I read with interest JP Morgenthal’s recent post on how SaaS represents the commoditization of application functionality for enterprises. He points out that based upon a recent GigaOm research report, enterprises are in large part shifting away from on premise, custom software solutions to one-size-fits-all SaaS alternatives because businesses are realizing that “they can achieve the same goals with the commodity item as they can with the unique one.” JP goes on to say that businesses are still willing to pay the higher costs of bespoke solutions if they deliver sufficient value – but SaaS alternatives are increasingly carving out a larger portion of the enterprise app pie.
The reason I found this post interesting (JP’s scintillating insight notwithstanding) was because I just wrote a blog post on how software customization limits agility. I conclude that with proper architecture, it’s possible to build software flexible enough to support the organization’s business agility goals, even when those goals require a high level of personalization and customization, without falling into the high-cost bespoke software trap.
These two perspectives appear to be at odds with one another. JP is basically saying that as SaaS gets better, enterprises are more likely to settle for commoditized capabilities because of the cost savings, while I’m saying that as architecture gets better, enterprises are more likely to take advantage of high levels of personalization and customization, because Agile Architecture will enable such flexibility while keeping costs down. So, which is it?
The answer: both. With the proper architecture, commoditized software (even SaaS) can still be highly flexible. There’s nothing about my argument that wouldn’t apply to SaaS; in fact, I would expect an increasing percentage of well-architected software to be available in the Cloud (either PaaS or SaaS depending on which software we’re talking about).
Today, the ability to customize public SaaS offerings is limited primarily to user interface personalization, turning capabilities on and off for different users, and a modest level of configurability of the application functionality itself. But the writing is on the wall. Enterprises will only settle for “one size fits all” commoditization of SaaS apps if the cost savings outweigh the limitations, and if there’s nothing better on the market. Once the SaaS vendors figure out how to offer full-fledged mass customization while maintaining a commoditized code base, enterprises won’t have to settle for any color as long as it’s black any more.
If you’re a SaaS vendor, the rules are changing as we speak. Building your entire business on offering commoditized software will eventually be a losing value proposition, as downward pricing pressure will catch up with you sooner or later. But if you don’t figure out how to scale mass customization without driving up costs, you’ll be eaten alive. The secret, of course, is to get your architecture right from the beginning.
Cloud, SaaS, commoditization, customization