Why SaaS Will Take Over the World by Colin Kingsbury

Last modified on 2011-11-11 17:03:21 GMT. 2 comments. Top.

Colin W. Kingsbury is the president and co-founder of HRM Direct, a leading SaaS provider of applicant tracking and onboarding systems to mid-sized organizations. Colin brings a lifetime of experience from both in and outside of the software industry, having previously held positions in product management, software engineering, sales, and as a newspaper journalist with expertise in knowledge automation, and has consulted on technology and business practices for Northrop Grumman, Boeing, General Electric, and the US intelligence community. Full Bio »

As the chief executive of a SaaS provider of talent management systems, I might reasonably be expected to disagree strongly with John’s recent three-piece j’accuse, revisiting the pitfalls of Software-as-a-Service (SaaS). In fact, I more or less agree with the substance of all of it. But that doesn’t matter because SaaS is still going to take over the world, and I’ll explain why.

The food here is practically inedible–and such small portions!

There’s a joke among boaters that there’s nothing more expensive than a free boat.  John’s first major point that “free” often doesn’t mean “cheap,” or even “useful,” when the full costs of adoption and ongoing usage of technology are considered, is perfectly valid. While free and so-called “freemium” (where users pay only for more advanced features) models aren’t entirely new in the software industry, the ability to deliver sophisticated applications through a web browser has led to an explosion in the number and capability of such tools.

In my view, there is a vast and important difference between “freemium” tools like Dropbox, and completely free services like Facebook.  In the former case, you’re a customer; in the latter, you’re the product. When Netflix introduced sweeping service changes that outraged its subscribers, management was eventually humiliated into walking back much of its plan. Ditto Bank of America’s short-lived $5 monthly debit-card fee. Facebook, however, has a more complex relationship with users, whose primary value is as targets for advertisers. The lesson is simple: If you want to be valued as a customer, then you have to be a customer.

Traveling alongside is the complaint “I am tired of feeling like understanding the latest toy is preferable to getting my job done.” The good news is, now you have a ‘seat at the table.’ The bad news is, this is what it feels like! If you could teleport a VP of marketing from the late 90s to today, he or she would be confronted with a world almost unrecognizable to even the most tech-savvy. SEO, SEM, PPC, and social media have replaced a century-long world of trade shows, printed brochures, and mass-media advertising. Sales and product development are constantly forced to evolve with shifting customer priorities. IT has been forced to reduce headcount even as the demands placed on it have exploded. Even legal and finance have had to keep up with a changing world.  A full-time software geek can’t fully keep up with it.

But, if you think it’s bad now, just wait five years. While business hiring has been effectively flat since the economy began growing again two years ago, spending on software rose 26%, according to the US Department of Commerce. SaaS has driven the cost of software down dramatically (in many cases to an initial acquisition cost of zero), and it enables vendors to deliver innovation many times faster. Companies are choosing to substitute technology for labor. And when the price of anything falls, demand for it rises. But success won’t come simply by adopting whatever latest shiny toy flits across the front pages of the Wall Street Journal. Make your case by showing how a technology will, or won’t, deliver a measurable positive ROI. That’s an argument even C-level managers can understand.

Why lease the cow when you can buy the farm?

John’s second major point uses an analogy of deciding between buying a house (traditional on-premise enterprise software) and renting an apartment (SaaS). In this view, buying gives you stability and the ability to customize to your heart’s content. Renting is less commitment and gives you flexibility, but leaves you subject to the whims of the landlord. Leaving aside the problems of condos, co-op boards, HOAs, zoning rules, and planning committees, the point is fundamentally valid. But it tells us more about where we came from than where we’re headed.

One area where I think John is completely right is stability of user experience. SaaS vendors do love to push changes out system-wide. While we all think hard about not disrupting users’ lives when we do this, we’ve all been guilty of underestimating how disruptive any change is. While some of this is simply a cultural learning process for vendors, it’s also an area where I expect to see more technical resources deployed to enable vendors to make changes more incrementally on a per-customer basis. Once again, the experience will vary based on whether you are a consumer or a paying customer.

Regarding customizability, it’s easy to say that owning the code and the servers it runs on gives you more control, in principle. The devil is contained within those last two words. At one extreme, you have Apple products which typically offer afew personalization features. After that, your options are “take it” or “leave the store.” At the opposite end, the Linux operating system offers users access to the raw source code and all the tools needed to rebuild it to their personal specs. But this flexibility comes at the cost of extreme complexity, while Apple products are famed for “just working” with almost no user intervention. Customizability, then, needs to be considered both in terms of possibility (i.e., can it be done at all?) but also in accessibility (can we afford to set up and maintain this customization?)

While best-in-class SaaS products now routinely offer embedded scripting languages, APIs, and other tools which make them deeply customizable, on-premise systems do, at the margin, still support more aggressive alterations. But this ultimate flexibility comes at a price extracted at two different points. First, SaaS products, to the extent that they can be customized, are often much easier to customize than comparable on-premise products. Second, when a customer customizes an on-premise product, they often become responsible for maintaining their custom code and resolving any conflicts with future updates. SaaS vendors, by contrast, typically own responsibility for making sure that upgrades don’t break customers’ functionality.

For many smaller customers, SaaS solutions already offer effectively far-greater customizability simply because they can afford to have a power-user or ordinary IT staffer tweak and tailor the system, versus having to hire a consultant to extend an on-premise package. There is no fundamental technological obstacle preventing SaaS systems from offering the same ultimate customization capabilities as on-premise systems; that they are not there yet is due only to time. Ultimately, the vastly greater efficiency of R&D in the SaaS model will enable these companies to drive well past what on-premise vendors can support today.

One area where this is already happening is with integration across systems, something which remains difficult and costly for most on-premise customers. Some time back, my company needed a better solution than Excel and email for expense reports. A 30-second Google search yielded a SaaS product which cost $5 per user per month. In 15 minutes we had it connected to our accounting system through a cloud-based interface. On the user end, employees were able to enter their credit card information, and the system automatically downloaded transactions for import directly into their expense reports. This level of integration basically wasn’t possible ten years ago, at any price. Now, it’s so easy it didn’t even require an IT person. While hybrid SaaS-on premise models such as Intuit’s will extend the useful life of some on-premise systems, the long-term direction greatly favors SaaS. To the extent that integration across systems is the most powerful feature of all, this will be a huge driver of value for the switch.

When Buyers Attack

John’s last major point concerns the disconnect between vendors, buyers, and users. He writes, “They generally preferred to brainstorm new product features to gathering coherent market data. Their relationships were more likely to be with buyers than users.” And it’s true: successful vendors tend to focus on things that  customers ask them to do, whether directly, or by virtue of their observed purchasing history. To bring this up in relation to SaaS gets it, in my view, almost perfectly backwards. If you ask a SaaS vendor what’s so wonderful about SaaS, it’s true that a lot of what you hear will sound like benefits for them rather than you.

While some of this is a recapitulation of the old feature statement versus benefit statement divide, there’s a much more important point behind it. More than anything else, the demand for SaaS was driven by the failures of on-premise systems: enormous acquisition costs, consulting budgets that equaled or exceeded license costs, customers who couldn’t afford to upgrade systems due to customizations needing to be rebuilt, development of information silos with systems that couldn’t be integrated, and worst of all, shelfware. Many if not all of these begin with the fact that enterprise systems, due to their cost and complexity, were sold to buyers rather than end users, as well as to the fact that vendors’ incentives were aligned mostly with winning the initial purchase decision.

No matter how many sins SaaS providers commit, the customer lock-in is, in the most important way, much lower. However, this goes more or less entirely out the door as contract terms creep to three years and beyond. While not every SaaS product can or should be priced on a 100% utility, pay-as-you-go basis like electricity, the shorter the feedback cycle, the more customer-focused the vendor must be to survive.

Perhaps the single most consequential long-term shift in the b2b software industry over the past decade is the transformation of users into buyers. Ten or fifteen years ago, most people, even well into the executive ranks, bought very little software. If you bought a home PC, you might get Office and a few other things. At work, you accepted whatever IT gave you. Very few people had significant practical experience evaluating software systems. Today, my 9-year-old nephew regularly buys software for his iPod on the App Store, as his 73-year-old grandfather does for his iPad. This cannot help but have a dramatic effect on expectations and requirements.

Likewise, we’re beginning to see new models of adoption. Products like Yammer or Dropbox are purchased by teams or even individual employees and slowly spread throughout large organizations, until reaching a critical mass where the IT department purchases a company-wide license. While we probably would never want to see a world where every employee buys their own payroll system, the trend to drive purchasing decisions closer to the people who have to live with them can only result in more user-centric software.

And it is true that SaaS today remains largely the province of groupware in larger companies and enterprise-wide systems for SMBs. But we’re closer to the beginning of the S curve than the end. The development of every industry is driven above all by the needs of its customers, and that is the foundation SaaS is built on.

Kenexa

Last modified on 2011-11-11 03:40:40 GMT. 4 comments. Top.

One of the hardest parts of an analyst’s job is digging to find the truth. There are many ways that any story can be cast. Great marketers are precisely good at telling great stories. The analyst gets to try to pin things down.

When I left Chicago and headed to Dallas for the Kenexa Analysts’ Summit, my expectations were pretty low. I’ve been close to the action on several of the company’s acquisitions. I’ve worked closely with former executives. I’ve engaged in complex conversations with some of the company’s people.

In my view, the company was a collection of cats and dogs masquerading as an integrated suite of software. Over the years, the firm has struggled to get a stock price that matched its peers. They were good at telling the integrated toolset story. Kenexa, not so much.

You may know that I was on the board of Salary.com at the time that Kenexa purchased it last year. During the transaction, I got a chance to watch Kenexa a little more closely. It was a difficult time and I would have been hard to impress in the first place. Regardless, I wasn’t.

Imagine my surprise when I walked away from last week’s analyst summit with a powerfully positive view of the firm.

You should understand these Analyst confabs. Held in an interesting hotel, they are day long gabfests where the conversation is led by key executives. The analysts get an opportunity to hear the company’s story; the company gets an opportunity to tell it. In a perfect world, the company would know each analyst well enough to deliver the appropriate slice of the picture. In the real world, companies use these get togethers as a test ground for their market pitches.

The analysts are a somewhat harsh audience, so new spin gets a good going over.

Kenexa is led by a fellow named Rudy Karsan who is an actuary with a Math degree. He founded the original company almost 25 years ago, and has been growing Kenexa ever since. Rudy is a charming business guy who is known for doing what he thinks is right. Sometimes, he swims against the tide.

In today’s marketplace, the Wall Street financial people (remember them?) believe that a software company has value in proportion to the degree that revenue comes from licenses or subscriptions. Overhead and staff related to customer service, installation, integration or other service delivery is essentially deducted from market value.

It’s a silly view of technical companies rooted in the days when software looked like blank spreadsheets. It’s a dysfunctional notion that causes many software firms to make really bad decisions.

And, it turns out that Kenexa isn’t buying it.

At the summit, the company proudly outlined its offering as a blend of software, data and services. From here, it looks like a company that has its head on straight. Kenexa is charting its own course by crafting service offerings that blend modalities to make customers successful. They are building a company first and navigating the stock market second.

It was refreshing.

Branding 2012

Last modified on 2011-11-11 18:28:03 GMT. 6 comments. Top.

Monster’s Eric Winegardner (irony alert: the link points to his LinkedIn profile) sets the bar for the use of social media in branding. The consummate showman travels relentlessly and creates an intimate encounter for each audience he engages. Winegardner understands that the most important part of social media is social. He’s gotten so good at it that everyone expects that he will continue to set the standard.

At last month’s Recruiting Innovation Summit, however, a branding challenger emerged. They even featured lots of great presentations about ROI (and selling ideas internally) and not much about innovation. In retrospect, the most interesting thing about the mini-conference was the emergence of this new voice.

I think you’ll be surprised to learn that it wasn’t any of the new social media firms who made such a splash. Their marketing is shockingly conventional. The new player is an old reliable member of the scene.

Dice.com showed up in Palo Alto and changed the dynamics of conference marketing.

The first DICE project was to develop a collection of photos with conference goers offering recruiting tips. (I, of course, really loved this one.) Take a moment to run through the slideshow. Competitors, commentators, bloggers, pundits, conference organizers and recruiters alike all bought off on the concept.

Building on the first idea, the Dice team captured video interviews (with Sarah White doing the interviewing) with a similar range of thought leaders and conference goers.

The net result for Dice?

• 100 photos of key industry influencers with Dice branding
• 30 videos of key players suitable for YouTube (Sarah White was the interviewer.)
• 1 solid article (though the article seems to miss my very valuable contributions)

In other words, Dice used the Recruiting Innovation Summit to announce its material entry in the social media sweepstakes. By building a treasure trove of links, content and connections, they raised their profile in ways that most marketers can only dream of.

The key to 21st Century marketing effectiveness is a combination of intimacy and search engine friendliness. It’s hard to get your mind around it because it includes what used to be two extremes. The social in social media is all about personal touch, one to one engagement, intimacy. The media in social media is just like any other media you’ve ever seen.

Keep your eyes on Dice.

One thing you ought to notice here is that the two best examples of social media marketing in the HR and Recruiting space come from Job Boards. These supposed victims of the social media up tick are starting to find their legs. Being a job board (before the advent of the mass aggregators) required a combination of personal touch and media expertise. These days, they’re starting to dig back to their roots to find their strengths.

If you don’t know it, Dice was a job board before there was a commercial internet. Hosted on a bulletin board system, the company served Silicon Valley Recruiters years before there were web browsers. They have managed to continue to be relevant through several generations of technology and it looks like they’re back again.

A Great Place To Work For Everyone

Last modified on 2011-11-11 15:28:20 GMT. 0 comments. Top.

I have a thousand ‘why Virgin America is great” stories. Here's one.

And, on my last flight, the CEO (Virgin America, not Branson) was working with the crew putting luggage into the overheads during the boarding process. I have a thousand ‘why virgin america is great” stories.

So do most of the people on the flight.

Did I tell you they’re all working? It’s that whole leg room plus good internet access plus happy employees thing… makes it easy to get work done.

Virgin America is a great place to work for both employees and passengers.

Reaching Wayback: Stay Tuned to Stay Ahead

Last modified on 2011-11-10 14:10:22 GMT. 0 comments. Top.

Here’s one from the deep archives. The fundamental elements of Candidate Experience and Talent Community have been the heart of our work.:

Candidate-Centric

(August 17, 1999) Occasionally, we slip into MBA-speak and utter the word “paradigm”. We are generally trying to explain that old assumptions do not always apply in the new business environment. We immediately apologize and fumble for an alternative. It’s hard to explain how different the world looks when you shift your focus. What seems subtle or obvious at first become the foundations of a whole new way of seeing things. Things change when you change the way you look at them.

In 21st Century Recruiting, the candidate is everything.

Like most businesses that have flocked to the web, Recruiters and Recruitment Advertisers have begun the process by moving their existing ideas to the web. What they have discovered is an increasingly savvy candidate whose demographics are in flux over time. The labor shortage simply accelerates the requirement for tailored solutions.

In the good old days, Recruiters competed for talent on the basis of size, neighborhood and connection with decision makers. In the coming weeks and months, the focus will inevitably shift to candidate pooling and candidate retention. Businesses that focus on the candidate life cycle will flourish while those that focus on the job opportunity will flail about.

Candidate retention is not the same as employee retention. The two are related, but candidate retention involves maintaining relationships while the candidate works elsewhere. Armed with the right data warehousing tools and the continual delivery of value to a candidate throughout their career, Recruiters who personalize and focus on the candidate are the ones to watch.