How Net-Native Software-As-Services Differs From Packaged Apps

Not surprisingly, skeptics, led by big-name ISVs, have derided those claims. But many Net-native vendors are, in fact, growing their customer rosters and revenue. According to a recent survey by Summit Strategies, customers are likely to consider Net-native SaS as an alternative to traditional, packaged applications.

What makes the SaS model different, and what impact will it have on software's status quo? We see nine fundamental distinctions:

• Unique design premise: SaS providers take a radically different approach to software design, development and delivery than their packaged-software counterparts. It's not so much that they use different technologies to create solutions, but more that they view and use the technologies in different ways to achieve different results.
• Multitenant mantra: SaS vendors design their solutions to run thousands of individual companies on a unified code base, with distributed, load-balanced application servers to handle requests. They've built their solutions with object-oriented technologies and Web standards, such as Java and XML, to optimize for this shared, distributed environment--achieving dramatic efficiencies throughout the solution life cycle.
• Embedded service management and security: To keep thousands of customers up and running securely, Net-native vendors build management and monitoring capabilities, as well as security features, into their services from the ground up.
• Frequent, incremental upgrades: Net-native SaS vendors implement major upgrades every three to six months. Because of their hosted, multitenant model, their production, packaging and distribution costs are zero. They can upgrade all of their customers simultaneously and deliver change in a gradual, iterative way to cut training and support costs, and increase customer satisfaction.
• Browser-based client interface: With the browser as their sole client interface, SaS vendors provide customers with a familiar, easy interface right off the bat. This increases the odds that customers will try, buy into and use their solutions, and allows customers to access their solutions from any Internet-connected desktop. Vendors also eliminate the costs of developing and supporting multiple client interfaces.
• Data transfer and integration: Net-natives' unified code base and open APIs facilitate data transfer and integration, and they have standard connectors ready to go for "typical" customer requirements. They develop their solutions with Web technologies and protocols, and many use Web services today to integrate and automate their customers' business processes.
• Features and functionality: Net-native SaS vendors' first-generation products typically followed the 80/20 rule--they focused on delivering core functionality first, leaving bells and whistles for later versions. But with their frequent upgrade cycles, they can add new features rapidly, which should help them play catch-up with competitive packaged offerings.
• Customization through configuration: SaS vendors don't tamper with source code to customize solutions, as doing so would wipe out many benefits of their model. However, through configuration, they tailor their solutions to meet individual customer requirements and provide personalized views and processes.
• Streamlined service and support: Net-native vendors' efficient, closed-loop services model gives them immediate feedback on problems as they arise. Support staff--or programmers, if necessary--can directly access users' accounts to identify the problem. Once they fix a bug for one customer, they fix it for everyone--slashing support costs. Vendors also eliminate the costs and hassles of developing and supporting multiple client interfaces.

Because of the inherent efficiencies in their model, Net-native vendors are exerting pressure on the software industry's status quo. Smart ISVs will consider acquiring rising Net-native stars--if not to serve their mainstay large-business targets, then to penetrate small and midsize businesses. While packaged software won't disappear anytime soon, Net-native vendors are poised to experience significant growth, much of it at the expense of packaged alternatives.

Laurie McCabe ([email protected]) is vice president of Boston-based Summit Strategies.