McKinsey claims that traditional J2EE and .NET platforms are poorly suited to building SaaS applications. According to McKinsey, this opens up a $3B market for Platform as a Service (PaaS) products from new entrants like WaveMaker, Coghead and SalesForce. From the article:
Although SaaS development platforms like SalesForce and Coghead have gotten a lot of attention, this market has so far been remarkably closed and proprietary. The Platform as a Service leader, SalesForce, has both a draconian hosting policy (host your apps and data anywhere, as long as it’s with us!) but also a proprietary language (who needs Java when you’ve got Apex!?).
Moving forward, the same trends driving open source adoption everywhere else in the industry will ultimately drive SaaS adoption of open source, particularly by ISVs whose business plan does not include a low multiple sale to their proprietary hosting provider. Future SaaS platforms will converge with traditional tools, offering on-demand development based on traditional programming languages with built-in tools for mash-up based development for basic users.
Development Problems for SaaSSaaS is highly disruptive for existing hardware and software providers. SaaS platforms are different from traditional computing platforms like J2EE and .NET in three ways:
- SaaS platforms contain new core components, such as web services APIs to integrate to other applications and usage-based billing capabilities. This disrupts existing platform providers like BEA and Microsoft.
- SaaS platforms are designed for multi-tenancy, including global and tenant-specific data schemas, multi-layer administration and virtualization for scalability. This disrupts traditional ISVs like Oracle and SAP.
- SaaS platform are delivered on-demand, not on premises. This threatens the business of traditional hardware providers like IBM and HP.
- SaaS products need on-demand customization tools. As SalesForce has demonstrated, a complete SaaS application needs its own customization tools if it is to compete with enterprise solutions like Siebel and SAP.
- SaaS products need on-demand integration capabilities. This includes ability to integrate with on-premises data (a notorious weakness of pure-cloud solutions like Force.com) as well as with on-premise and on-demand web services.
SaaS Architecture Requirements
McKinsey identified three elements of a SaaS architectures:
- Development environment: an on-demand development platform for creating SaaS applications. This platform should be able to ship along with the application itself to allow customers to customize their application.
- Run-time environment: an on-demand infrastructufre to deliver applications. This can be a proprietary hosting environment like SalesForce, or an open hosting environment like Amazon EC2. Ideally, the customer should be able to deploy applications on-demand or on premises depending on their security, data integration and other requirements.
- Ecosystem for adding new capabilities to applications (e.g., SalesForce AppExchange). This ecosystem should also be able to access enterprise data and services located inside the enterprise firewall.
SaaS Is Make or Break for ISVs
According to McKinsey, SaaS has greatest impact on ISVs, delivering a 50-70% improvement in the level of features that can be delivered for a given investment in development and infrastructure.
For ISVs, SaaS platforms offer low upfront cost, rapid time to market (productive tools + pre-built components like billing) and high quality service delivery. In short, existing ISVs have a limited window to migrate their offerings to the SaaS platform or risk being obliterated by newcomers who get there first.
The lesson of SalesForce versus Siebel Systems is clear: existing ISVs should migrate their presentation layer to SaaS quickly while preserving their existing back end servers. Preserving existing back end logic requires a SaaS platform that supports traditional languages like Java.
Which Platform Will Win the ISV Business?
A battlefield is emerging between established mega-vendors and pure play SaaS vendors. The following factors will separate the winners from the losers in this market:
- Build a robust offering: cutting edge technology, reliable, high quality.
- Enable extensive customization: provide additional components that address SaaS-specific needs (e.g., authorization, billing, monitoring & management).
- Monetize effectively: McKinsey identifies this as the most important success factor. The winning platform vendor will be the one which most effectively creates economic value for its ecosystems!
- Drive ecosystem growth: enable partners to make money within the platform vendor’s community through collaboration, sharing of tools and best practices.
Although many of the early SaaS platforms are based on proprietary languages and tools, Gartner predicts that 90% of SaaS software will be based on open source within 2 years.