Tech News & Software

I’ll be meeting Zach Nelson, CEO of NetSuite, on one of his visits to the UK tomorrow night, so I thought why not present him with the results of a special ZDNet readers’ poll? The topic: whether NetSuite’s planned IPO will ever go ahead. To cast your vote, see below.

NetSuite, founded in 1999 with seed capital from Larry Ellison, CEO of Oracle, has been preparing for an IPO for most of the year, and first reports suggested it would come to the market before the end of 2006, which hasn’t happened. Whenever it does come, there’s no doubt it would be the most talked- about IPO of any SaaS vendor since Salesforce.com’s IPO in 2004. Word on the Street now, though, is that March-April next year is more likely. There’s nothing odd about a delay of that scale. IPOs are a bit like packaged software upgrades - they always turn out more complex and long-winded to finalize than you expect to start off with, especially in these days of Sarbanes-Oxley and other compliance requirements.

As has happened with so many terms in the IT industry, the definition of software-as-a-service, or SaaS, has been stretched this way and that as vendors compete to make marketing capital out their use of it. As the model evolves, some vendors on the leading edge are trying to redefine SaaS more narrowly in order to exclude their more laggardly brethren, but the tactic is doomed to failure. The more exclusive they try and make the bandwagon, the more appealing it becomes for others to leap onboard.

The truth is that SaaS is, and always will be, a very broadly defined term, and therefore it’s inevitable that there will be many different subcategories of SaaS. That creates plenty of potential for misunderstanding and confusion, of course. But don’t worry, there’s an easy way to avoid getting bogged down. The key to making sense of SaaS is see it in terms of the journey a software developer or architect might take as they plunge further and deeper into the SaaS model. At the outset, the product they’ll create looks very similar to conventional licensed software. At the end of their journey, it may not look like software at all. That’s the extent of the spectrum that SaaS covers. No wonder people often have difficulty categorizing SaaS or making comparisons between SaaS offerings. If they’re dealing with different ends of the spectrum, there may be no useful comparison to be made at all. So let’s embark on this journey and map out where it leads.

In the beginning
We begin with the two essentials of Software-as-a-Service: hosting and subscription. This is the starting point. The software runs on the provider’s premises, not the customer’s, and payment is by subscription spread over the term of the contract rather than as an upfront license fee. There are some basic advantages that flow from taking this initial step, mostly to do with amortizing the cost of acquiring, implementing and operating the software, especially if elements of those costs can be shared across more than one customer, yielding economies of scale. The lower initial cost and the relative ease of implementation on the provider’s ready-made infrastructure mean that this can still be an attractive model in certain customer scenarios. But the advantages are rather limited, which is why application service providers, who pioneered this model mostly in 1999/2000, failed to make much headway.

The breakthrough comes from recognizing something I’ve been telling people ever since the summer of 1999, when I stood up on stage as the opening keynote speaker of the first-ever ASP conference: “This is more than just a relocation exercise.” Once you move software off the customer’s premises and host it in the cloud, a whole new range of possibilities begins to open up. The journey I’ve mentioned is a journey of discovery, in which those possibilities gradually reveal themselves. Over the next few pages, I’ll set out some of the most important revelations to be found along the way.