SaaS: It's Here To Stay

"As a whole, the marketplace has been under a false perception that hosted is easy," said Joe Giegerich, a partner in Marlton, N.J.-based services firm Horizon Associates Group, which specializes in NetSuite's hosted ERP software. "What we're finding is that people who have been through an implementation or a cutover in the last five years understand what it takes and are seeking out a qualified partner. People who have never been through an implementation fall into that 'false sense of ease' paradigm."

The CEO of one ISV that partners with Salesforce.com called that the biggest surprise of his relationship with the vendor: When integration problems popped up, his company would sometimes end up caught in a "blame game" loop with Salesforce.com, arguing over who owned responsibility for fixing the situation. "One of the things I got away from it is that there is still a lot of room for systems integrators," the CEO said. "The [SaaS vendors'] stance is 'You don't need systems integrators; everything is plug-and-play.' But there's still a lot of integration, and integration is painful and is a lot of work. That still applies. We're not going to get to that plug-and-play utopia, not right now, at least."

New York consultancy Bluewolf has built a nationwide practice around on-demand software engagements. While many of its customers are large enterprises managing complex deployments, it's also signing up smaller companies for two- to five-day "quick start" engagements. The idea is to help companies map their business processes and optimize their SaaS systems to avoid the pitfalls that can ensnare companies that try to go it alone without expert guides.

"The pitch is largely about accelerating the success of their deployments," said Glen Stoffel, director of Bluewolf's on-demand practice.

Microsoft executives insist that's the model they want to emulate as they push into the SaaS market.

"We want to have customers engaged with partners," said Microsoft CRM General Manager Brad Wilson, who will oversee CRM Live's rollout. "Partners might offer an eight-hour quick start. I'd rather have a customer get an eight-hour quick start than do it themselves." Microsoft executives also hope partners will be deeply involved in customization, developing add-on functionality, and building versions of its CRM software tailored for industry verticals.

Several Microsoft CRM partners said they see more opportunity than threat in services like CRM Live.

"We're trying to figure out how to provide hosted SaaS to our customers because they're asking for it. Some don't want to pay up-front costs, and others like the idea of not being tied to certain infrastructure, and being able to 'pay by the drink,' " said Michael Sullivan, president of Quest Business Solutions, based in Dallas.

Even if Microsoft collects the lion's share of customer spending by directly providing and billing for its CRM Live service, Sullivan expects it to open the door to ancillary opportunities.

"CRM is usually our entry point for customers. Once they decide to buy that [they] tend to pull everything else in around it," Sullivan said. "They'll usually decide to go with hosted Exchange and SharePoint, too."

Frank Lee, president of Microsoft CRM specialist Workopia in San Francisco, is delighted he'll finally have a weapon with which to battle Salesforce.com, to which his firm has occasionally lost prospects set on SaaS CRM. Workopia has clients queued up and ready to go the moment Microsoft opens CRM Live, Lee said. And he's optimistic that even small customers looking for the administrative ease of on-demand services will appreciate the value of involving a partner to help them customize the software.

"Live software requires live services," Lee said. "Services is our core. This is still software, and businesses still need value-added professional services."

SaaS veterans note that while adapting to the new model can be a complex process, on-demand software also offers big advantages.

"The speed at which new features and functionality are added gives us new ways to engage with customers," said Bluewolf's Stoffel. "The cost of services relative to what it used to be is down dramatically. It's also really changed the accountability equation. The customer is the big winner in this."