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SAP's mixed-up confusion

November 29, 2006

Thomas Otter, a smart technology blogger who works for the corporate software giant SAP in Germany, finds himself baffled and befuddled these days. He can't figure out what "software-as-a-service" means. "For ages," he writes, rhetorically scratching his head, "I have been trying to figure out what SaaS is. I’m still no clearer, and I have read masses of posts, analyst reports [and] marketing materials." Is the essence of SaaS, he wonders, "that it is hosted and that [it] is multitenant," or "that it is hosted, multitenant, subscription based, uses AJAX , REST, RSS, is completely brand new ... and knows the secret SaaS handshake"?

Methinks the good fellow doth protest too much.

If SAP needs a lesson in what SaaS is, it should take a look at what one of its competitors, Glovia, is doing. Glovia, which was acquired by Fujitsu in 2000, offers an enterprise resource planning (ERP) system tailored to the particular needs of manufacturing companies. Its basic, bread-and-butter product - used by about 1,000 companies - is a traditional enterprise application that, like SAP's, is licensed to clients for a hefty fee. The clients are responsible for building or renting the infrastructure (servers, database, network, etc.) that the application runs on. It's all very complicated, as enterprise software has to be (or so we've been taught) .

Last month, though, Glovia introduced a new version of its software, aimed at the many small and mid-sized manufacturers who find it hard to afford traditional, complex enterprise applications and all the related software, hardware, staff, and consultants required to install and run them. The new version, called GSInnovate, is provided as a single, all-in-one service, incorporating both the application and the infrastructure that runs it, which clients tap into over the Internet using a web browser. The software is simpler than the traditional version, having 22 modules rather than 70, but it's still customizable through various process templates. The client pays a simple monthly fee for the service and can discontinue it at any time. There's no license, no lock-in.

That's what SaaS is.

Glovia recently announced that its SaaS service will run on the utility computing infrastructure operated by Deutsche Telekom's T-Systems unit. It's a modern, leading-edge software-as-a-service infrastructure: virtualized and multitenant. In other words, no pieces of hardware are dedicated to individual clients. Everything's pooled together and shared, so it's very efficient and it scales up and down easily. Next month, T-Systems will be officially opening a utility data center in Jacksonville, Florida, its first in the U.S., which I assume will handle a lot of Glovia's needs.

What's interesting is that SAP also has a close partnership with T-Systems' utility arm. Many SAP clients, particularly in Europe, use T-Systems' multitenant architecture to host their SAP applications. The difference is that SAP continues to keep the fee for the application separate from the fee for the infrastructure. It continues to force on its customers the cumbersome fragmentation inherent in the traditional model of business software - and the license that symbolizes and perpetuates that fragmentation.

That's not what SaaS is.

The reason that Otter and SAP find it so hard to bring SaaS into clear focus probably has less to do with the nature of SaaS than with their own vision. They aren't yet able to see beyond the license.


Hi Nick,

I looked up T-Systems after reading your post, and found the following on a May 2006 press release:

"Companies of every size can outsource all of their SAP applications together with the related business processes to T-Systems on a global scale. T-Systems provides access to the SAP systems at workstations based on demand and operates the applications from its own data centers. This gives customers a global contact, and they no longer have to coordinate multiple service providers. This saves on costs and enables companies to react quickly to new demands."

It sounds like SAP has a similar-ish vision to Glovia's; wouldn't this be considered a step towards SaaS?

Posted by: Isabel Wang [TypeKey Profile Page] at November 29, 2006 04:45 PM

Hi Nick,

"The software is simpler than the traditional version, having 22 modules rather than 70, but it's still customizable through various process templates."

I'm curious to know what the difference in customization abilities is between the two versions. My sense is that one of the reasons that large enterprise customers are not moving en masse to SaaS has to do with level of customization that the single tenant model allows (or doesn't allow). If, for example, you have the industry leading processes around procurement in manufacturing, why would you use a solution that requires you to follow "best practices" around this process? By adopting a single tenant solution wouldn't you be limiting your ability to do exactly that which makes your company industry leading? Now this may not be as important in different situations, vanilla SFA for example.

Also, it's interesting that SAP's CRM On Demand product wasn't mentioned. While not a truly single-tenant system, it does do away with the complaint around two fees/licenses (application and infrastructure).


Posted by: Mark Crofton [TypeKey Profile Page] at November 29, 2006 04:50 PM

Isabel, It's definitely a step toward SaaS on the infrastructure side (the T-Systems side) but as I understand it SAP treats the arrangement as any other hosted arrangement, with the usual licensing model, so it's not a SaaS model on the application side (the SAP side). If I'm mistaken here, I'd be happy to be corrected.

Mark, It's certainly true that, at this point, SaaS doesn't offer the degree of customization that on-premise does (though enterprise-app customization has, of course, been a two-edged sword for a lot of companies), but I think we're seeing, in, say, what Glovia and what Salesforce are doing, that considerable customization will be possible in multitenant architectures. Salesforce, for instance, achieves the customization in the database rather than in the underlying application. (But I'm getting out of my technical depth here, so if a more knowledgeable commenter would like to chime in, please do so.)

Posted by: Nick Carr [TypeKey Profile Page] at November 29, 2006 05:16 PM

I think Thomas is right that "SaaS" as a category has very fuzzy boundaries, but I'm not sure it matters. Mark gives SAP's standard response of "customization", but that's just a euphemism for "complexity".


Posted by: Charlie Wood [TypeKey Profile Page] at November 29, 2006 05:53 PM

Nick - don't be too hard on Thomas - when he cuts, he bleeds SAP. And he is very bright.

But to be serious for a moment, the whole point is SERVICES (pural) beyond the hosting. I have no idea who Glovia is - so my bad - but the description you give and their collateral sounds a lot like SoSaaS (Same old software as a service) to me but with a fresh pricing spin.

Like others, what about the mods? What's the story there? What's connectivity to other stuff like? No details and when I vist the Glovia site, not a single case study.

Any comparision with SFdC appears premature. Unless of course Glovia is offering some sort of add-on marketplace, an open app connector etc. But as you've not mentioned them, and I can find no literature to support the question, I'm presuming the answer is no.

Glovia say it has 'Evolved out of ASP...SaaS delivery model.' That's the same as what Thomas might well say.

But then I don't think anyone denies this is an evolving market.

Thomas may be confused but I don't think SAP is - not for one minute.

Posted by: dahowlett [TypeKey Profile Page] at November 29, 2006 08:21 PM

Hi Nick:

I'm confused by your characterization of "T-Systems' multitenant architecture". As a hosting services provider aren't they by definition multi-tenant in the sense that they provide service for multiple customers from the same physical premises? That's not the multi-tenant that counts for SaaS, which is the ability to service multiple customers from a single instance of the software application. While T-Systems may supply some infrastructure specific to the needs of a company that needs to host a SaaS application, that's not a multi-tenant architecture in the way I understand it. Or perhaps T-Systems is offering something analogous to Salesforce.com's Apex programing language and execution environment?

Posted by: Brian Mulvaney [TypeKey Profile Page] at November 29, 2006 11:20 PM

In a galaxy far, far away thousands of incumbent SAP, Oracle and other ISV customers have little interest in the purity of SaaS models or moving to SaaS whether offered by SAP or salesforce.com, but are looking for creative ways to lower maintenance and to leverage SaaS type concepts in their incumbent apps portfolio - utility computing, fractional resources etc. It's what I call SaCS - software as a customized service (see my post below). IBM and Accenture will be far more influential there than the software vendors..


Posted by: vinnie mirchandani [TypeKey Profile Page] at November 30, 2006 12:56 AM

Hi Nick,

"The client pays a simple monthly fee for the service and can discontinue it at any time. There's no license, no lock-in. That's what SaaS is."

If that's the case, then I guess Thomas isn't confused at all and is spot-on calling ADP the world's #1 SaaS vendor and that SaaS is the latest evolution of bureau? (with or without the Pythonesque shouting and funny hats, I presume)

Glad that is sorted out, and we can call this a case of violent agreement!

Posted by: Jeremiah Stone [TypeKey Profile Page] at November 30, 2006 03:03 AM

Thanks for the post.

The confusion should allude to my own personal mental state, rather than SAP's.

Confusion is a term more often applied to the architectural vision of one of our competitors

Actually I'm not so much confused as frustrated by the terminology miasma.

The discussion here, over on my blog, and elsewhere does seem to suggest that I'm not the only one looking for clarity.

Posted by: Thomas Otter [TypeKey Profile Page] at November 30, 2006 09:18 AM

Don't worry, Thomas. Now, I'm confused, too.

Although I'm not buying in to Vinnie's attempt at introducing a new buzz-initialism (do you pronounce that "sacks," Vin?), he's right in taking the view of the user rather than the vendor. And the whole point of SaaS is to free the user from having to care about the technology. So if you get the app over the Net at an all-in-one, pay-as-you-go fee, I'd say you're buying SaaS. If you're locked into a license agreement and/or you're paying separately for the software and the infrastructure and/or you're not getting the app over the Net, then you're not buying SaaS.

(David Terrar has a good new post on defining SaaS, but it looks at the question mainly from the vendor's view.)

I had no problem, by the way, with Thomas's description of SaaS as being an outgrowth of the bureau/ADP/ASP model. It is. But what can be done with that model today is a lot different from what could be done with it 20 or 10 or even 5 years ago.

Posted by: Nick Carr [TypeKey Profile Page] at November 30, 2006 09:41 AM

My glib answer is to take a look at any software package that has salespeople who come on site and requires an organization to have dedicated hardware, software, and personnel in order to function.

HINT: If the software is coded in Java or C++ and requires more than 1 hour and a single intern to deploy then you are on the right track.

Now, think about how the CEO and CFO of that organization wishes that software actually worked and how much it actually cost. If the disconnect is more than 25% of the sticker price or 50% of the functionality then the definition of SaaS is:

a. The combination of back-end processes, front-end display, and data access methods that provide the functionality.

b. An equivalent cultural shift as the move from main- and mid-frames to PC's in the 1980's.

c. What that organization will be switching to in the next three years.

Posted by: Morgan Goeller [TypeKey Profile Page] at November 30, 2006 11:07 AM

Nick, it's proonounced Sacs 2.0 Avenue -)

Sorry I left the TLA generator when I left Gartner so now have to coin FLAs.

Talking of Gartner where is their def of SaaS? How dare us bloggers try and define what it is...

Posted by: vinnie mirchandani [TypeKey Profile Page] at December 1, 2006 12:08 AM

Nick -
Thanks for the mention. It was written from the vendor's point of view because I was trying to differentiate SaaS, from SoSaaS, from ASP providers presenting themselves as SaaS. At the end of the day, from the customer's point of view, if it's providing a good service at sensible price, with performance meeting expectation, the technology doesn't much matter.

Vinnie -
It's funny you should mention Gartner. Jim Holincheck has described Gartner's SaaS definition, which has three requirements:

1. The application is owned, delivered, and managed remotely by one or more providers.

2. The application is based on single set of common code and data definitions which are consumed in a one-to-many model by all contracted customers at any time.

3. The application is licensed on pay-per-use or subscription basis.

Posted by: David Terrar [TypeKey Profile Page] at December 2, 2006 03:07 PM

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