Still No Silver Bullet

A great series of posts around Salesforce the past few days by Vinnie Mirchandani, Phil Wanewright, Nick Carr and Dan Farber. The primary focus for the posts was Salesforce’s announced pricing for a new “Unlimited Edition.” The consensus is this stuff is starting to get expensive and a little complex.

A question Nick Carr asks in his Salesforce post is a good point of departure for a broader SaaS question I’m curious about:

So which way will the SaaS ramp go? Will it be just another on-ramp to traditional corporate software, as SAP hopes, or will it be an off-ramp to a purely on-demand future, as Salesforce.com assumes?

Is this really the essential question? After the Salesforce pricing announcement, the question that struck me was: IF we ever reached a “purely on-demand future,” will it look or feel any different than the on-premise reality we live today?

The touted customer advantages of Salesforce.com-type SaaS are:
- Quick to get started – up and running in a day or two
- Cheap to install – no 12 month Big 4 implementation project
- Simple, no-haggle pricing - $xx per user, per month, all-in
- Simple to manage/monitor – i.e. hardware, datacenter, storage issues taken care of
- Always current – customers are always on the latest release of the product

This is all great stuff, but how many of these benefits are a function of Salesforce and its brethren being SaaS, and how many of them are a function of their doing small deals? Taking it point by point:

Quick to get started – When you’re talking about 5 or 10 users, I’m sure it is quick to get started. I don’t think it’s the same story when you’re talking about 1,000 users, 5 different major business processes and 3-4 different user types across these processes.

Cheap to install – Sure, provided you don’t configure, extend or customize the application, which most small businesses or departments don’t have the time, money or interest to do. Try convincing a $ multi-billion corporation that they should change their core processes to accommodate the vanilla implementation of a software package. To move up-market, Salesforce has been investing in customization capabilities for this very reason. The better those capabilities get, the more large deals they’ll qualify for and the more complex and costly the implementations will get.

Simple no-haggle pricing – I bet if I’m selling a single product to a 100 employee company, there’s little complexity or haggling. We’re already seeing how life gets complex when you’ve got a few dozen functional modules. Now let’s add the wrinkle of pricing these modules for a large, multi-user sale. You think a Fortune 500 company accepts $100/user/month for 2,000 users without negotiating? What do you think Vinnie gets paid to do?

Simple to manage/monitor – I imagine this benefit should carry forward whether you’re looking at a large/complex implementation or a simple one.

Always current – Again, as long as you keep everyone on a plain vanilla implementation or within a very tightly proscribed configuration sandbox, this is easy to do, SaaS or no SaaS. The more you permit customization and extensions, the harder this is going to be to support.

The leading SaaS vendors have built up impressive franchises, but my sense is much of their success is a function of the unique ways they profitably sell to, service and support small, 1-30 seat installations at a high volume. It’s a very impressive channel and support model that’s working wonders for a previously underserved segment of the market. I’m not convinced yet that being SaaS means vendors have suspended the laws of gravity and inertia for the large enterprise installations that Nick and others are so excited to see them progress to.