Delivering on the Promise of Software as a Service (SaaS)

By Bill Vass
Hello faithful readers. As many of you know by now, I've recently been writing about the changing stack of technologies that IT professionals face. As part of that stack, last month I wrote about storage and identity-enabled ILM. This month I plan to wrap up discussion of the individual elements in that stack.

In this letter, I plan to turn my attention software as a service (SaaS) — an exciting delivery model for software. In the most basic terms, SaaS involves delivering and receiving software as bytes over the Internet instead of buying and installing software locally as bits.

Given the recent hoopla over SaaS, it is no exaggeration to say that it has been a big hit in many areas. Many consumers use SaaS every day with services like Google, Yahoo!, and eBay, but now those services and many others in the ERP space are moving into the enterprise. In case there are still any SaaS doubters, let's take a moment to examine some of the numbers.

According to IDC, spending on SaaS hit $4.2 billion in 2004, which represents an annual growth rate of 39 percent. Furthermore, IDC claims that in a survey of 500 organizations, 79 percent have purchased or were reviewing SaaS offerings. And, 65 percent of businesses with between 100 and 10,000 employees believe that SaaS will have a significant impact on the way they purchase software during the coming year.

The explosion of interest in SaaS can be explained by any number of factors, but at its core, SaaS has been fueled by the growth of the communications grid — the pervasiveness, availability, and speed of the Internet. While the growth of the communications grid makes SaaS possible, a number of supporting occurrences have contributed to its market acceptance.

The successful IPOs of companies like salesforce.com and RightNow, participation by a number of large software firms like Microsoft and Oracle, and a better understanding of the model in the vendor, customer, and financial communities, have all helped bring SaaS to the mainstream.

Real Business Needs Drive Growth
As with many new technologies, however, demand for SaaS is being driven by real business needs — namely its ability to drive down IT-related costs. SaaS allows organizations to implement and maintain their software at a lower cost. Plus, SaaS permits continuous patching and upgrading that are managed and paid for by the host. And, SaaS reduces the burden of implementation and transfers any implementation risks out of an enterprise.

On the supply side, SaaS is being driven by its ability to foster innovation. SaaS allows companies to deliver services faster and reach more customers faster because the software doesn't have to go through lengthy deployment and enhancement phases. Traditionally, software needed to be built, tested, distributed, and operated, but with SaaS, providers build it and customers use it.

For evidence, consider that since being founded in 1999, salesforce.com has released 20 iterations of its CRM software — something that would be impossible and impractical if a customer had to purchase and install those upgrades.

Of course, as I said before, SaaS is nothing new. Software has been delivered as a service in the consumer arena for some time. Any time a user logs on to Yahoo! Mail or Google they are effectively receiving SaaS from massive compute grids that run on the back end. In other words, many people worldwide already receive their software as a service.

Next Stop for SaaS: The Enterprise
Similarly, commerce has been delivered as a service for quite some time, and many of the commercial examples point to the added benefit of combining SaaS with a service-oriented architecture (SOA) front end. For example, there's currently a commerce engine connection to Amazon that many independent booksellers use to hawk their wares seamlessly on Amazon's retail site. eBay has been so successful at delivering software as a service that there is now a whole entrepreneurial community built around the SOA front end that helps independent auctioneers populate the site.

The next stop for SaaS is the enterprise. Today, few CIOs think about implementing, say, an ERP system as a service. But the reality is that some enterprises are already doing just that. And with great results. Simply put, the old method of buying, installing, hosting, running and upgrading large ERP and CRM systems has become antiquated, while SaaS offers such benefits as:

• Lower investments in software
• Faster time to deployment
• Ability to focus IT resources on core business objectives

In the future, enterprises will simply utilize a myriad of services delivered over the Internet to compose a large enterprise system. This is already happening here at Sun, where we depend on human resources and ERP services that our partner Hewitt Associates provides.

Let's take a moment to look at some of the companies and technologies that are presaging the widespread arrival of SaaS in the enterprise.

Oracle On Demand: Putting Muscle Behind SaaS
In the world of enterprise software, it doesn't get much bigger than Oracle. Oracle's decision to offer an on-demand version of its suite of software provided ample evidence enough of the mainstream arrival of SaaS. Running on a large, horizontally scaled grid, Oracle On Demand offers a complete line of enterprise products — including Oracle Database 10g, Oracle Fusion Middleware, Oracle E-Business Suite, PeopleSoft Enterprise, JD Edwards EnterpriseOne, and JD Edwards World — to some 300-plus customers.

For its customers, Oracle On Demand delivers the many benefits of SaaS. Oracle On Demand eliminates the burden of applying patches and upgrades. Oracle On Demand provides timely and direct access to the latest Oracle capabilities and innovations. And, perhaps most importantly, Oracle On Demand helps make software costs more predictable because users pay for the SaaS on a per user/per month basis, which allows enterprises to manage expenses based on projected business volumes.

Already, these benefits are paying off for a number of customers. According to Oracle, Thermos LLC's investment in Oracle On Demand has generated $6.2 million in benefits and a return on investment of 222 percent. At Grupo Posada, administrative expenses have fallen 16 percent for an annual savings of $3.5 million, and its technology total cost of ownership has been decreased by 35 percent. Agencourt BioScience Corp. has reduced its IT consulting costs by 66 percent and eliminated the need for in-house DBAs and Oracle application specialists.

Salesforce.com: Combining the Power of SaaS and SOA
On-demand CRM company salesforce.com has emerged as the de facto poster child for SaaS. Since being founded in 1999, the company has witnessed dramatic growth, and it currently counts 24,800 companies and 501,000 individual subscribers as customers. What is more, stalwarts of industry — including ADP, Daiwa Securities, Kaiser Permanente, Nokia, and others — trust salesforce.com to handle vital customer and sales data.

The reasons for salesforce.com's success should strike a familiar chord by now. Decreased cost of ownership, mitigated installation risks, and reduced time to value explain why the company's SaaS offerings have earned the trust of some of the largest companies in the world. And, as stated earlier, in its four years in existence, salesforce.com has released 20 iterations of its pioneering SaaS applications with seamless upgrades to customers — sparing customers the near-impossible ordeal of purchasing and installing each individual upgrade.

What makes saleforce.com particularly intriguing is that the company seems intent on combining its SaaS offering with a SOA interface for its customers, which empowers salesforce.com users to customize and augment the company's services. Furthermore, with its recently announced AppExchange products, salesforce.com has gone a step further by creating a hosted space for sharing and building composite applications based on its CRM products.

In reality, the customization of salesforce.com applications has been happening for some time, but with AppExchange, the company realized that it could use its SaaS and SOA strategies to package and deliver the work of a seemingly endless pool of developers.

Callidus: Using the Sun Compute Grid to Deliver More Effective SaaS
Callidus Software builds enterprise incentive management (EIM) and sales performance management software for leading Fortune 1000 companies. Callidus' software helps enterprises of all sizes align incentive compensation with strategic business objectives. In 2006, the company launched an on-demand version of its best-of-breed software to help its customers realize the now-familiar themes of SaaS: lower investments in software, faster time to deployment, and the ability to focus IT resources on core business objectives.

Since that time, large banks, insurance companies, telecommunications providers, and a host of other business have decided to adopt the SaaS delivery model for receiving their EIM software from Callidus.

I recently spoke with Robert Warfield, CTO and senior VP of engineering at Callidus, and asked him why these large businesses decided to deploy Callidus' EIM software in an on-demand environment. Not surprisingly, Warfield focused on the initial cost and time to deployment.

"For a small camp of people, the decision to use the SaaS model is almost religiously motivated," explains Warfield. "They simply believe in doing everything as a service. For a much larger contingent of our customers, however, the decision to go with SaaS is pragmatic. IT departments typically have way more on their plate than they can get done. SaaS gives them a vehicle to go ahead and start solving their business problems with a much lower IT commitment than they might have with an on-premise solution."

While that may sound familiar, Callidus does distinguish itself from many other companies in one important respect: The Callidus On-Demand offering runs on the Sun Grid Compute Utility. In fact, Callidus Software offers a model of a true on-demand service because it takes advantage of a number of elements in the Sun IT stack. It runs on top of a virtualized grid, on top of an open source database and on top of an open source operating system. All of these run on a Sun chip multithreading server and are based on open source middleware.

Capitalizing on Sun Grid's Immense Compute Resources
Callidus opted to deploy its SaaS applications on the Sun Grid because the calculation of sales and incentive compensation requires immense compute resources to handle the batch processing — we're talking about millions of transactions within a tight timeframe. The grid technology allows Callidus to seamlessly extend the existing grid architecture for its on-premise solution to an on-demand service.

As a result, Callidus customers receive the benefits of the Sun Grid's security features and its ability to calculate the massive number of complex financial transactions in a timely fashion. Callidus benefits from the grid and only pays for the computing power it uses. The company then shares this advantage with its customers, which are being billed on a predictable per-payee basis at the exact same rate.

Among the benefits, Warfield singles out the predictable cost stream as a significant benefit to running on top of the Sun grid.

"With the combination of the grid and Solaris 10 virtualization capabilities, we receive all of the benefits of a multi-tenanted architecture without any of the disadvantages," explains Warfield. "This is great in terms of being able to predict our costs as we support a growing base of customers because it is easy to ramp up very gracefully. In fact, that is a huge benefit of a virtualized grid architecture."

As a result, Warfield credits the arrival of virtualized grid architectures for leveling the competitive landscape by making it easier to offer software as a service and encouraging innovation.

"The Sun Grid and Sun virtualization strategies have radically changed the playing field," Warfield explains. "For example, I recently visited a small startup and recommended that they add an on-demand option to their software offerings. They said: There's no way we can do that, we don't have a multi-tenanted architecture, and we can't afford to rearchitect our product.

"I explained to them that in the new world of the Sun Grid and Solaris virtualization, they don't need a multi-tenanted architecture," Warfield continues. "I don't think you could have said that even as recently as two years ago. This has really changed the whole play book that companies have when thinking about whether to offer software on demand."

The Dawn of SaaS in the Enterprise
Clearly, Warfield's comments align perfectly with Sun's desire to become the Westinghouse and GE of the IT industry. In effect, Sun is providing the engine behind SaaS with its complete stack of technologies.

And in a few more years, it's entirely possible that large companies will no longer need or desire to buy software as bits for all of their enterprise applications. The will simply get their enterprise software as a service delivered over the Internet.

About Bill Vass
As president and chief operating officer of Sun Federal, Bill Vass joins Chairman Scott McNealy in continuing to help government organizations solve their unique challenges through sustainable computing and military grade built-in security products like the Trusted Solaris OS, identity management software, and the latest-industry leading Sun Fire systems and StorageTek solutions.

Previously, Vass served as Sun's chief information officer and was responsible for all aspects of Sun's global IT infrastructure and line-of-business application development, support and maintenance, including information service delivery and security.