Executives talk about the problems in Enterprise SaaS

There were 2 very interesting SaaS discussions organized during the Always On Summit at Stanford. One session was titled ‘Will the Next Salesforce.com Please Stand Up?’ and the other was titled ‘Will SaaS Disappear in the Cloud?’

Both discussions were focused on the future of SaaS and where the industry is heading. The discussions surrounded the questions of “Why is SaaS having trouble entering the enterprise space?” and in particular, “Why hasn’t there been another breakthrough company like Salesforce.com who has penetration in the enterprise?”

For the first session,‘Will the Next Salesforce.com Please Stand Up?’; the panel consisted of execs from Lithium, Intel Capital, nGenera, Zuora & LiveOps. In an attempt to tackle the question of why there hasn’t been another big enterprise play in SaaS, CEO of nGenera Steve Papermaster puts it bluntly:

“First of all, there has been in large part a failure to innovate. In my view, there’s been a lot of me-too solutions moving to SaaS taking initiatives, point applications, similiar functionality and simply moving it to a SaaS environment. It changes the technology paradigm and billing cycle but it doesn’t change the game for the customer. And if you’re not changing the game for the customer then you’re not providing disruptive change in a positive sense. If they can find a way to run and lead their business very differently, then you’re really not providing breakthrough value for your customer than before.”

Managing Director Lisa Lambert from Intel Capital believes broad acceptance of SaaS is still being validated. “To be honest, they haven’t overcome some of he issues around security, integration, customization or even around flexible pricing models.” Later on Lisa adds, “I think the real reason is fundamentally that the value proposition really appeals to small businesses. At the end of the day small businesses were excluded from enterprise software … fundamentally, SaaS answered that question. It made a lot more sense for small businesses to buy software as a service.”

During the other session (‘Will SaaS Disappear in the Cloud?’), execs had a different opinion of why the enterprise hasn’t fully embraced SaaS. Hewlett-Packard’s VP of Cloud Services, Russ Daniels believes that the enterprise is over-regulated and that the shear complexity of regulations and compliance is the true barrier to entry for SaaS. He explains, “You can look at an enterprise business and think they’re a dinosaur and think they’re slow. But what they’re in fact saying is hey look ‘I have to deal with regulatory compliance, I have to deal with data portability’. It’s nice if I can back out of a deal 3 months later. But I got 3 months in there and how do I get it out? And when I get it out, it’s in the form of the application. The second is process transparency, ‘How do I know how this stuff is working’. And finally, you’ll have all the fine grained data security. If I take an HP confidential powerpoint deck. and I put that on any free place to store it. I’m violating HP’s security policy and I could be fired.”

The general consensus was that SaaS is still a hard sell for the enterprise. It requires a longer and a more complex sales process and thus leads to higher customer acquisition costs. The companies that will really succeed are the ones that can provide value beyond what the SaaS delivery model already promises. So in a sense, lowering cost of ownership or automatic upgrades are just not compelling enough. It’s easy to convince a small company without any software to purchase a SaaS application. It’s a no-brainer decision of: “I don’t have a CRM, I need one.” In contrast, vendors face a tougher challenge in the enterprise because they have to convince their customer to replace an application that may already do the job reasonably well.

Drew Clark from IBM Venture Capital puts it succinctly, “What we’re talking about is fundamentally a service. It’s not software. What comes with a service is a set of characteristics; about the delivery, the performance and so our customers are going to hold us accountable for service level performance. They’re not looking at how many bugs are in the code. They’re going to look for performance against an SLA or the quality of service.”

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