Salesforce.com is obviously the poster-child for SaaS, but it seems as if they may be breathing their own exhaust when it comes to espousing the multi-tenant hosted model.
As many observers have pointed out, there are many aspects of SaaS that may seem like religion, but that have very meaningful impacts on the customer's cost of ownership and value derived from the software.
"Multi-tenant" is short-hand for two key architectural components of a true SaaS solution: 1) single software version and 2) shared infrastructure costs. Both of these have game-changing benefits for both the customer and the SaaS vendor:
- Single Software Version: This means that all customers are automatically upgraded to the latest version. All customers not only get the latest innovations and improvements in the software, they also get unparalleled top-to-bottom support and avoid the risk of being orphaned on an old unsupported, unmaintained version. SaaS vendors only need to maintain one (current) version of the software, and every fix/enhancement goes to every customer. Multi-version vendors end up spending 70-90 percent of their development effort simply on maintenance, according to The Economist, as they fragment their maintenance efforts over more and more versions of the software and each fix applies to a small subset of customers.
- Shared Infrastructure: Multi-tenant allows multiple customers to run on the same infrastructure. Most people think of servers as the main infrastructure cost, but even more costly are the cost of database licenses and other infrastructure software, the 20%-per-year maintenance costs for all infrastructure components, and (most importantly) the operations personnel costs: DBAs, system administrators, network administrators, etc. Fifty customers, each buying and building their own infrastructure, would together spend an order or magnitude more cost than a shared-infrastructure SaaS solution. The customer gains from the SaaS vendor passing along a dramatically lower cost of ownership, and the SaaS provider can also provide capabilities that a single customer couldn't ever justify, such a hot-backup mirror sites, world-class scalability and performance, etc.
Think this doesn't really matter? Here's a very real example: A few years ago, a major U.S. technology manufacturer selected one of our competitors, a fake SaaS provider without single-version automatic upgrades or shared infrastructure. After four years, the customer was fed up: they had wanted a new approval feature and the fake-SaaS vendor was busy working on a new version for future customers and couldn't accommodate them. The customer wanted more reports and eventually had to internally build a datamart to create their own reports, the vendor couldn't implement internationally on the old version, and the system response times got continually longer as data volumes increased.
So we invited this customer to talk with some of our long-standing customers, and they heard first-hand what they had missed: in the same time period, our customers were able to take advantage of several completely new subsystems, international capabilities across all the major economies in the world, a whole new reporting and business intelligence system, and response times that decreased on average every year. And all for free - customers didn't pay any extra cost, allocate any internal IT resources for upgrades or pay any hidden costs.
The story has a happy ending - even though our competitor offered to upgrade the customer for free to their latest version, the customer is now our customer. After the whole decision process ended, the customer's Director of Procurement said "It wasn't even close, you blew them away." And we've stolen other customers from this competitor for the same reason.
Now, are we really that much better than this competitor? The short answer is that the SaaS business model is really that much better, both for customers and the software providers.
Thanks for clearing that out. I really had a hard thinking what Multi-tenancy means.
Ben Cliff
Posted by: Small Business Answering service | August 30, 2010 at 11:36 AM