How the Software Industry is Transforming into ‘…as a Service’ industry in the Cloud

Today, most independent software vendors (ISVs) are pondering their plan down the future software path called Software as a Service (SaaS). Some of these ISVs have embarked on the journey of re-architecting their software for SaaS and some are testing the waters with a few customers using hardware virtualization (such as VMware) that is functionally not much different from the old ASP (Application Service Provider) model of the late 1990s. There is definitely a trend of traditional ISVs moving to SaaS; in fact, it is not easy to find any traditional enterprise software startup that has been funded since 2003. It’s clear that SaaS is the future mainstream direction.

Players in the software industry compete around intellectual property. It’s all about who has the most compelling features. In the future SaaS world, the competition will be around its second ‘S’ – Service. This will require many of today’s ISVs to reinvent themselves-”both in mindset and products.

First, their mindset has to move from shipping products on CDs that require professional services, annual product development cycles, and high annual maintenance fees to one focused on providing their products with the absolute lowest cost of service delivery. In the SaaS world, it’s all about driving down your cost of goods sold (COGS). In the future, the market winners will be those who can effectively drive the incremental cost of new customer on-boarding, and service delivery to zero. These winners will enable their customers to self provision the service with the incremental cost of adding that customer as close to zero as possible. How will they drive down the incremental cost? By eliminating the need to deploying a separate instance i.e. replicating every software component (operating system, database, app server, etc.) – for every new customer. A true multi-tenant SaaS architecture supports a “shared everything” environment with the flexibility to “un-share” components as necessary.

Second, the future of successful SaaS companies will be built on sophisticated multi-tenant architecture. Today, many software vendors are attempting to weave multi-tenancy into their applications. This process is a cumbersome, lengthy and expensive endeavor. You can think of it as writing your own database or app server from scratch for your application, and no one would attempt doing that any more. So why weave multi-tenant features into your application? It happens because most developers either underestimate the ramifications of doing so, or they are unaware that there is a better approach. Today, sophisticated multi-tenancy exists as a software “plug-in” separate from the application code, similar to databases and application servers. In the future, the best practice will be to use a standalone, proven abstraction layer for multi-tenancy that SaaS developers will incorporate into their solution stack in a similar manner that they integrate databases and application servers.

This “plug-in” approach will allow each SaaS provider the freedom to choose their technology stack such as OS, database and app server. This freedom, combined with the freedom to run the solution on any public, private, or hybrid cloud, will enable the deployment of SaaS applications not only as public service but also as Private SaaS that provides services to a defined and private audience such as an enterprise with different divisions, regions, independent business units and subsidiaries that each could become a “tenant” and turn the corporate IT into an internal service provider perhaps as a profit center.

A true multi-tenant platform allows the software provider to deliver their solution with the lowest cost of service delivery. Also the SaaS solution of the future will provide a cockpit-like capability that measures every driver in the cost of delivery equation. These include CPU usage, disk usage, network activity, amount of time using the application, etc. With these cost breakouts from a sophisticated multi-tenant platform, SaaS providers can offer flexible pricing models, such as capacity usage over time periods or the number of concurrent users during different periods.

Those interested in more details can visit a recent Corent Technology whitepaper published by IBM at IBM developerWorks called: “Convert your web application to a Multi-tenant SaaS/Cloud solution” www.ibm.com/developerworks/cloud/library/cl-multitenantsaas/.

Feyzi Fatehi is CEO of Corent Technology Inc. Corent was named The Emerging Software Company of the Year and received the Best Investment Opportunity Award at Harvard Business School Entrepreneurs Conference. Feyzi was elected to the board of the Technology Council of Southern California in 2007 and serves as the Chairman of its Orange County chapter since 2008. He can be reached at [email protected].