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Why Software-As-A-Service Could Be A Dead End

If enterprise apps all become SaaS, your software investment will have a very precise lifespan and return.

With this summer's release of Blizzard Entertainment's Diablo III--and my sons' excitement over the blockbuster game--I gained some insight into where the software world is headed. Think that conventional software licensing, whose premise is "you don't own the bits; you own an entitlement to use the bits", reduces your business agility? That's nothing compared to the can of whoop-de-do that's been opened with software-as-a-service.

The Diablo III "innovation" that caught my eye once my sons started hacking away at it was this: Although there's a DVD and PC installation, there isn't any way to play offline. I found this out because the Internet in my house cuts out at midnight. It's my sons' ex-infrastructure-guy father's way of telling them to give the online world a rest.

In the past, with games like StarCraft, once the Internet cut out, my sons could still play the single-player game. Not so with Diablo III. As young men do, my sons researched whether there's a way to play offline, and one of them reported back to me: "Dad, code for their game is running on the servers. You don't have the whole thing on your PC."

[ Would your enterprise do well to take a page from Google's book? Read Why MBAs Hate Google—And You Shouldn't. ]

Whether it's a bid for stronger digital rights management or more control over in-game cheating, this "hybrid SaaS" approach got me thinking.

Most old games have an incredible lifespan. My sons are still playing, through the magic of platform emulators, some video games I bought 20 years ago. Some of the games are from companies that aren't even in business anymore, and the only way to legitimately get them, if you don't already own them, is to find used versions. But if their producers had used Blizzard's method, nobody could ever play those games again.

That's regrettable in a small way when you're talking about video games, but it's disturbing when you're talking about business software. After all, some enterprise applications have massively long lifespans. There's a point-of-sale system that I wrote well over 20 years ago that's still in use, to the benefit of (admittedly few) customers who are still running it. I spoke just the other day to a colleague who also has a system he wrote decades ago that just won't die. This isn't a unique situation.

If enterprise apps all become SaaS, that changes things. Your software investment will have a very precise lifespan and return. You won't have options or flexibility in terms of running software with in-house, third-party support (for example, the support available from the likes of Rimini Street, which offers less-expensive ERP support for SAP, Oracle, PeopleSoft, and other enterprise applications), or buying Jonathan or Trevor a beer to run a reindex on the system that one of them wrote 20 years ago.

Yes, software-as-a-service provides unprecedented flexibility, in the same way that renting office space does. But like rented office space, it comes with a loss of control and an inflexible, single-party financial commitment.

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My prediction? Someone, somewhere will get burned on that loss of control, and there will be at least a partial swing back to on-premises code for critical long-term systems.

Last week at the InformationWeek 500 Conference, SAP co-CEO Jim Hagemann-Snabe predicted that the future of SaaS will include the option of managing systems on premises or ceding control to the cloud. He made a case that core strategic business--the business you don't want your competition seeing--will likely remain company-controlled, and "edge" cases will be "outsourced to the cloud."

Though he's a biased purveyor--most of SAP's software is on premises now, though its acquisitions of SuccessFactors and Ariba are promising--I think he's right. Not all enterprises rent all of their office space, and the future of software won't be all-rental either.

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User Rank: Apprentice
9/29/2012 | 12:11:22 AM
re: Why Software-As-A-Service Could Be A Dead End
While not pure-play SaaS per se, many applications now reside in the cloud (even traditionally on-premises sw). The need for connectivity is now a requirement and while offline use is desirable it may no longer be possible and needed. Swing to on-premises? That ship may have sailed. --Paul Calento
User Rank: Apprentice
9/25/2012 | 5:19:31 PM
re: Why Software-As-A-Service Could Be A Dead End
The game you mention is what is referred to as an MMORPG - the same fundamental class of game that includes World of Warcraft, Guild Wars, Eve Online, and many others. These games will never offer a version that will allow players to interact with the perpetual game world when the player is offline because, well, when you're offline you don't have access to the perpetual game world.

The point of these games is not single-player game play. The point of these games is, in terms that many readers here are probably more familiar with, crowd-sourcing. For example, these games include missions/quests/bosses that a single player alone cannot take down. It requires the ad hoc collaboration of sometimes dozens of players to accomplish a given feat/task.

This type of game is a pretty good example of SaaS. The gaming industry - specifically MMORPG's - can offer the business world a few lessons on how best to leverage SaaS.

A point raised in this article is "... someone, somewhere, will get burned on that loss of control". Let's take it to an extreme. A few years ago, a Korean company that makes a series of exceptionally popular MMORPG's created a game called Tabula Rasa. This game was very poorly marketed but, it was a really good game. In fact, it was a terrific game. But, the company that produced the game (NC Soft) seemed utterly incapable of drawing users to it. They just couldn't seem to get behind the product the way they got behind Guild Wars.

After about 18 months, Tabula Rasa was shut down. Although they had a core group of loyal players, those players lost everything that they spent countless hours of the course of 18 months to accomplish. The product wasn't making enough money. Those players got screwed.

And then NC Soft did something remarkable. They began heavily promoting Tabula Rasa by inviting people to come play it for free during it's last month. And people began flocking to it and enjoying it. Then one day, the servers were just offline and never came back.

While gaming is a bit different from big business, the lesson here is the same: becoming too invested in a single SaaS can be devastating. Players of MMORPG's become heavily invested in their product-of-choice and when that product shuts down, as in the stated case with Tabula Rasa, that gamer is really more of less screwed. Meanwhile, the same can serve as a warning to those engaging new SaaS vendors in the business world: by all means, engage a vendor. But always maintain a back-up plan, a means of pulling out and replacing that vendor with another comparable service quickly and efficiently without loss of parity.

With all of this said, I think the parallel's you drew in this article are refreshing. I truly enjoyed reading this and hope that these parallels will encourage other people to think about things differently; to look for cues that they can apply to their decision-making process in new and unexpected places.
User Rank: Apprentice
9/25/2012 | 12:54:04 PM
re: Why Software-As-A-Service Could Be A Dead End
"...some enterprise applications have massively long lifespans."

Correct. Many of those apps were written before the '90s in COBOL and on IBM mainframes. Some of those programs have been ported to non-mainframe platforms and will continue to live on. Remember that lots of old code was discarded because it was poorly written, not because its programming language became obsolete.
User Rank: Ninja
9/25/2012 | 7:38:34 AM
re: Why Software-As-A-Service Could Be A Dead End
I think the bigger issue here is that using the apps depends on Internet connectivity and the vendor keeping the machines running. For home users it may be OK to go without the service for a day, but not for a business. Also, businesses usually have metered data service and pulling everything over the Internet is a major expense. Welcome to the cloud!
User Rank: Ninja
9/25/2012 | 7:36:16 AM
re: Why Software-As-A-Service Could Be A Dead End
SaaS has advantages and disadvantages for both vendor and customer. Some of the disadvantages are mentioned in the article, but the key for SaaS for business apps is cost. Customers pay a subscription rather than a big up-front one time license fee. This way expenses are spread out over years and there is no substantial negative ROI when ditching the app after a year or two. Vendors happily exchange the one time big pay day for predictable annuities, especially when SaaS licenses can be bundled with mandatory maintenance plans. Depending on pricing structure the vendor makes more money with SaaS after two or three years than with the traditional license model and really cash in when having subscriptions run even longer than that. There is also the benefit of easier access to customer data and customer usage patterns.
As for customers, it depends a lot on what the alternatives are, how much money they want to spend at once, and how much they trust the vendor. As far as Diablo III is concerned, there is no alternative, because there is only one vendor making this product. There are typically alternatives to business apps and while switching may be painful, at least it is an option.
User Rank: Apprentice
9/25/2012 | 12:15:47 AM
re: Why Software-As-A-Service Could Be A Dead End
I think it's going to be a combination of could based SaaS application and offline enterpise solutions. Software really depends on what problem it's trying to solve. A big company will probably receive more benefits from an enterprise edition they can personally develop. Smaller to medium sized businesses don't have a budget for software development. SaaS companies usually figure out how to solve a problem in a specific niche and offer the solution for way cheaper than any enterprise solution could. Things like mobility and not having to create the internal infrastructure add to the benefits of a SaaS solution. I think that SaaS will start creeping into larger companies as time goes on however. The need for a greater IT force will always increase, and if the software can be obtained and used for a cheaper price then they will go for it.

User Rank: Ninja
9/24/2012 | 7:20:14 PM
re: Why Software-As-A-Service Could Be A Dead End
SaaS, like all technologies, has its place. It will never be "all apps". However, you do bring up a valid point that once they are offline, they are gone, never to be reactivated.

It's also interesting how a 24/7 persistent online game world brought this business concept to your attention. I guess you never know what triggers a train of thought.
User Rank: Strategist
9/24/2012 | 4:54:18 PM
re: Why Software-As-A-Service Could Be A Dead End
I see hundreds of publishers calling Diablo III to find out how or offer partnerships now so they can protect their electronic books and audio holdings. I know what you mean about those early electronic games (still hooked on Pong, right).
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