SaaS – The Next Frontier

Insights from customer conversations

Ray_Twitter_Profile (2)Enterprise software applications are increasingly being delivered as software-as-a-service (“SaaS”) applications. The concept of SaaS has been around since the early 2000’s, but it has gained great momentum and customer adoption in recent years. In its Worldwide Semiannual Public Cloud Services Spending Guide, IDC[1] predicts SaaS will remain the dominant cloud computing type, capturing more than two-thirds of all public cloud spending through 2019. As most of you may know, these applications execute “in the cloud”, as opposed to in the customer’s data center. They are primarily sold under a subscription license with some variation of a “pay for what you use” model. The same application with minimal or no customization is presented to hundreds or thousands of customers, often using browser-based clients or mobile apps.

 

SaaS is the new frontier of the ISV – the independent software vendor. As enterprises embrace SaaS applications to an ever-greater degree, the effect is to move compute, storage and the related infrastructure management out of the enterprise datacenter and into the infrastructure of a SaaS ISV.

 

To understand what’s driving some of these SaaS ISVs, I talked extensively to a few of them who are focused on delivering enterprise-grade applications. While I spoke to many vendors, in this post, I am reflecting upon the views of three companies, all of whom are rapidly growing their SaaS businesses. Two of the ISVs are in the US and one is based in EMEA. We discussed their business and infrastructure plans; below is a summary of my conversations.

 

What are some of the bigger issues these customers are dealing with?

Due to their hyper-growth, these customers deal with rapid scale and rate of customer acquisitions. They can’t afford to let the ball drop as they meet the needs of all of their customers. They also need to maintain the culture that has worked for them so far. The US-based companies are in a highly competitive marketplace for hiring, so this can be a real recruiting challenge for them. For the companies with a financial services business aspect, there are data privacy challenges in a highly regulated environment.

 

How do they view product development and innovation?

SaaS infrastructure needs to be secure and stable to support customer needs. To stay ahead, their developers need to be highly productive and agile. Speed is an essential requirement for their developers.

 

Where do they run their SaaS products?

They run their products in a blended environment of on-premises and off-premises, but their primary infrastructure today is a large private cloud on which they run their SaaS infrastructure and services. One business was highly automated and appeared to essentially run a multi-tenant cloud infrastructure, but dedicated to one application. Another used dedicated physical infrastructure for some of their individual customers, due in part to data privacy issues and customer requirements. In all cases, they are beginning to run some of their infrastructure– non-production, for example– in the public cloud or in hosted environments. None run their primary SaaS business on the public cloud at this time. I should note that these companies are all four to six years old. Many of the newer and much smaller SaaS companies I talk to are leveraging public clouds, so this may be either a maturity issue or a reflection of when they were founded.

 

How important is security and location of that data to these SaaS ISVs?

Two of the companies have financial services aspects that are subject to regulation and, since they collect confidential and sensitive information, security is vital. Since their customers are not heavy users of mobile devices at this time, they use a classic approach to security – they protect the network and access to the network. They have specific threat management and awareness teams focused on constantly making sure that their infrastructure has not been compromised and that it is constantly updated with the latest patches. The EMEA-based company has customers all over, so they are particularly concerned with the legal requirements in the different countries and their ability to comply with local data sovereignty mandates and ensure adequate protection for that data when it is transferred overseas. This company is particularly focused on its plans to deal with the new General Data Protection Regulation (“GDPR”) from the EU.

 

Are they considering moving to a public cloud?

All three companies were looking at the public cloud, but had concerns around data privacy. They were less concerned about public cloud security. They are considering the use of public clouds mainly for test/dev now, and want to move to the public cloud in a greater degree. For them, this is all about speed and agility. They want to be able to focus their expertise on their core app and what they provide to their customer. While they are not focused on the infrastructure, they particularly value the infrastructure services they can get “pre-built“ in the public cloud – such as object storage, identity management, and data analytics — since their ability to quickly leverage these services gives them a competitive edge. Even though they are all clearly leaning this way, none of them have moved heavily to the public cloud just yet (see my earlier comments on what other newer/smaller startups claim to be doing).

 

What about leveraging PaaS as a way to provide “cloud portability”?

The two US companies have looked into platform-as-a-service (“PaaS”) — one was interested from a productivity stance more than a lock-in stance, but they were not overly confident that a PaaS would be able to move as fast as the large public clouds to provide new services, e.g., storage management, search, and data analytics.

 

What do they see as their biggest threat?

In all cases, their biggest threat was that a competitor would pop up and siphon off customers and business. Their goals are to achieve market dominance and customer acquisition as quickly as possible – hence this drumbeat on developer agility and speedy customer acquisition.

 

Where do they see their next big growth opportunity?

They all have ambitious goals and aim to fundamentally transform their industries. In each case, they believe that they are not merely “Digitally Transforming” their individual customers, but that they are also transforming each of their respective industries.

 

I’d love to hear your thoughts on these companies’ plans. Did anything stand out for you? What would you have asked these ISVs?

 

Ray

@ray_ofarrell

 

 

 

 

[1] https://www.idc.com/getdoc.jsp?contaIinerId=prUS40960516 – Worldwide Public Cloud Services Spending Forecast to Double by 2019, According to IDC

Other posts by

DELL Luminaries Series: Of Risk and Trust . . . in IT with Ray O’Farrell, VMware EVP and CTO

CTO Ray O’Farrell recently sat down with Mark Schaefer and Douglas Karr as part of the Dell EMC Luminaries podcast series to discuss how companies are undergoing digital transformation by innovating and adapting to the Internet of Things. Ray takes us from the beginnings of VMware, through the evolution of the company and how it […]

Opportunities: VMware Shaping IoT

Ray O’Farrell, Executive Vice President & Chief Technology Officer Over the last few months, we’ve seen many of the large infrastructure and infrastructure-software companies in the world of IoT releasing new products and announcing new partnerships. This is far from surprising. IoT at its core, is around the connectivity of Things, all the way back […]

AI – An Important Workload for the New IT

When I meet with customers, I often hear that Artificial Intelligence (AI) is presented as “machines making decisions for businesses or individuals,” but my take is that AI is a tool to help people make better decisions. AI helps us connect the dots across huge data sets and gain insights to solve real world problems […]