Software as a Service: The New Cargo Cult

The big buzzword at April’s Software 2006 conference was Software as a Service. What does it mean, what impact will it have, and what should companies do about it? Former Oracle exec Ray Lane, now a venture capitalist, listed the key attributes of hot new software companies. They included software that’s viral (anyone can download it and try it out), that generates value for an end user (so they’ll have an incentive to install it), that doesn’t require any data entry or training (so users can work with it instantly), and that generates immediate value (he called it "value first, pay later").
This sounds a lot like consumer software, which is a little strange for an enterprise conference. And in fact when Lane listed some of the most important of these new enterprise apps he listed several tools that most people think of as consumer – Skype, instant messaging, and Google Desktop (plus of course SaaS poster child Salesforce.com).
This idea of a blurring between the consumer and enterprise worlds wasn’t discussed heavily in any of the presentations, but it lurked in the background all over the place. The selling and marketing model changes profoundly if you’re trying to get an online service deployed virally in companies via end users, as opposed to selling down through IT managers. Most of today’s enterprise software companies don’t have a clue how to sell this way, and it makes them extremely uncomfortable.
SaaS is Different
It’s easy for companies to underestimate the depth of the changes required to make SaaS work. In addition to a very different sales and marketing model, SaaS requires a completely different engineering structure and processes. Even the existing code base must be rewritten to support delivering it as a service. Because these changes are so wrenching, it’s very tempting for companies to make more superficial alterations and convince themselves that what they’ve done is good enough for now. They’ll add a web interface to their product and offer a hosted price option (carefully tailored not to cannibalize the current product line), and then they’ll wonder why the new initiative fails.
Substance Trumps Superficial
The situation is reminiscent of the Melanesian cargo cults that proliferated after World War II on some Pacific islands. After the war ended and the soldiers went away, islanders tried to make the cargo come back by imitating the superficial features of the soldiers – they painted uniforms on themselves, marched in groups, and built things like air strips.
Companies trying to implement SaaS by copying its superficial features are basically technology cargo cults. Unless they make the fundamental changes that SaaS requires, they’re going to get about as rich as those island natives, marching around in the hot sun and wondering when the airplanes will arrive.