Analyst Says On-Premise Vendors Struggling with Shift to SaaS

Loraine Lawson

When it comes to SaaS, most of the major players are companies that started out in the cloud - SalesForce, Amazon and so on. As we all know, however, the on-premise vendors are trying to make that shift. The question is: How well are they doing?


Not very well, particularly on the integration front, argues research analyst and TechVentive CEO Brian Sommer. TechVentive is a strategy consultancy serving technology providers, according to Sommer's ZDNet bio, and in a recent ZDNet column, Sommer says exactly what he thinks on-premise vendors are doing wrong when it comes to SaaS.


He writes that the "gap between the nimble, fast-moving SaaS vendors and the on-premise vendors is widening," because of three issues on-premise vendors just can't get it right:


  • Integration-as-a-service.
  • Integrating a platform-as-a-service with their SaaS solution.
  • Support for multi-tenancy.


Two things jumped out at me in this. First, on-premise vendors are trying to leverage their SOA platforms as a PaaS, and that's just not working and isn't going to work, according to Sommer. Second, Sommer says all SaaS vendors are more effective and innovative at leveraging integration-as-a-service as a means of reducing the cost of deploying software.


As for multi-tenancy, he says the problem here is these traditional products just weren't designed with that in mind, and it's neither cheap nor easy to retrofit products. He offers a more complete explanation, but if you'd like to learn more about the pros and cons of mult-tenancy from a user's perspective, check out this Forbes column by The Jargon Spy, Dan Woods.


Sommers isn't just arguing that on-premise vendors are failing to effectively move to the cloud: He also contends SaaS companies are beating on-premise vendors at their own game. For instance, he says Northgate Arinso developed a multi-tenant version of SAP R3 HCM-something SAP still hasn't accomplished.


On-premise companies aren't just struggling with SaaS. As I shared yesterday, traditional vendors are also facing more scrutiny over their efforts to promote private clouds, which many experts say are just repackaged SOA or data center tools.


As always, the mantra of the emerging SaaS/cloud market is "buyer beware." What's different in these situations? You're usually told to go with a vendor you know and trust, but in this game, it seems like the veteran IT players are following under a cloud-ahem-of suspicion. So when it comes to the cloud or SaaS, you'll probably do well to follow Sommer's recent advice on how to handle all vendor negotiations:

Never negotiate with just one vendor. While this is incredibly obvious, companies routinely make several mistakes on this one point alone.

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Add Comment      Leave a comment on this blog post
Mar 30, 2010 7:52 PM Julie Hunt Julie Hunt  says:

Loraine: This article paired with your recent post "A Practical Approach to the Private Cloud Debate" provides interesting "bookends" for looking at the current decision-making dilemma that greets many enterprise software buyers. There's a disconcerting 'no man's land' right now, between overpriced and non-innovative on-premise enterprise apps and the newer vendors for service-oriented solutions that have not quite gained full acceptance in the mainstream (but are getting there). Looks like the large enterprise app vendors are failing to take the right approach for SaaS / Cloud solutions, just as they have consistently failed to understand how to build, price and market apps for mid-market and SMB buyers.


Julie Hunt


Mar 31, 2010 10:38 AM Francis Carden Francis Carden  says:

Time to stop painting SAAS apps on a pedestal for the sake of it. On Premise app vendors have 35+ years of legacy so it's a little unfair to say they are not keeping up. SAAS app vendors can be fairly nimble in the sense that most of their apps are fairly limited in transactional functionality (often needing solutions from 4 or 5 SAAS vendors gets complex and costly very quick too).

In fact I'd argue, the on-premise app users still outnumber cloud app users (inside the firewall) by a massive number. You can't blame the vendors, the customers have the purse! SMB's is probably a little different given they probably don't have the same 100's of legacy apps to deal with nor as complex transaction types!The other problem still (that is slowly being addressed) is the richness of the apps. They don't come even close to rich client apps (HTML 5 is 2020?).

I'm not just talking UI rich but UI responsiveness. We still have 100's of 1000's of enterprises using mainframe screens that are so quick, there's nothing close. These mainframe users have a choice too so it's not black and white is it?

So, I think we need to stop comparing Apples and Oranges! There are some great SAAS success stories for commercial apps for the large enterprises but they pale in number to the number of enterprise robust on-premise apps. Most of these on-premise vendors are also VERY large and making nice profits thank you very much.

On-premise vendors are not, for the most, are not just sitting back watching their customers leave in droves, now are they?

Apr 1, 2010 7:47 PM Darren Cunningham Darren Cunningham  says:

Hi Loraine, I enjoy your blog and agree with most of your points about the challenge for on-premise vendors attempting (or not attempting) to move to the cloud. Having worked for pure-play SaaS application vendors (Salesforce and LucidEra) and enterprise software vendors (Business Objects and now Informatica) I've experienced the religion on both sides of the fence. My belief is that it is possible to be successful in both camps (to mix my metaphors) but the following ingredients/steps are necessary:

1) There must be executive level commit to developing a SaaS/cloud business.

2) There must be a recognition that SaaS requires both a business model shift (in terms of sales, marketing, pricing, packaging, etc.) and a significant product shift (must be multitenant, must be easy to implement and use, etc.).

3) There must be a focus on the right metrics (ACV, TCV, MRR, etc.).

4) The right compensation model must be in place if you expect your traditional sales team to sell the SaaS solution. And if you're selling to a different buyer or market segment, a different sales team (typically inside) is required.

5) There must be a laser focus on customer success. A multitenant SaaS offering allows you to monitor usage, deliver frequent releases, and get to know your users in a way that's never been possible with on-premise software. And subscription pricing requires you to ensure that adoption and ROI is high.

Salesforce.com has published a great whitepaper called "7 Habits of Highly Successful SaaS Companies" and people like Phil Wainewright have written quite a bit on this topic. The fact is, while it's easy for the pure-play small vendors to take shots at the big (and profitable) players, there are a few who have followed the steps I mentioned and continue to execute.

May 19, 2010 10:37 AM Alok Misra Alok Misra  says:


Good points. Here's my article on the importance of multitenancy, that on premise vendors have struggled with.


Also, here is a free whitepaper, "The Dos and Don'ts of the Transition to Cloud Computing."


Alok Misra, Principal

Navatar Group



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