Five Reasons SaaS doesn't suck

Sending your company's critical applications into the cloud is not for the faint of heart. The risk and rewards used to choose on premises software in the past are greatly exaggerated when choosing a SaaS application. As with any business decision, if you understand the risks and can take advantage of the rewards then cloud computing is for you. The article below addresses the concerns of consumers of cloud applications who did not understand the risks.

Here's the Facetious CIO's response to each of the Five Reasons SaaS sucks:

1. "My Internet connection sucks!" Not understanding that your connection to the Internet becomes a critical extension of your core network is dangerous. When entering into cloud computing your environment changes. Analyze what it takes to deliver that application and secure the underlying technologies (some you still own even in a SaaS world) to match or exceed your applications' SLAs.

2. "I don't trust the Internet..." And rightly so. Given recent high profile security breeches you should be wary of the information placed on the Internet, who has access to it, and most importantly what you are using to authorize access to it. Security breeches so far have been due to poor password management. Your application and data are now available on the Internet instead of behind your firewall. Please use something more restrictive than a username and password.

3. "I always forget to hit the 'save' button." I fail to see how this is any different from on premises solutions. Sorry, but if your users couldn't figure this out with local applications than it won't be any easier with an application hosted elsewhere.

4. "I don't understand why (insert SaaS app here) can't just (insert desirable feature here)" Again, this does not change between the on premises and cloud worlds. If you do not correctly set expectations up front your implementation will fail. This holds true if you buy a product off the shelf, develop it in house, or rent it from the cloud.

5. "What do you mean ten years from now I'll still be paying for this thing?" Yup, it's true. Unless you plan on keeping your current on premises system at its current version for the next ten years, it's less expensive and hassle free to just rent it. Software, even mission critical software, can barely be considered an asset to your company. Buy a building and add it to your company assets, rent the software.

How to go from buying records to renting MP3s

Rhapsody has a great business model. They offer unlimited (yet restricted) use of their entire music catalog for a monthly fee lower than the price of a single printed CD. They also sell unrestricted music at market prices. You may stream as much music as you like using their web site or using a recommended portable device. The trick is that once you discontinue service, any music that you did not purchase becomes unavailable to you. My guess is the record distribution companies that own the content get a flat fee for each user regardless of how much that user does or does not use. As most subscription service business models work, they account for a significant number of subscribers to be lazy and not use the full capabilities of their membership.

This is the progression of the music industry's retail model:

1. selling singles
2. selling record albums
3. selling albums on tapes and CDs
4. selling singles on the Internet
5. renting catalogs of music

The marketing of tapes and CDs is significantly different from albums because of the loss of control record companies had with the technical capabilities widely available at the time to produce near or exact duplicates. Pricing models began to compensate for this loss. Most online sites are using model number 4 with iTunes being the most popular. Rhapsody and a handful of others have reached model 5. Not only is this the "future of music", as Fortune magazine referred to Rhapsody , but it is the future of software.

This is the progression of the software industry's retail model:

1. Selling platforms to create custom applications
2. Selling generic applications
3. Selling applications plus support
4. Selling applications plus implementation and support
5. Selling applications plus implementation, support, and annual licensing
   
6. Renting platforms to create custom applications
7. Renting cloud applications and selling implementation services

Looks familiar doesn't it. Software companies used to press and release records and now they want to be in the business of renting MP3s. Just as the music industry has experienced, this is not easy but necessary. This model for music would not have existed if it wasn't for Napster showing that the customer base for this distribution model existed. The music industry just had to figure out a way to monetize it. The single most important thing for software companies that are looking to leap from traditional distribution to SaaS is how to correctly charge for their service. The next most important thing is how to get customers to stick with them long enough to collect that all important recurring revenue. Rhapsody figured out what to charge (less than a CD) and how to lock customers in (loss of music they enjoy listening to).