Major SaaS Deal Marks Tipping Point in Software Industry

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As on-demand service providers get ready for the upcoming Amsterdam conference, SaaS ERP provider Workday signs a large deal to serve 200,000 employees.


There's a sea change taking place in the software industry, and it's called SaaS.


On June 9, many of the big players in the SaaS industry will be gathering in Amsterdam at the Software and Information Industry Association (SIIA) OnDemand Europe conference to hear visionaries and executives in the industry present talks on where the software industry is headed next.


Among the keynote speakers will be Sean Poulley, vice president of online collaboration services at IBM's Lotus Software, and Mani Gill, vice president of OnDemand at Business Objects, an SAP company. Also speaking will be Dr. Werner Vogels, vice president and chief technology officer at, and leading consultants Phil Wainewright and Adrian Davis. There will also be numerous presentations by SaaS vendors from across Europe and the U.S.


The meeting comes at an interesting time in the evolution of SaaS. The technology has been in a state of "emergence" for some time, but a major announcement rocked the software industry this week. Flextronics, a worldwide electronics company with some 200,000 employees, decided to adopt the human resources software brainchild of former PeopleSoft founder Dave Duffield and go with the online solution from his growing company, Workday.


Workday was founded in 2005 with an eye toward large enterprises. Duffield and former PeopleSoft chief strategist Aneel Bhusri set out to become a global provider of services and designed company offerings and infrastructure for multinational organizations. Workday's services include human capital management (otherwise known as human services), payroll, financial management, procurement, resource management, expenses, and business intelligence.


Flextronics, which grossed $28 billion in sales last year designing and manufacturing parts for automotive, cell phone, and computer companies, will replace its 80 human resources systems with Workday in 30 different countries. The agreement follows another last fall between Workday and Chiquita to serve 26,000 employees with its human capital management service.


One element of the companies' decisions to go with a SaaS offering in human capital management is that most firms don't consider it to be a competitive advantage. They are looking for simply a lower cost of ownership and easier and faster implementation.


So far, the general ledger and financials packages available online haven't been adopted by larger firms with great enthusiasm because of concerns about loss of data and compromised data. That may change given the economic advantages of SaaS, which are significant. Some analysts believe it's anywhere from five to 16 times more expensive to run an application in house than it is to run it as an on-demand service. For a SaaS provider to achieve those kinds of savings means running a very tight ship, but it can be done and has been done. Larger ERP vendors like SAP are adopting the SaaS model with new products but are reportedly having trouble keeping their costs down. There are technical challenges to SaaS from multi-tenancy to customization to automation.


One hosting company, OpSource, an exhibitor at the Amsterdam conference, specializes in providing advanced hosting services for ISVs who want to offer their software as on-demand solutions. If the software developer is content to do so for a single company with a large number of users, it's no problem. But most want to scale their solutions and offer what they have to a whole lot of companies. Then you get into multi-tenancy issues and may well have to rewrite the application. Trying to port over a single tenant application for on-demand service, I'm told, is sort of like strapping wings on a pig and telling it to fly.


Developers who are writing their applications as single-tenant apps might do well to look down the road and consider whether they ever might want to offer them as on-demand services. Without foresight, they could have the pleasure of doing the job twice. That may not constitute job security in today's fast-changing world.