Home SaaS: Enterprise Software Vendors Are Still Denying Reality

SaaS: Enterprise Software Vendors Are Still Denying Reality

As Silicon Valley girds for $1 trillion wealth transfer from the enterprise software incumbents to nimble upstarts, it makes sense to look how the entrenched players are responding the challenge.

While some are buying up the competition while they still can or building their own startup-like operations (praying they won’t cannibalize their main businesses), others are hiding their heads in the sand. For them, at least, the results aren’t going to be pretty.

The Old Guard

The enterprise software market is big and messy for a reason: The “enterprise” isn’t a thing, precisely. Enterprises are just big businesses – and businesses do everything. Clorox, Facebook and the Department of Defense might all be considered “enterprises,” but they have very different organizational structures, revenue models and supply chains. If you’re selling software to support those differences, you’d better be ready to customize. 

Enter SAP, Oracle, IBM, EMC and other enterprise “solution providers.” Typically, these vendors sell customers a product for $500K, charge another $1 million to integrate it and make it work, then take even more ongoing fees to keep it running. Enterprise software products scale – which is why companies are willing to invest so much in them – but they’re expensive, slow-moving and complicated.

For small-to-medium businesses (SMBs), speed and cost trump scalability, so they tend to focus on separate “point” solutions. An SMB might stitch together Quickbooks, Microsoft Project, Joomla, payroll services from ADP, and a ton of spreadsheets and email to fill in the gaps. These solutions are cheap and quick, but integration between them is often glitchy, crticial data can get lost in the shuffle, and they have an annoying tendency to fall apart as companies grow.

The New Guys

Over the last 10 years, Software as a Service (SaaS) delivered from the cloud has bridged the gap between the two worlds, offering scalable enterprise-class services that can be up and running in a matter of weeks, rather than months. SaaS applications are generally less customizable than their on-site competitors, but they’re a lot simpler to understand, often provide better performance, and their pricing is much more straightforward. Some of the biggest enterprises in the world are moving chunks of their infrastructure to these SaaS upstarts, and many newer companies are building their entire platforms in the cloud.

Salesforce.com is the most successful example of a SaaS vendor, racing from nowhere to a multi-billion dollar valuation in just a few years. Along the way, Salesforce has proved that the cloud can, in fact, support large enterprises. The company currently manages a 25,000-seat contract with Merrill Lynch, for example, and it closed a $140 million deal with State Farm Insurance earlier this year.

Deals like that get headlines, and you’d think that traditional enterprise software vendors would be worried enough to do whatever it takes to response to the challenge.

You’d think that, but it’s not always true. In many cases, the big dogs don’t seem to be paying attention, and it could end up costing them.

Quick Response

Sometimes they get it right. In HR for example, the SaaS threat is well understood, and the response is already in motion. Workday, created by PeopleSoft founder Dave Duffield and other PeopleSoft refugees (and powered by an underpublicized but smoking IPO) provides a full suite of hosted Human Capital Management (HCM) and financial management applications that compete directly with SAP and Oracle (the company that bought PeopleSoft). SAP responded by acquiring the cloud HCM provider SuccessFactors for $3.4 billion – a 52% premium. For its part, Oracle spent nearly $2 billion on Taleo.

Game on.

The Laggards

But that’s not the whole story. There’s still plenty of head-in-the-sand thinking going on. Take Web Content Management (WCM), for example, the software companies use to store, edit, manage and publish their assets online. It’s an absolutely essential piece of the enterprise puzzle.

In a podcast titled “The Big Shift,” Gartner Group’s Mick MacComascaigh declared a sense of urgency “driving attention to SaaS-based Web Content Management (WCM).” His partner on the podcast? CrownPeak CEO Jim Howard, who’s been promoting SaaS as the “new” face of WCM for the past 10 years.

SaaS has plenty of benefits for WCM. It’s much more marketer-friendly, for one. Service-based solutions lack some of the infinitely tweakable options you get by running on your own iron, but they make it far easier for Chief Marketing Officers (CMOs) and their minions to put together something quickly, without IT help.

According to Howard, enterprise sales at CrownPeak are heating up. “CrownPeak will experience over 60% growth this year, with about half of the growth coming from expansion in Fortune 1000 accounts like MetLife, Microsoft/Skype and Intercontinental Hotels,” he claims. Howard also notes that the majority of CrownPeak’s clients are companies with more than $1 billion in revenue, and that many of them plan to migrate away from in-house systems. 

Nothing To Fear?

So why isn’t everyone launching an SaaS WCM system? According to Tony Byrne, founder of Real Story Group and one of ReadWrite’s Five Analysts to Watch, market demand hasn’t met the expectations. “Web CMS customers seem to want more platform-oriented systems, rather than highly productized, SaaS solutions.”

That kind of conservatism makes a lot of sense. After all, your content – articles, video, contracts, code – is what you do and who you are. Outsourcing that to a service in the sky is a major leap of faith. It’s also the kind of thinking that keeps established software developers entrenched. No matter how clunky a system is now, a “rip-and-replace” will always bring more near-term pain.

As a result, Byrne argues, entrenched Content Management vendors like EMC and OpenText are undergoing less of a paradigm shift and more of a hybrid evolution, trying to address demands for easier management without disrupting the current ecosystem. “We’re beginning to see more traditionally on-premise CMS tools begin to become more ‘cloudified,’ with managed hosting offerings, including some cloud-based alternatives. To be sure, this is not the same thing as SaaS, but it does offer a kind of compromise where you can customize and extend the platform in bespoke ways, but can outsource most of the systems administration.” 

CrownPeak’s Howard, understandably, thinks “cloudification” is nearsighted and misses the point. “What the old guard calls Cloud (or Hosted or SaaS) has the same IT bottleneck that their premise solution has. The only difference is that the ‘IT guy’ works for the vendor, and not the company. To be true SaaS, a company needs to design the application from the ground up to support parallel development of multiple projects, invest millions in scalable and secure infrastructure, and have services that go beyond fixing what’s broken. When you install a traditional application in the cloud, you still have all of the big, expensive headaches and poor outcomes.” In this view, “cloudified” solutions are just in-house software plus a hosting plan. 

But is that really what’s going on? The established vendors don’t seem to want to clear up the confusion. Many are sure selling cloud solutions like they’re traditional software. OpenText Cloud’s product page, for example, does a horrible job of summarizing what the service actually does and how a knowledge worker might actually use it. 

The gist seems to be a murky “We do good stuff. Call us and we’ll talk about how we can do good stuff for you.” That might work for existing customers looking for options, but it probably won’t sell well with CMOs – often the new technology customer.

Winning The Battle, But…

Just because the content management market hasn’t yet fully embraced the SaaS model, established vendors can’t afford to take a break. Their job is to stay ahead of customer demand – not just meet it.

CrownPeak and plenty of others are making beachheads in the enterprise, one department at a time. According to Howard, “The SaaS option doesn’t have to be an either/or. In many large and very large organizations, SaaS can initially fit a niche need while the existing solution stays in place.” That approach introduces the enterprise Marketing Department to a new, responsive company that gets the job done. Since Marketing will be signing the checks, those small sales could lead to much bigger ones down the line – threatening the long-term prospects of the traditional vendors.

That’s exactly how those $1 trillion wealth transfers gain momentum.

Lead image courtesy of Shutterstock.

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The ReadWrite Editorial policy involves closely monitoring the tech industry for major developments, new product launches, AI breakthroughs, video game releases and other newsworthy events. Editors assign relevant stories to staff writers or freelance contributors with expertise in each particular topic area. Before publication, articles go through a rigorous round of editing for accuracy, clarity, and to ensure adherence to ReadWrite's style guidelines.

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