But whatever the final definition of SaaS, the message you want to hear is: "Have it your way."