Originally published on March 10, 2007
I have received an amazing amount of feedback on the Enterprise SaaS series; just about everyone who read it has contacted me with mostly positive comments, but usually someone has at least one concern. I am going to try to address all of their concerns at one time.
Hybrid SaaS != Hybrid Licensing Model
A couple of people have mentioned that trying to support a hybrid licensing (or business) model would be difficult at best. I couldn’t agree more. I never intended to support or even condone multiple licensing models.
I re-read what I wrote, and while it makes sense to me, you really have to follow it closely otherwise you could think I am supporting multiple licensing models. In fact, my “Hybrid SaaS” model is a hybrid technology model that is supported by only one licensing model, utility pricing. What I condone is pretty much technology agnostic and relies on the system being able to “call home” to handle the pricing. I think that is the future of the software industry more so than any actual technology.
That said, I think the SaaS delivery model is the future of software. I am definitely pro-SaaS, including Pureplay SaaS. This series was just to let people know that while we as technologists, entrepreneurs, and evangelists have adopted SaaS as the de facto standard for software delivery, Corporate America, as I have seen it, is not onboard with that. Are they changing? Yes. Will it get better? Absolutely. SaaS is just not ubiquitous yet and you must be prepared for that as a new SaaS start-up. In one or two years, these objections may go away completely; you still need to know your customer though.
A problem with many SaaS vendors is they come in and say “we’re a SaaS vendor” like the customer cares. Do on-premises software companies come in and say “our software is written in Java” or “we distribute our software on CDs”? No. And they shouldn’t because no one cares. The caveat with SaaS is that it is actually more difficult (hence the creation of my articles), because you actually need to make sure they can support that type of delivery mechanism.
But what about selling the benefits of the SaaS model? Yes, you need to do this. But it has been my experience that you must do this after you talk about solving the problems of your customers; “Not only can we solve your problems, bring you these value-adds, but also our unique delivery model can save you money…”. If your only differentiation point is the delivery method of your software, that seems rather weak.
Source Code Escrow Questions
I got this response from one reader:
“I liked the idea of setting up an escrow for the source code as an insurance policy for the customer. I suspect many will scoff at that idea since the IP can be sold at bankruptcy auction but perhaps with an expiration date on the escrow agreement it would be a good tool for start-ups to use.”
I’m not sure how widely used software escrow is, but it is certainly not a new thing. I ran into it when I was looking for a hosted supply chain solution a few years ago. I asked them what would happen if they go away and they introduced me to the concept of software escrow.
Source code escrow is a very detailed process and has strict controls over the IP. It is totally up to the parties involved, but you can always specify that the beneficiary is not allowed to use the IP outside of the scope of its intended purpose, i.e. they can’t take it and commercialize it on its own or use it in their own products.
Source code escrow is really only used to facilitate business continuity, not to turn over rights to use the IP as you wish. Those rights are maintained by the owners, probably the investors (or creditors) in the venture, to do with as they wish.
SaaS *IS* Ubiquitous
I have also been told that SaaS is in use in just about every Enterprise in one form or another. I would take it one step further and say that both Pureplay SaaS and Hybrid SaaS applications are both in use heavily. Pureplay SaaS in the form of HRM, CRM, SCM and Hybrid in the form of vendor-provided desktop applications such as benefits management, shipping carrier systems from UPS and FedEx, etc.
If SaaS is already in Corporate America, why do I say the barrier is still there? Three reasons. 1) you are a start-up, not an existing vendor with a new (often free) product to improve the relationship (such as UPS or FedEx) or 2) you are requiring payment in excess of the unit managers expensing abilities or have requirements outside of that of a standard PC (thus drawing the attention of the IT and Finance departments) and/or 3) you are trying to differentiate your product and must sell to multiple levels, thus bringing it to the attention of the IT department and other conservative levels of management.
I have been inside of multiple companies where I am getting resistance due to the nature of our product architecture, while simultaneously talking about how we are going to integrate with other systems in use that are SaaS themselves. Again, your experience may vary, and this is all based on my experiences. In my experience it is still a challenge for a vendor to sell a SaaS-delivered product in Fortune 1000 companies.
Times are changing, it is getting better, and soon, SaaS will be ubiquitous. Until then, please be prepared. You *can* sell SaaS-delivered solutions to Fortune 1000 companies; it is just easier if you know what to expect when you go in there. Good luck!