How to Spot a SaaS Newbie
Looking to hire a grizzled SaaS veteran for your shiny new "Cloud" startup? Not sure if that claim of 10 years experience in the business trenches of on-demand is true? Want to put your doubts to rest?
Then have your candidate take The SaaS Newbie Test. It's simple, easy, and quick! Just ask them this one question. I use it to separate the wise men from the pretenders and it hasn't failed me yet. The question is:
"What is the difference between SaaS (Software as a Service) and ASPs (Application Service Providers)?
If they're a SaaS newbie, the answers will vary. Most often you'll hear the following:
- Multi-tenancy (ASPs didn't have it.)
- Scalability (ASPs couldn't.)
- Hosting (as in ASPs were basically all about letting you host stuff on the Internet. That's a REAL newbie response; some of the most famous ASP failures such as HotOffice and Red Gorilla had nothing to do with the hosting biz.)
And variants thereof.
You may also read bits of boilerplate such as the following:
"The difference is that while the ASP model has been around a long time it was highly conceptual and specifically did NOT imply or require agreement concerning STANDARDIZED architecture, whereas SaaS (properly defined, architected, and implemented) does require adherence to open standards. For example, ASP vendors were free to offer a completely PROPRIETARY solution architecture and their clients were required to implement that proprietary architecture in order to interoperate."
Clark Sanford, Software + Services LinkedIn Group
"The main difference is that an ASP provider may or may not be providing a SaaS architecture solution. They could possibly be providing a web based solution that is operating via a remote on-premises server that is unique to each customer including individual customizations."
Jim Kubera, Software + Services LinkedIn Group
All of this is wrong and allows you to immediately spot the SaaS newbie. Based on the above, you can safely estimate their experience in SaaS probably goes back to no more than 2007 and 2008 is probably a safer guess. Why this time frame? Because this period coincides with the SaaS movement moving from its comeback stage to its current explosive growth. Beginning in 2007, SaaS companies began to get serious about things such as MT as the amount of business they were generating started to make scalability an important issue. By 2008 scalability and MT were becoming critical issues for many (though not all) SaaS firms. The SaaS Newbie, god bless 'em, is simply telling you what he/she has recently learned. And, if they're technology-driven, seizing on the latest, hottest, shiniest bit of coding-bling to sell their company and themselves.
The correct answer to The SaaS Newbie Test is of course "The difference between SaaS and ASPs is that SaaS companies make money and ASPs didn't."
No, I'm not being funny (though the reality is grimly humorous). As the ASP market collapsed in 2001, the SaaS newbie will not be aware of the following facts:
- There were ASP firms implementing mult-tenancy (MT) that failed.
- There were ASP firms NOT implementing MT that survived.
- While high-speed bandwidth connections were far more problematic a decade+ ago than today, they were available, most companies did have access to high speed bandwidth, and the ASP movement did not collapse because of dial up connections.
- MT was not a new idea in the late 90s; variants of the technology had been used in the software industry since the late 80s (anyone who played with Microrim's R:Base system in the 80s understood the underlying concept of creating a "Big Cube" of data and "virtually" stacking more cubes on top of one another). (Online gaming companies particularly understood the value of MT, as they used the technology to support the myriads of customers who signed up to slay orcs, fight dragons, and virtually marry cute mythical creatures such as elves and fairies. Not that there's anything wrong with that!)
Backing up these facts is another one. And that fact is that is in 2006, in the midst of the ASP (now renamed SaaS) recovery, Softletter released the first edition of its SaaS Report. That first edition, as have all subsequent editions, asked SaaS providers if they implemented MT in their systems. In 2006, about 60% of providers did not, yet SaaS was roaring back to life and continued to do so despite the fact that the next year (2007), 50% of SaaS firms had not yet implemented MT into their systems.
Now, your SaaS Newbie is also not going to know when SaaS replaced ASP as the official designation for on demand software and why. If you ask, you'll hear more babble about "scalability," "MT," "hosting," et al. The answer to this can be found in the immortal (as the author, I assure you this is an unbiased opinion) pages of "In Search of Stupidity: Over 20 Years of High Tech Marketing Disasters." The first edition was written in 2000-2001 as the ASP movement was melting down; the second as the technology was picking itself up off the canvas. Here's an excerpt from ISOS II that describes the gruesome demise of the poor old ASP acronym. This was written in 2005 as SaaS was winning the acronym war of the time. ISOS II was published in 2006, and has been translated into seven languages and been in continuous print since 2001, though most new sales now take place on Kindle and other E-formats. This excerpt is from Chapter 11, "Purple Haze All Through My Brain: The Internet and ASP Busts":
"In a desperate attempt to distance itself from the unrelenting stream of failures, the industry frog marched the ASP label up against a wall and summarily executed the unfortunate acronym. Taking its place were a plethora of new alphabetical appellations—MRPs, HSPs, HRPs, XSPs, etc.—intended to take everyone’s mind off the current depressing state of affairs. Most were immediately hunted down and dispatched. The ASP designation crawled back from the grave and resumed its official role as the standard designation for hosted applications, but it was now in official disgrace and no one talked to it. It finally expired from all the sheer contempt directed at in 2005, to be replaced by the fairly unpronounceable "SaaS (Software as a Service)." (The boldfaced text was added by me in 2005; the rest of the paragraph is from the 2001 first edition.)
Of course, the logical next question is if wasn't MT, infrastructure, scalability, "open standards," and all the rest of it, what killed the ASP movement?
The simple answer is, of course, a lack of customers! As I was writing the first edition of ISOS in 2000-2001 I interviewed perhaps three dozen people from different ASP firms and asked why their companies were dead or dying. Invariably. the answer was lack of revenue from lack of enough people signing up for the ASP offering. The SaaS newbie will frequently start to natter on about "scalability," but for those of us who were there and paying attention, there was a conspicuous lack of press reporting on ASP firms dying because they were being crushed under the weight of all those customers rushing to subscribe. No one I interviewed in that time period reported their firm had face planted because of too much business; it was a problem they would have been glad to have. (BTW, if you're going to claim that your company died for just that reason, your word isn't going to be good enough to convince me. I'd like to see a copy of the press release issued the day your company died stating you were going down for the count from too many customers and a press clipping or two reinforcing that assertion. And yes, if you can't provide them, I don't believe you.)
Why was there a lack of customers for ASP products in the 1999-2001 time frame? Hmmm. For the complete answer, you need to pick up a copy of ISOS II. Read Chapter 11, obviously, then turn to Chapter 14, "Stupid Analyses," page 324. Read the section on the Disruption Model carefully. This will help bring the era into focus.
But I don't want to tease you too much! The short answers are:
- Too many SaaS companies launched into horizontal markets occupied by big bruiser companies ready, willing, and able to defend their turf. SaaS succeeded by moving into new markets and opportunities inherent in the on demand model. Yes, Salesforce.com is an exception, but it's one that proves the rule. (SaaS veterans will remember how beloved Siebel was by companies in the 1999-2001 time frame.)
- The ASP model suffered from collateral damage caused by the dot.com implosion. Even deserving companies, in some cases, were taken down.
- Too many ASP firms received funding they shouldn't have. In the period leading up to the 2001 meltdown, the VC community lost its collective mind and threw money into firms with stupid business models that had no prayer of succeeding. There were plenty of SaaS (ASP) companies in that mix.
There were other reasons for the bust but you'll need to read In Search of Stupidity to learn more.
So, there it is. The SaaS Newbie Test! Use it to distinguish between the callow poseurs and the real veterans!