Some Misconceptions About On

By Renee Boucher Ferguson  |  Posted 2006-09-29 Print this article Print

-Demand Software"> "Its been quite an exciting space to look at," said Winblad. "We really have looked for core new areas that are business processes that are core to multiple enterprises, not just one vertical, and have the same characteristics: rapid deployment, rapid ROI and core processes for mid to large companies."

Hummer Winblad also invests in companies that have a Web services element but arent strictly modeled on SAAS. For example, it funds a company called Widgetbox that has a Web services architecture but is not multitenant. It also funds open-source companies that have yet a different model, one in which they have their own open-source stacks and use them to assemble portfolios.
The bottom line for Hummer Winblad: companies that represent massive changes, according to Winblad.
"Open standard, open source, virtualization, grid computing, SOA [service-oriented architecture] and the ability to deliver software as a service," said Winblad. "If you look at our portfolio, we have very few client/server companies." But despite the rise—and use—of on-demand software, there are still some fundamental misconceptions to overcome. The first is that SAAS is mainly easy-to-deploy software with variable pricing for small businesses. What is Microsoft doing to keep up with SAAS? Click here to read more. "There would be a lot of incumbent companies that would like to continue to cast SAAS as that, but its not true," said Winblad. "When we look at the SAAS market, it is a broad brush across small, mid and very large customers." Another misconception about SAAS is that the applications are difficult to integrate with other on-demand applications and, more important, with on-premises applications. "That is a fabrication from companies that are not part of it," said Winblad. "The truth about this is that all these companies that are true SAAS—multitenant—are built on a services architecture and integration platform that makes it easy to integrate with each other and with on-premises software." Whats driving adoption of SAAS is the ability for customers to choose best-of-breed software and look at the way their businesses really operate, according to Winblad. "Thats why youre seeing new categories like spend management [that represent] business processes that can bring a very, very rapid ROI to a corporation," she said. Despite the rosy picture, there are some basic pitfalls for SAAS companies to overcome. Mainly its about execution: the ability of startups to continue to execute in the face of not only mounting customer demand but also increasing competition from relative stalwarts such as SAP, Oracle and Microsoft, each of which is making a play in the on-demand applications market. Customer demands on software vendors never lessen, which means a lot of execution pressure on SAAS companies, according to Winblad. "There are some big poster children, certainly, and the stronger they are, the stronger the whole segment will be," she said. At the same time, on-premises competitors have yet to come out with true multitenant software to compete head-to-head with smaller, pure-play SAAS vendors. SAP has a "hybrid" model of single-tenant software with multitenant upgrade capabilities; Oracle acquired Siebel, which has multitenant capabilities but not under the Oracle stack; and Microsoft is expected to come out with its multitenant CRM version, code-named Titan, in the second quarter of 2007. Does that mean companies may, at some point, turn solely to on-demand software for their enterprise needs? Not likely, according to Winblad. "Are people going to rip out SAP? No, theyre not going to throw out the baby with the bath water. Theyre just slowly going to drain the tub," said Winblad. "Theyre going to really look at what their business processes are and say, What are the things we can have as a service, and what are core proprietary? Whatever is your competitive advantage." The shift wont be an easy one for the software industry, it seems. There is a period of time where a certain number of old-guard software companies will make radical adjustments—a move thats necessary, according to Winblad. "SAAS is about fundamental models: how you price software, how you compensate sales, how you develop. Its a fundamental change in business models and cultures. In software communities, that is probably the hardest thing for incumbents," she said. Check out eWEEK.coms for the latest news, reviews and analysis about productivity and business solutions.


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