Choosing a True SaaS Provider: 10 Key Questions to Ask

This blog has never been shy about championing the advantages of true multi-tenant SaaS applications while exposing the enormous disadvantages of hosted, single-tenant SaaS-“ish” offerings. Sadly, many traditional software vendors looking to latch onto SaaS are taking the latter route to market out of expediency. And in doing so, they confuse customers who are interested in SaaS and, ultimately, disappoint and disservice them.

Beagle Research Group has just released a concise viewpoint that crystallizes the above argument, and discusses how customers can avoid confusion and disappointment when purchasing a SaaS solution. Titled Multi-tenancy Matters, the paper presents a history of SaaS, a succinct description of the multi-tenant value proposition, and an excellent explanation of why multi-tenancy has to be designed into a true SaaS offering from the ground up.

But the heart of Beagle Research’s paper lies in the 10 questions it insists prospects should ask when evaluating SaaS providers – and the corresponding 10 answers they need to be looking for and why. This is a list that all potential SaaS buyers should carry in their back pockets.

As Beagle Research points out, SaaS “is rapidly becoming the de facto standard of the software industry,” and “many conventional vendors will offer partial SaaS solutions to maintain marketshare while they upgrade to the new standard.” Read this paper and use its list of 10 questions to make sure your company avoids the pitfalls of partial SaaS solutions.

SaaS Wins Big with Siemens Deployment

There’s no doubt that SuccessFactors hit the jackpot with its newly announced mega-deal with Siemens, to deploy its on-demand talent management solution to more than 420,000 users in 80 countries. But not only is this a big win for SuccessFactors...it’s a BIG win for SaaS.

The inability of SaaS to support large enterprise deployments has long been the rallying cry of SaaS naysayers. As THINKStrategies’ Jeff Kaplan notes in his blog today, this deal closes the book on that myth.

The deal “clearly illustrates that SaaS is well-suited for global enterprises, and further dispels the myth that it is just for small- and mid-size businesses (SMBs) that can’t afford the luxury of traditional, on-premise enterprise applications.”

Of equal note, this deal was won over traditional on-premise players. As Forrester analyst Ray Wang noted to IDG’s Chris Kanaracus, “Siemens is a traditional SAP house. For their team to make a big bet on SuccessFactors represents the new type of thinking present among many CIOs and enterprises today. Their software vendors may not be innovating fast enough to keep up with the enterprise’s requirements.”

Clearly Siemens, which conducted “an in-depth market evaluation of 30 leading vendors and seven system providers,” has no lingering qualms about the advantages of SaaS. According to Siemens’ head of CIT: "The enterprise cloud computing business model is a strategic direction for us. It not only lowers IT costs, and creates faster end-to-end processes, but can also grow with our requirements both globally and locally."

But there is more to this deal than the dueling delivery models of SaaS versus on-premise. The current global recession will end at some point, with signs that it is already beginning to relax its grip. "CEOs and CFOs are looking to come out of the economic downturn much faster, with more focus and vigor,” says SuccessFactors’ chief marketing officer. Those companies with the most well-motivated and strategically directed employees will be strongest out of the gate when the economy bounces back.

Global giant Siemens understands this. And like the growing number of companies choosing SaaS over on-premise applications, it will now begin to reap the benefits.

SaaS’s Spring Fling: Venture Community Bets Heavily on SaaS

The SaaS battle continues to rage in some quarters, with traditional on-premise software vendors still fighting a vociferous rearguard action, even as some are slowly moving to test the SaaS waters for themselves. Yet a growing number of customer successes continue to push SaaS acceptance to new heights. And investors continue to place ever larger bets on the SaaS proposition, despite a weak economy that has placed a damper on pending IPOs.

The latest cases in point are SaaS vendors Workday, which closed a $75 million venture round, and ExactTarget, which just last week attracted $70 million in venture funding. ExactTarget had to forgo an IPO late last year because of the economic downturn, but that hasn’t kept the VC community from regarding the company as a prime investment opportunity. Meanwhile, Workday has now raised a total of more than $150 million from investors who clearly believe in CEO (and PeopleSoft founder) David Duffield’s vision for SaaS.

What is particularly notable is that each of these two rounds of investment, coming just a week apart, eclipse in size almost all other venture rounds this year! And they may well also eclipse them in sheer promise due to the remarkable upside potential of SaaS.

SaaS...a Market? Or a Market Advantage?

“SaaS is not a market. It’s just software,” reads the title of a recent blog post by Mark Everett Hall of Computerworld. He’s riffing on a statement made by Trisha Gross of SaaS-based Hubspan, who argues that “there’s a market for CRM, ERP, supply chain management, integration software and other markets, but not SaaS.”

These are common misunderstandings by folks who have not walked a day in both the shoes of an on-premise provider and a SaaS provider. But SaaS is not “just a channel,” nor is it “just a way to consume software.”

Unfortunately, these perspectives don’t recognize so many of the true differences between SaaS and traditional enterprise software. It would be like saying the difference between using a horse-and-buggy versus air travel is merely the “delivery model.” Of course the method of delivery is different, but the benefits to the passenger (and the provider) are far greater.

Beyond the means of delivery, SaaS doesn’t require customers to buy and maintain expensive hardware. It’s about reducing the risk of “shelf-ware” so common in the on-premise world. It’s about letting customers dip a toe into their software investments, rather than paying millions of dollars up front. It’s about keeping vendors honest: if customers aren’t happy, they will walk. It’s about not stranding customers on old and obsolete versions, and forcing them to do costly upgrades. It’s about allowing vendors to focus on a single line of code, meaning more efficient engineering organizations that can spend more time innovating.

The conclusion Mark draws at the end of his post is that “instead of SaaS vendors being measured against themselves, they should be compared in the same market as their packaged app competitors, which would greatly diminish their relative size and importance. I’m not sure a lot of SaaS players and their backers would want to go down that road.”

Completely agree. No SaaS vendor worth its salt should be shy of inviting such a comparison. If SaaS vendors are doing a good job, their on-premise counterparts are likely squirming - telling anyone who will listen why SaaS isn’t relevant or, better yet, starting to apply “on-demand” and “SaaS” descriptors to their on-premise applications.

Fortunately for true multi-tenant SaaS vendors, the genie is out of the bottle and it’s just a matter of time. So, while SaaS might not be a market in the traditional sense, it’s clear that, all other things being equal, it is a huge market advantage.

SaaS Growth: It’s Addictive

An interesting press release crossed my desk the other day, saying IDC is boosting its SaaS growth projection for 2009 from 36 percent to 42 percent over 2008. According to this leader in market research, surveys and customer interviews indicate the current economic downturn “will actually accelerate the growth prospects for the software-as-a-service model as vendors position offerings as right-sized, zero-CAPEX alternatives to on-premise applications.”

You won’t get any argument from me there. “Right-sized, zero-CAPEX” is exactly how we and every other sane SaaS vendor are positioning our offerings. And IDC’s market projections bear out the accelerated “growth prospects” part of the statement, including this formidable nugget: “The percentage of U.S. firms which plan to spend at least 25 percent of their IT budgets on SaaS applications will increase from 23 percent in 2008 to nearly 45 percent in 2010.”

But here’s the part of this announcement that really got my attention. Robert Mahowald, director of on-demand and SaaS research at IDC, was quoted as saying: "SaaS services have benefited by the perception that they are tactical fixes which allow for relatively easy expansion during hard times, and several key vendors finished the year very strong, reporting stable financials and inroads into new customer sets."

Well, SaaS can certainly be seen as a tactical fix, “allowing for easy expansion in hard times,” and I’m sure that many customers look at it that way, which is fine. But more to the point, SaaS is even more of a highly strategic, long-term investment, and that’s true in both good and bad times.

I will be surprised, very surprised, if an appreciable number of SaaS customers dump their on-demand applications in favor of on-premise solutions when the economy eventually rights itself. The excellent renewal rates enjoyed by SaaS leaders show that, once bitten by the SaaS bug, there’s little impetus to go back to on-premise solutions.

Meanwhile, sound SaaS vendors will be using their mounting revenues to continue enhancing their offerings and expanding their functionality – and doing so at a rate that may be difficult for many harder-pressed, on-premise vendors to counter during this recession.

In short, even before the present economic melt-down, it was clear that SaaS was approaching the tipping point vis a vis on-premise software. IDC’s insights reveal the tipping point is now a lot closer than anticipated. And once tipped, no matter what brought you to that point, it will be counter-intuitive to go back.

Prosperity from innovation: A vote for the IT Innovation Tax Credit

If there’s been one dominant driver of economic expansion these past 30 years, it’s been the phenomenal gains in productivity made possible by information technology. This nation’s ace in the hole, IT innovation has fueled our booms, created entirely new economic sectors, and helped keep recent recessions relatively shallow.

Galvanized by an op-ed piece penned by economist Joseph E. Stiglitz in the November 30th New York Times, Genius.com CEO David Thompson has launched a petition among Silicon Valley CEOs and investors urging Congress to enact a tax credit for companies that continue to invest in information technologies and services in the current recession.

This is a terrific idea. As the petition states, it will “bolster our technological leadership and ensure that we preserve and add to the 2.5 million jobs targeted by President-elect Obama.”

It’s not about feathering the nest of technology providers. It’s about ensuring that technology-using companies maintain their competitive edge, increase their productivity, and emerge from this downturn in a strong position globally.

I’m pleased to be an early signer of the Innovation Advocates for Growth petition. I not only urge fellow tech CEOs to sign, but encourage the leaders of technology-using companies - as well as individual technology consumers - to jump on the IT Innovation Tax Credit bandwagon through letters of their own to representatives in Congress. The credit will be a proactive and powerful economic stimulus, and an investment in the continued productivity and prosperity of this country.

Sprint …a cautionary tale. Beware the business-critical ramifications of badly managed sales compensation

Anyone happen to see the recent news item highlighting what can happen when companies engage in non-effective sales compensation management in December 2nd’s Information Week?

The article says “Sprint is facing a lawsuit from thousands of its store employees who say the wireless carrier has failed to pay them proper commissions.” It goes on to state that “19,000 former and current employees are potentially affected,” and that it was the integration of Sprint and Nextel’s back-end systems that led “to more than $5 million in lost commissions.” Ouch!

According to the article, court documents say that Sprint knew there was a computer problem, spent $10 million to fix it, and “did not acknowledge employees hadn’t been paid correct commission.” Double ouch.

From my perspective, regardless of whether the commissions were paid correctly or not, the damage is done. And it is considerable.

There’s nothing like having your employees this riled up – not to mention 19,000 of them. Hence the first question facing any company in this unfortunate position is how much trust – and indeed motivation – will their employees have going forward? There’s a lot of damage needing to be repaired – and that’s true whether you have 19,000 reps or 19. Then there’s the enormous financial impact around the settlement to deal with. And all the time and effort that will go into handling the case and its aftermath. And the potential for balance-sheet revisions and corporate financial restatements. And the erosion of shareholder and analyst confidence.

But the clincher is, this is the type of corporate mess that can so easily be avoided. Providing sales reps with real-time, web-based visibility into their commission plans can help nip a problem like this in the bud, long before it snowballs to class-action suit status. This visibility, combined with accurate, rules-based commissions calculation (emphasis on rules-based), is the foundation for effective sales compensation management.

And the bedrock on which this foundation rests is the effective integration of all the data used to determine compensation. Any competent compensation-management solution absolutely has to get this right. And, with the advent of Software-as-a-Service (SaaS) solutions, it doesn’t take a lot of costly on-premise software and expensive consultants to nail this particular kind of data integration either, at least not anymore.

Finally, complete compensation audit trails are mandatory, and entirely possible. The attorney representing Sprint’s store clerks alleged the company made the internal process for appealing shortages in commissions too “time-consuming and burdensome.”

Sprint is a reputable company, and it’s certainly not in its interest to purposefully, as the article has it, “shaft employees.” The company obviously needs to overhaul its current compensation-management process, and fast.

You don’t have to be the size of Sprint to take a lesson here. Sales compensation management is a business-critical function for any organization. It doesn’t pay to confuse, betray and anger the employees that feed you, no matter how inadvertently it may happen. And there’s certainly no excuse for it with state-of-the-art SaaS-based sales compensation management solutions that are available today.

The Rustling of Autumn Spreadsheets

Chill winds and the last rustling of leaves come even to Silicon Valley, eventually, along with the usual waves of nostalgia—for old friends, that first car, your first spreadsheet-managed compensation plan. No, I’m not losing it. The deal with nostalgia is that you can only get nostalgic over something once its time is past. And there’s nothing that fits that bill better than managing sales performance via spreadsheets. Like my first car, that particular paradigm is well past its prime and better remembered than relied on.

Today of course there’s another chill wind coursing around the globe: that of recession. And many companies of all sizes are finding themselves nostalgic for yesterday’s revenues, profits and forecasts. How long they’ll be forced to remain nostalgic depends on many factors, but one that stands out is sales performance. Happily, this is something companies can work on to improve, and an improvement here goes a long way.

It’s axiomatic that when performance measures align directly to business goals, sales reps on variable compensation are motivated not only to sell more, but also to sell more profitably. But companies are particularly challenged to achieve this alignment because of their traditional reliance on spreadsheets coupled with email and paper-based methods to manage sales compensation.

Companies that have moved off of manual methods will gleefully recite a whole litany of spreadsheet shortcomings, starting with how difficult, tedious and costly it is to create and administer effective comp plans in Excel. And they’ll tell you that these shortcomings extend to the error-prone nature of the beast; the lack of meaningful reporting, analysis and auditing capabilities; and how hard it is to collaborate and share with spreadsheets, yet how easy it is to confuse, confound and demoralize those you so desperately need to motivate.

The vast majority of companies that still use spreadsheets for compensation management know all or part of this in their hearts, but are likely asking themselves how they can justify the expense of an automated solution, especially given the uncertainty of the global economic climate.

My response is: how can you not? Especially now that inexpensive SaaS solutions for compensation management have taken the wind out of the sails of far more costly on-premise software solutions.

The net is, it’s time that companies tossed their sheaves of sales compensation spreadsheets to the winds. Be nostalgic about them if you want, but just get rid of them and automate. It will go a long way towards keeping you from having to be nostalgic about healthy top- and bottom-line growth.

Ride the Economic Wind…Don’t Get Blown Away in ‘09

It’s been a wild economic ride—slide, many would call it—this past year. And the only thing certain about the coming year is that it will be shaped, squeezed and knocked around by continued consumer uncertainty. Because buying cycles promise to be so unpredictable in 2009, companies need to equip their sales organizations to be able to move smoothly and productively with the dynamics of the business and with the gyrations of local and global markets.

This means acting right now to put in place highly adaptable sales compensation plans for 2009 that enable sales and finance to align with corporate objectives, both long and short term, and clear a path for meeting them. Today more than ever, to hesitate is to lose.

Nonetheless, despite the enormous stakes, experience tells us that only half of all 2009 sales plans will be ready for primetime come January. And if that isn’t dismal enough, regardless of whether they’re delivered late or on time, the vast majority of these plans will be dumbed-down or else overly complex and confusing. Either way, they’ll be ineffective at a pivotal time.

But experience also shows us a way out of this dilemma. Here, distilled into seven key practices, is what you need to do in order to arm sales to make the most of the coming uncertain year:

1. Automate. It worked for CRM. Now try it for sales compensation management. Companies still using spreadsheets to manage compensation are pouring scarce administrative dollars down the drain. Worse, they’ll never be able to achieve top sales performance because they lack the requisite visibility, flexibility, scalability and accuracy that come with automation. You should wish this problem on your competition, not yourself.

2. Model. Don’t rush blindly into implementing new plans or plan changes. This is no time to experiment. Model your plans and plan changes up front to gauge their impact. If you’ve automated, modeling shouldn’t be hard to do.

3. Keep it simple and consistent. If you have more than four key performance indicators, or 10 or more conditions to determine credit allocation and payment release, then your plan is too complex and risks confusing your reps. By the same token, as lead-to-sales times invariably lengthen in 2009, try to keep the long-term mainstays of your plan consistent, to keep reps focused on selling, not calculating.

4. Keep it visible. Give the troops in the sales trenches real-time visibility into plans and compensation processes so they can see how they’re doing towards plan, and how much more they stand to make if they do “x,” “y” or “z.” Once you’ve automated, this kind of visibility via the Web becomes easy.

5. Keep it flexible. Plans should ultimately drive long-term behavior, but you want the flexibility to drive short-term activity as well. Make sure you can react to sudden opportunities and challenges through SPIFs and contests without altering the long-term framework of your plan.

6. Analyze. Knowledge is power. Automating compensation provides a bonanza of useful data on who bought what from whom and for what price and conditions. Leverage this data through analytics for insights into selling patterns, commission spend, plan effectiveness and how to further drive sales performance.

7. Measure constantly. In turbulent times, it helps to use all your senses all the time. Don’t wait until the end of 2009 to measure your plan’s effectiveness. There are bound to be numerous bumps and sudden shifts along the way that will impact your business. You need to stay on top of them with mid-year, quarterly and even monthly sales performance reality checks accompanied as necessary by fine-tunings of quotas, commissions, territories, etc.

While 2009 isn’t likely to yield blow-away financial results for all that many companies, there are key steps that can be taken to keep a business from being blown away altogether - and even to help it prosper in a challenging environment. More closely managing sales performance is one of those steps. Late, confusing, hard-to-manage or overly simplistic compensation plans are roadblocks to optimal sales performance, in both good years and bad.
Why wait for a good year to find out how much of a roadblock your plans have been?

Incent Right? Incent Differently

Earlier this week, this article on Yahoo Finance caught my eye. The article is titled, ‘Firms Try to Shore Up Incentive Pay’, and talks about how many companies today are faced with sagging morale among their employees, and as such, are looking for ways to keep their staff whole – especially when things like stock awards, MBOs and other variable compensation targets are not being achieved.

Obviously, this is a topic that much interests me, seeing as how I’m in the business of helping companies to incent their people in the right ways. In the past, I’ve referred to this as ‘Behavioral Science’, and it’s an area that has become increasingly germane as the economy has soured.

This Yahoo article says, “As plummeting stock prices and profits pummel companies' incentive-pay plans, many firms are considering extra measures to reward employees… nearly three-quarters had implemented or were considering such measures, including stock awards or special bonuses. Respondents said they were worried about keeping key workers and boosting morale in the turbulent economy.”

Now, intuitively, one might say that it seems less likely that companies would experience employee turnover during turbulent times, as people who have stable employment would want to make sure that things stay that way. However, top-performers are always in demand, and those are the people companies can least afford to lose, especially now. Unfortunately, those are the people who are not making their bonuses currently.

“… many surveyed companies said they were thinking of tweaking bonus plans to increase their chances of paying out, and modifying long-term incentive programs to "improve the value" for workers. Nearly a third said they were considering additional programs to keep key employees -- often special payments to supplement regular bonus pools.”

One possible answer is the use of non-cash rewards as a way to motivate behavior and improve performance. Non-cash rewards have proven effective in motivating employees to excel in all types of economies. And they have proven effective not just for the sales team, but other functions such as customer support, marketing and other specific corporate audiences.

Non-cash rewards go where cash cannot in rewarding specific behaviors and creating a positive work environment. They provide greater agility anytime there’s a special opportunity such as rewarding up sell or cross sell, moving excess inventory in the channel, resolving customer-support cases, attracting prospects to marketing events, etc. The instant gratification factor of non-cash rewards also is attractive to many employees, particularly younger employees with little patience for annual or semiannual bonuses.

Put on your behavioral scientist white lab coat and give it a try. Let’s get creative.

Turn That Frown Upside Down

Difficult though it may be, I’ve been looking for reasons to stay optimistic amidst the avalanche of negative news about the economy.

It seems like all we’ve been hearing is that our current state of affairs is horrible, and we’re teetering on the brink of wholesale disaster. Then Monday arrives and Wall Street posts its largest single-day gain in the history of the market – perhaps this bailout just might work.



As an entrepreneur, it got me thinking about other reasons to stay positive when it seems like the prevailing wisdom might call for switching to pessimism.

No way. Any company can build brand value and gobble up market share when times are good – the truly exceptional companies do that even when things are rough.

I love this quote from Jason Calacanis (founder of Weblogs, Inc. and current CEO of Mahalo.com): “Great entrepreneurs build value and market-share in down markets. They go to work seven days a week and the(y) breakout when other folks check out.”

I love that sentiment – it gives me a warm feeling – and it led to me a wonderful article (published on TechCrunch.com) that uses Calacanis’s quote. The upshot of the article is that times may be tough all over, but there are still opportunities in the technology sector, as there *always* is for companies who have a unique solution to offer.

“While the floor is crumbling for many industries much in the same way it did for Silicon Valley during the dot-bomb years, the sky isn’t necessarily falling on the startup industry – at least not for those with marketable technology or products, dedicated and capable teams, an executable business plan, and access to the resources necessary to help it reach users and customers.”

This is a vitally important concept, and one that should be shouted from the rooftops. Companies will still need to spend money – no matter how bad the economic situation gets. It’s just that they will preserve their cash and spend it carefully on products that can help them improve, streamline their processes and boost their bottom lines.

So all is NOT gloom and doom.

“For those startups that are building and marketing something of value for consumers or businesses, there is much work to do. While there is always a need to attract mainstream users, this isn’t the time to stretch or over-commit resources to hit everyone all at once. Branding is an expensive proposition, one that requires time, capital, diligence, dedicated teams, enthusiastic customers, and patience. As counter intuitive as it may seem, this is exactly the right time to market into the echo chamber to earn the support of influentials who will create significant, concentrated brand visibility and momentum to carry you forward.”

Build a strong brand, and it will return to you ten-fold, I think. And now is the right time to do it. After all, you’re still aiming for the same target you always were – your customers are out there; the dartboard may have gotten smaller lately; but the target is still there, waiting to receive the arrow that is your message, your brand, your solution.

Cloud Computing - A Silver Lining

Is it true that every cloud has a silver lining? What about cloud computing? I was reminded of the silver-lining adage recently when I noticed that several online news outlets had picked up this story from silicon.com – the thrust of which is that many companies still are not even aware of SaaS.

Sometimes we may lapse into thinking that we’re a bigger deal than we really are; and this forces us SaaS vendors to work that much harder to earn validation in the marketplace.

This article quotes statistics taken from a study conducted by BT (British Telecom), “One of the problems that we've unearthed in a survey that we did recently was about 81 per cent of customers we spoke to didn't really know about software as a service…”

This quote was from Chris Lindsay from BT, who goes on to say, "It's quite eye-opening really in terms of the lack of awareness but [also] the benefits are very clearly spelt out by the customers who have adopted the services…"

So the bad news is that 81% of companies (in the UK anyway) aren’t familiar with SaaS as a delivery model, but the good news is that, if they were familiar with it, they’d like it.

Unfortunately, several other online media outlets picked up this story and trumpeted it from the rooftops, using the somewhat sensational (and misleading) headlines such as, “Business Not Taking to SaaS”, “Businesses Still Clueless Over SaaS”, and “Businesses Still in the Dark About SaaS”.

What this tells me is that we – as an industry – still have a lot of work to do in order to get the word out on the SaaS delivery model in general. I think, too often, perhaps we forget that Silicon Valley doesn’t extend worldwide yet – in different parts of the world, the market penetration and mindshare that SaaS has claimed varies wildly depending on the geography you’re talking about.

Remember that the study in question was conducted in the UK, and there was some great news out of that region earlier this week, when TechWorld (billed as “The UK’s infrastructure and networking knowledge centre”) published this article that found a majority of companies planned “to adopt SaaS within five years.”

Neil Barton, director at Hostway, said: “Companies are certain that SaaS will make their application usage more c006Fst-effective because of the reduction in software management costs, and the ability to eliminate buying too many or too few software licenses.”

I agree with Jeff Kaplan of THINKstrategies who said, "I think (SaaS) adoption is far more advanced than is being readily reported.”

What SMBs are most concerned about is the functionality, Kaplan said. What they're finding is it's not just simpler and less expensive, it also adds a whole layer of application opportunity they couldn't get from legacy apps.

"A lot are having a revelation."

So perhaps that’s the silver lining to this particular cloud?

If not that, then perhaps the news yesterday that Symantec had agreed to buy MessageLab’s SaaS business unit for $695 million. Clearly, Symantec’s CEO John W. Thompson expects to make a major push into the SaaS market immediately. Reaction from industry media members was positive, as TheStreet.com and Forbes both published articles lauding the acquisition – one titled “Symantec Adds to Web-Software Arsenal”, and the other cleverly titled “Symantec Has Its Head in the Cloud”.

I think we’ve only seen the beginning of large companies looking to strategically make inroads into the SaaS/cloud-computing market. It makes too much sense to ignore, especially in these trying times.





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