We had a really good session last week with an analyst who covers our industry exceptionally well — and we had a really interesting debate about what multi-tenancy is, and whether it was import for SaaS (or any of the growing number of other “aaS’s” sprouting up…).  For the record, I have a pretty simple definition of multi-tenancy, and I think true multi-tenancy is ultimately required for successful SaaS platforms.  If you are deploying a new stack/instance/virtual machine/OS for every new client, you are not multi-tenant.

When it comes to assessing whether or not a service provider is multi-tenant, I think of the landscape as:

• Sub-divisions - single-tenant
• Townhouses/condominiums - virtualized multi-tenant (meaning, in my opinion, not multi-tenant)
• Hotels - true multi-tenant

Sub-divisions:

If someone is buying hardware, installing an OS, and then populating it with software for you, this is not SaaS, it is hosting!  They may “position” (aka, spin) it as SaaS for purposes of enticing venture capital, but it is not.  If you even know what kind of hardware you are running on within your service provider, you may be in trouble.  If a service provider “consults/notifies/alerts” you when they are doing a memory upgrade — you live in a sub-division.  There is nothing wrong with this, hosting is a very mature business; but you are receiving only operational economies of scale (assuming the provider can operate a data center better than you can…).

So who cares?  Well, you do, maybe.  If you want to be able to scale down as well as up (meaning start small and grow with activity), a suburban home is not a great idea.  I love my 5 bedroom, center-hall colonial, but surprisingly I paid a 5-bedroom mortgage even when only 3 bedrooms were occupied (now its 4, and we’ve decided to live with that 5th bedroom “underutilized”).  I also do not have much cost-efficiency with my neighbors beyond the roads (network).

Looking at it in IT terms, the server infrastructure, disk subsystem, LAN connections, etc are all dedicated.  The OS instance, software licenses, patches, upgrades, etc are being done expressly for me.  This is a great model in many cases, but it is not SaaS.  If you have a say in what version you are running, you are probably not in a true SaaS environment (if fact, here we talk about doing away with version numbers altogether…)

Townhouses/condominiums:

If you live or have-lived in a townhouse or condo, you know that this is really a hybrid model, with some shared infrastructure (typically building maintenance, lawns upkeep, etc), but still essentially a dedicated model once you are “inside”.  In the era of time-sharing this model was fantastic, because computer time was so expensive that the hardware was all we thought about, and software was just “there”.  Although you have some additional shared infrastructure with your neighbors, you still are on the hook for furniture, plumbing, electrical, HVAC, decorating, etc.  Most of us of course prefer it this way in our home life, but not necessarily so in the data center…

In the IT world, a common townhouse model is “virtualization” or “multi-instance”.  In this case, a dedicated software environment (typically from the OS up) is deployed for each customer, on shared hardware infrastructure.  This has a number of advantages over the “sub-division” model, but is still not (in my opinion) SaaS, for reasons we will come to in a moment.  Advantages include not only shared hardware, but efficiencies in hardware management, from server upgrades to back-up management.  This can be a highly efficient model when used for applications like web-hosting for instance (where the hardware cost to software cost is more favorable to hardware).

Under typical 21st century situations, however, this model is not SaaS because the dedicated capacity still includes — usually — an operating system, versioned technology stack, and potentially many customizations to the OS/networking environment that must be operated and maintained.  Look at just one example, OS security patches…  If the OS vendor (or open source development project) issues a patch, it must be checked and out and applied specifically to your environment.  Whoever is doing this may decide to forego this if you do not fund the work, or you may request that the vendor honor a “blackout” period and not apply it right away.  Meanwhile, other customers in the townhouse community may make different choices.  At the end of the day, everyone is “different”, which is actually worse than the “sub-division” because in addition to managing all of that, the operations team has to keep track of who did what when….

Hotel — true multi-tenant:

When you stay in a hotel, whether for an extended stay or overnight, you may worry about the location, the food available, shuttle service to/from the airport, and whether the internet access is fast enough — but I am willing to bet you will not worry about the air conditioning system.  The air conditioning, and a myriad of other details, belong to the proprietors of the establishment, and under normal circumstances you will not need to give them a second thought.  So it is with true SaaS.  SaaS is as much defined by what you don’t have to worry about as what you do:

• installation
• upgrades
• server rollouts/deployment
• backups
• versioning of any sort
• capacity

In its truest form, SaaS bears a striking similarity to the outstanding telecommunications infrastructure offered by the likes of Verizon, or the ubiquitous email connectivity of the BlackBerry (noticed very much recently because of a rare disruption in service).

But what does this have to do with multi-tenancy?  Multi-tenancy is the ultimate discipline, forcing providers to build highly scalable systems because they have no choice.  A typical node of GXS’s B2B outsourcing service might perform work for a dozen clients — which prevents us from doing anything special to the core stack for any one of them.  As a result, if needed, a client may be moved to another node or spread across several, with no change on their part.  We do this not because to operate at scale we must operate a multi-tenant environment (full disclosure, we do operate some dedicated environments to meet data privacy or regulatory requirements, but they are more costly both to us and to the customer).

If there is no multi-tenancy, customer specific configurations will become the norm, assuming the provider is customer oriented.  Over time environments will all become “exceptions” to the standard.  Initially happy customers will become dissatisfied as the promise of SaaS is unrealized, because they have bought space in a data center, not a true service offering. 

Thought leaders from across GXS bring you what we have seen in the industry during 2007 and what we can expect to see in 2008 based on the research, news, trends, industry discussions and our observations. Here is a list of our top predictions for B2B e-commerce in 2008…  

B2B Strategies  

1)     SaaS Platforms will ignite Global Innovation  

Prediction by GXS’s Chief Technology Strategist, John Radko  

The barriers to entry for providing services to a global audience are on the verge of collapsing completely from an infrastructure perspective. As the costs of infrastructure software has fallen due to both economies of scale and open-source initiatives, the last barrier has always been the cost of setting up and operating an infrastructure to handle the computing, networks and storage—and now that infrastructure will be available in a service format. Not only are several very innovative infrastructure services now available, but a fiercely competitive market appears to be forming, centered around Amazon (S3, SQS, EC2), Microsoft (Live Services) and Google.  

But even beyond base capabilities like storage, platforms offered as services are sprouting up in many additional places like SalesForce.com, Facebook, GXS Trading Grid^®, etc. The next generation of business software and services will be building on these platforms, which will enable them to offer new products faster and at much greater scale. Small companies will be distributed through these channels in much the same way that musicians and performers are channeled through music companies. Beyond just infrastructure, platform companies will provide provisioning, billing, authorization, etc. The best platform companies are already offering the ability for partners that build on them to integrate not only with infrastructure services but also other services built on the same platform—the natural evolution of the current mash up craze, but taken beyond the web.  

The freedom to build services on pre-existing infrastructures offered as a service and priced as utilities will dramatically lower the barriers to entry for innovators, and that will unleash the next wave of innovation.  

2)     BPO for B2B Goes Mainstream  

Prediction by GXS Industry and Product Marketing Manager, Ryan Kraudel  

The past two decades have seen a fundamental shift in business models driven by the modularization of the functions of a company and emphasizing focus on the core business functions and differentiators that create value for customers. This has lead to an explosion in outsourcing of business functions that are critical to the business operations, but do not differentiate the business from its competitors. This includes functions such as manufacturing, HR/payroll, logistics and some IT functions. The primary drivers of these outsourcing arrangements have historically been focused on cost-takeout and eliminating depreciating assets. However, we are now seeing new areas of outsourcing driving key top-line revenue and business efficiencies that are shifting the outsourcing focus from cost-elimination to business benefit.  

One example of this is B2B outsourcing, the outsourcing of the people, processes and technologies required to operate and maintain a global B2B e-commerce program. A recent study by the Stanford Global Supply Chain Management Forum has identified key business value from B2B outsourcing that led to an average of 245 percent ROI for B2B outsourcing. These include benefits such as automating more trading partners faster and more effectively with global B2B capabilities and supporting a broad range of B2B technologies, which has a direct impact on customer satisfaction. In fact, the Stanford study showed companies using B2B outsourcing showed an average of 62 percent improvement in customer satisfaction, which directly contributes to top-line benefits such as revenue generation, customer loyalty and customer longevity. These are just a few of the results and benefits that demonstrate why the rapid growth in B2B outsourcing around the world is expected to continue through the foreseeable future.  

3)     File Sizes to Multiply in B2B     

Prediction by GXS Vice President of Industry Marketing, Steve Keifer  

There is an increasing trend in B2B towards business partners sharing higher volumes of data packaged into much larger files. Historically, the typical B2B transaction exchanged between companies was on the order of kilobytes. The most commonly exchanged transactions are invoices and purchase orders which are only a few kilobytes in size. However, over the past 24 months, there has been a substantial increase in the exchange of larger files—megabytes and gigabytes in size. The phenomenon is occurring in nearly every industry sector. Examples include product images in retail, check image files in banking, call detail records in telecommunications, satellite images in logistics and CAD diagrams in manufacturing.  

The trend towards larger file transmission really should not be very surprising given the growth in file sizes that we have seen in the consumer segment. For over five years now consumers have been downloading and sharing large audio and video files for home entertainment. With the dramatic decreases in the cost of storage and networking, it is only logical that this trend would extend to business communications as well. In fact, demand for large file transfer in the workplace has increased steadily in recent years. Do you give a second thought to sending a 5MB email attachment to a colleague at one of your business partners?  

Unfortunately, all of the popular IP standards used for B2B lack the features such as compression or checkpoint/restart necessary to support high volumes of large file transfer. As a result, many companies are forced to license expensive, proprietary “managed file transfer” software to support their needs. It is too early to predict what will occur in 2008. But one thing is for sure, with customer demand rising quickly, large file transfer is becoming a mainstream B2B function need rather than a niche technology.  

Supply Chain Strategies  

4)    Global Trade, Local Trade-offs  

Prediction by GXS Director of Product Management, Pradheep Sampath  

In recent years, supply chains have been constructed and modified to become nimble, agile, demand-driven and of course global in response to the proliferation of global trade. Global trade will become so mainstream that consumers and organizations will no longer subject themselves to local supply chain trade-offs just because products happen to be sourced a dozen time zones away. Retailers who historically have carried separate sets of inventory to fulfill demand from brick-and-mortar, web and catalog channels will drive to further optimize and unify stock. Manufacturers who have traditionally shipped ocean containers or multi-case lots to automated distribution centers will pledge to streamline their direct-to-consumer shipment of “eaches” to suburbia.  

Manufacturers and retailers alike have for some time evaluated B2B integration platforms that help obliterate the divide between transactions and trade. In 2008, these platforms will no longer be perceived as bleeding edge, but as mandatory tools that oil the global trade engine. Speaking of oil–$100+ a barrel will mandate levels of supply chain efficiency that even academicians have only evangelized behind closed doors. Consolidators, contract manufacturers, customs brokers and suppliers will all strive to exchange logistics transactions that are accurate and actionable. Simple on-demand applications will serve as “windows into global trade” and will enjoy mass adoption, shielding both multi-national corporations as well as four-person factories from complexities of the transactions that define trade.  

5)    Physical and Financial Supply Chain Convergence Will Show Early Wins Among Early Adopters  

Prediction by GXS SVP Marketing and CMO, Bobby Patrick  

Leading supply chains will seek opportunities to inject working capital into their supply chains and optimize business performance for themselves and their trading partners. The convergence of the information flows in the physical and financials supply chains will enable financial institutions and logistics providers with new ammunition to benefit their customers and solve real business problems, such as dramatically increasing days payable outstanding (DPOs) for buyers and reducing days sales outstanding (DSOs) for suppliers.  

6)    It’s Time. The Greening of B2B  

Prediction by GXS Industry Marketing Director, Bryan Larkin  

In 2008, companies will look at B2B as a way to address their corporate responsibility with respect to green initiatives. Corporate Social Responsibility (CSR) and Environmental Health and Safety initiatives have started to include B2B in their scope, but in 2008 this will become a significant issue for companies. Companies that have not fully automated their supply chain will see that doing so will not only make their business more effective, it will also play a significant part in meeting their Corporate Social Responsibility initiatives.  

Best Practices for Success  

7)     Supply Chain Intelligence Is the Next BI  

Prediction by GXS Vice President of Product Management, Andrea Brody  

The demand to make sense out of the B2B transactions that move across the Internet and VPNs will increase 20 percent year over year. Since the movement of supply chain data via EDI and other formats has become mainstream, corporations now want to obtain valuable information from that data by correlating and providing business rules in order to effectively manage their supply chain to improve financial performance and exceed customer expectations. In today’s world of globalization, outsourcing and vertical disintegration, over 80 percent of the events that matter to a business will come from outside of the business. Investments in business intelligence and business activity monitoring software will require operational signals that transcend geographies, integrate widely diverse technology and break the barriers of standards and languages.  

8)    B2B Master Data Management: It’s the Data Stupid.  

Prediction by GXS Senior Global Product Manager, Melanie Ligons  

2008 will be the year when companies finally understand that the real challenge holding them back in the automated supply chain is lack of data quality. Information integrity issues associated with products and transactions reduce the ability of an organization to make appropriate short and long term decisions. Corporations have been hording data for years while analysts and consultants told them to do something with it. Now that business intelligence solutions are taking a primary place in the spotlight, companies are realizing that the data they’ve been hording is flawed—and so is the data they are using to run their business on a day to day basis.  

For years the retail and CPG space have struggled with new ways to share product data, only to be dismayed by the exorbitant costs and miniscule returns. High-tech manufacturers scoff at the idea of trying to adopt the Global Data Synchronization Network because they see it for what it is: just another way, using another technology, to share data. Sharing data isn’t the issue. Making sure companies have complete and accurate data, and then keeping it that way, is the real challenge.  

Leading companies will step up to the plate in 2008 and address the data quality issues by taking the first steps towards implementing solid B2B Data Management programs. They will follow in the steps of a few groundbreakers that have already paved the way. These data governance initiatives will need to address cultural, process and technical roadblocks that keep companies from successful supply chain execution. Most important will be changing the cultural aspect, as data accuracy will need to become part of the fabric of the business. The processes can be defined and supported by technology, but adherence and commitment will be the key to eliminating data quality problems.  

While numerous tools have been introduced to address information management over the past several years, the focus of the tools themselves, those selling the tools and the analysts covering them have been primarily on utilizing the tools to provide workflow for managing the flow of a subset of data within an enterprise (think Product Information Management in the B2B Data Management space). Now we are starting to see (Gartner 30 November 2007 - Methodologies: Blueprints for Success With Data Quality Improvement) the focus of analysts shift to actually addressing data quality. Smart executives will listen because this is something they can get their hands around. If the decisions they are making are based on flawed data, if the financial statements they are signing are based on inaccurate numbers, if the deals they are agreeing too might not be what they think they are, then they and their companies are in trouble.  

9)    e-Invoicing Adoption Continues to Skyrocket  

Prediction by GXS Senior Marketing Manager, Rochelle Cohen  

2008 will see a veritable explosion in the adoption of e-invoicing to help businesses automate their accounting processes. Businesses are increasingly applying technology to automate their procure-to-pay process and gain the dramatic business benefits that have been documented in numerous case studies and benchmarks. When e-invoicing is integrated with automated workflow and e-payments—which over 90 percent of large enterprises are doing or planning to implement—it enables companies to not only reap significant hard dollar cost savings from reduced operational costs associated with handling paper, but also to take advantage of discounts that can add millions of dollars to the company’s bottom line. Furthermore, more companies are taking advantage of the opportunity brought about by this “perfect storm” of automation to gain even greater savings by leveraging prorated discount structures or discounts negotiated once invoices are ready to be paid.  

Further fueling the adoption of e-invoicing are electronic invoicing legislation, such as the EU Council Directive 2001/115/EC which allows the electronic invoice to serve as the legal invoice in the European Union, and the availability of third party service providers that now offer a broad range of translation, protocol mediation and regulatory compliance services. These services enable companies to overcome the barriers that have prevented 100 percent trading partner participation in the past. For example, now even small trading partners can participate in e-invoicing programs without changing their current processes. And, suppliers are beginning to welcome the opportunity because they recognize the benefits they too will receive; this is particularly true when buyers promise faster payments in return for electronic invoicing. Furthermore, buyers who do business with international suppliers can rely on the third party service provider to ensure that varying local government regulations are satisfied. 2008 will be a breakthrough year for e-invoicing. The business case is clear, technology options providing seamless integration with in-house are readily available and the e-invoicing adoption rate has been growing steeply and steadily.  

Marketing  

10)   B2B Service Provider Blogs Become More Common and More Personal  

Prediction by GXS Global Product Manager, Justin Duewel-Zahniser  

Dialog with customers through blogs will increase, whereas using blogs as a medium for company promotional content will decline. Companies are increasing the use of blogs as an avenue for communicating with customers and the market, as evidenced by new supply chain vendor blogs started in 2007. Companies traditionally begin blogging externally in the Marketing organization since the focus there is naturally on external communication. In 2008, customers will continue to engage blogs as an avenue for dialog with their service providers and the value of provider blogs will become more evident in organizations outside of Marketing. Additionally, blogger voices from the user community will begin to increase and take on more authority in the space, consistent with what has been happening in politics, fashion and media.  

The past couple of weeks I have been busy helping with the roll-out of our new integration offering between the GXS Trading Grid and Microsoft BizTalk 2006 R2, a very exciting collaboration between GXS and Microsoft (and worthy of a blog entry of its own, very soon…).  Having wrapped up a couple of key activities, I started — as is my custom — to wade through a 10 inch stack of magazines (I checked!), and who knows how many emails…

Back in September, CIO Magazine started talking about the balance between outsourcing and innovation, referencing an innovation crisis (this is a blog entry, the print version of CIO had a longer and very interesting piece, but this gives you an idea).  This is the latest of a series of well-written articles on the dangers of leaving innovation to others (another I enjoyed, around manufacturing, back in 2005, is here).  R&D is a topic near and dear to my heart, as it is part of my role here at GXS, and the dangers as I see it fall into two categories:

1. Leaving R&D to outsourcing companies (traditional) may result in no innovation beyond cost-reduction
2. Too much dependence on even innovative partners can dull the innovative edge of your own team

I have a strong belief that every company needs to look for the opportunity to innovate in their core business, and one of the best ways to accomplish this is to free up resources in every other part of the business by partnering with companies who do that as their core business.  While this may address #2, it can put you in jeopardy of the first danger, which brings me to the knock-down, drag-out SaaS versus outsourcing.

What really got me thinking about this was a string of articles/blogs/etc along the lines of SaaS doesn’t matter, business value does…  On the surface this is really hard to argue with, as most generalizations are.  But like most generalizations, taken to extremes this is a dangerous idea.

In the CIO Magazine article, the problem surfaced was that most outsourcing contracts are based on the achievement of SLAs (service level agreements).  Traditional outsourcing companies have an enormous incentive to standardize and drive cost down, and pretty much nothing else.  This is the complete opposite end of the spectrum from commercial software vendors, who live and die by new license revenues, and have an enormous incentive to innovate.  Unfortunately, this innovation can only be realized through upgrades and installations, so customers receive benefits unevenly, only as the upgrade.

So how does this translate into SaaS out-innovating Outsourcing?  SaaS (software as a service), is a service based model like some traditional outsourcing, with the economic incentives of commercial software (if we don’t innovate, we quit winning new business…).  Unlike traditional outsourcers, who contain costs by limiting change in a given client (admittedly to preserve service levels), a SaaS based offering controls costs by applying its innovations to all customers.  If this sounds crazy — it’s not.  Change, in the form of innovation, is much less expensive than variation.  If I add new features and capabilities to my entire customer base, I have a better cost model than a software company supporting 3-5 different versions of their software (which is why most software companies “end-of-life” versions with depressing regularity).

This is the best answer to the conundrum posed in the CIO article about how to leverage the expertise of outside companies without risking loss of innovation — work with organizations that must innovate to survive.  SaaS is a marketplace with many of the cost efficiencies of outsourcing and an incredible pressure to innovate and invent (don’t believe me, look at Salesforce.com, Amazon’s web services, Microsoft’s Live Services, etc). 

And if people tell you that the business model doesn’t matter (SaaS, outsourcing, etc), tell them to talk to the music industry about iTunes, or the CRM industry about Salesforce.com.  Business models matter, they drive behavior and economics.  Innovation will always be strongest where companies need it to win, and that is the team I want to be on.

Something in one of my recent posts ( SOA versus ESB — conflict or collaboration ) struck a chord with Dan Foody over at Progress Software, and his post about understanding your organization before you architect has now gotten me thinking.

The Chief Architect of the GXS Trading Grid is a guy named Jeff Barton, and he has a favorite phrase on this, “architecture by org chart”.  This is somewhat different from Dan’s blog entry, as Jeff’s point is the tendency of development teams to be more Ptolemaic than Copernican (basically, teams make the rest of thew world revolve around themselves).  As I looked up the wikipedia entries on the Ptolemaic system, I realized just how apt this metaphor was — since it requires gigantic planets in space to spin, perform loops and rotate around Earth to make the math work!

The widespread implementation of SOA requires coordination across multiple teams, who must “do work” on current projects that is — in the short run — exclusively of benefit to other teams!  Over time, and not even that long in GXS’s experience, benefits boomerang as other teams do the same — but this is a leap of faith, and many IT people are not into leaping.  This same challenge is also faced by the proponents of RFID deployments (we’re for that, but that is another entry….).

This is where the influence of CTOs, Chief Architects, and senior developers is make or break. 

Dan references the very real challenges of balancing the power of IT/non-IT groups, but in my experience even balancing amongst different IT teams can be a monstrous challenge.  One technique I have seen work with some success is to deploy mandatory common infrastructure, with some degree of enforcement.  I have seen a few models of this:

1. preferred vendors:  one ESB, database, ERP, etc.  There might still be multiple instances (better be, in the case of databases!), but at least there is a single skillset and technical support connection.  You still have versioning issues, but at least you’re on the right track.  Easiest to enforce if you have centralized purchasing, as they can flag orders for anything “off the list”
2. common services:  you have to go to the “insert capability here” team (ESB, message queueing, database).  Much more amenable to a unified structure, but requires incredible commitment from the teams providing services, and lots of enforcement from above.  The first time a project misses because of an external dependency (”they wouldn’t configure the ESB for us!”), it starts to unravel.  Particularly challenging because the “core teams” are not directly connected to revenue, which can cause issues when budgets are allocated.  This is probably not an option for teams in organizations where IT is not in control — or at least on par — of resource allocation for IT projects
3. outside service providers:  Like #2 above, but using an outside service provider or SaaS vendor.  I admit this is somewhat self-serving, but the difference is that you do not have to deal with internal rivalries, and for-profit service providers tend to have more capacity when you go to them, which is really just a function of scale.  We have many managed services customers who require their divisions to use us for certain functions, and that achieve both standardization and integration (we are already integrated to their back ends).  Easier than #2, but only works for certain problem domains

I’m sure there are other models, and would love if people would add some comments about how it works in their shops.  As much as I would like to say there is a solution to “architecture by org chart”, I think the best we can do is get the architecture to reflect the view from higher up in the org chart (c-level), so that it ends up including the entire organization and its needs.

I recently attended the Forrester IT Forum at the Gaylord Opryland in Nashville. The conference, and the hotel are both favorites of mine, though sadly I experienced less of each than I would’ve liked. Having said that though, the sessions I did attend were excellent.

Some of the best sessions are often surprises, and for me that was the case with “Using a Goal Tree to Measure and Manage”, by Jean-Pierre Garboni (VP of Forrester). I was a quantitative business major in school (no, that is not an oxymoron, it is called management science or operations research), so I thought it might be of interest. Far from an esoteric discussion of quantitative methodology though, it was asystematic attempt to explain why the millions of dollars of investment in monitoring have not given us more insight into customer experience.

The answer lies is a pattern so common it is almost a cliche — we are measuring and monitoring infrastructure one piece at a time, and thereby failing to get the “big picture” (I am really, really over simplifying here…). Basically, we are best at measuring things like uptime, transaction rates, queue depths, etc; all of which contribute to outcomes, but are not good representations of the entire outcome(s). This is further complicated by the fact that there are different outcomes for operations,”the business”, and the customers.

This may seem obvious, but if you are currently building/using SOA based applications and services, I’ll bet you’re not ready for this. For instance, if you have the ability to dynamically add capacity to your SOA service, is that load management capability talking to you operations management infrastructure? If I add a node and it runs slow, can I recognize the solution that is impacted? Can I resolve down to customers? This has always been an issue, but in an area of SOA and virtualization,it is an even bigger deal.

The exciting part of this talk, from my point of view, was the methodology. Basically, you start with a high level goal (roughly equivalent to the successful outcome), and a modeler (person, not a piece of software) decomposes that into systems, processes and ultimately functions with measurable results. The idea is that the functions are well-suited to the current suites of monitoring/measurement, and the model helps us to roll this up into a fair approximation of the outcomes. The largestbenefit may in fact be the way this approach gets people thinking ‘top-down”.

I recently had the opportunity to chat with Geoff Crawshaw of OpenAir, about the approach they have taken to managing their software as a service offering. GXS is an OpenAir customer (we use it to manage our professional service teams projects and time tracking), and we recently had an internal session to look at how we use OpenAir, and what is distinctive about it as a service — things that would be difficult to match through the purchase of traditional enterprise software.

What we came up with was not surprising:

• We were able to ramp quickly, over a three month period in our case — globally. This may not sound fast, but the truth is the service was constrained by our ability to load data and train people; at no point did the software as a service slow down the process
• New features arrive on a regular basis without any “upgrade”, in fact — there are no version numbers (I cannot state how amazing I find this. It doesn’t sound like a big deal, but it is — see below about “feature switching”)
• Costs scale with usage — in this case the number of seats. The service is pretty generous here though, as it is very easy to download data (almost every page has a “download” link that can retrieve the data into a pdf or spreadsheet ), so only people that need to “use” the system need a seat

I say these are not surprising because this is what you generally associate with SaaS. What was more surprising was the following:

• customization: the system can be both customized and personalized. Individuals can change the layout of screens (order of fields, what fields are shown, sorting, etc), and create their own reports
• extensibility: new attributes (data fields), reports, etc can be easily added — all through a web interface
• integration: there are techniques to integrate (both batch and realtime) to internal systems (traditional enterprise software)
• speed: the system screams. While I certainly would not say I would expect a hosted service to be slow, I am genuinely surprised that it is quite a bit faster than even our internal portal

Suffice it to say that most of us, and myself in particular, were intrigued — so I asked for a meeting.

Geoff shared with me some of what I would call the “culture” of development at OpenAir. First off, PageBuild (how long it takes to render the page from OpenAir’s point of view) is the key metric — and they obsess over it. They have detailed analysis about how customers perceive speed (basically, if 80% of the pages render in less than a second, with an average of .3 seconds, customers think its fast), and they work like crazy to hit those targets. Deployed features are monitored for PageBuild,and yanked back (see feature switching, next) if they slow things down. Note that being able to regress is a big advantage of the SaaS model as well. They aggressively use existing technology (particularly minimizing database hits), but it is the attention — rather than technology — that keeps it fast.

But they do have a very novel approach to feature deployment — and it is very specific to the SaaS model. They do not think about releases as a packaging of code, but rather as an event that concludes a development cycle (which run about 6 weeks, 4 for coding and 2 for testing). “Features” are somewhat independent of each other, and are deployed using “switches”. Most features are deployed “switched off”, until support can reach out to customers and determine if a feature should be “switchedon” for a given customer. The amazing thing about this feature switching architecture is that the application layer is shared for all customers (each customer has its own database, but customers share a common “farm” of application servers).

This points out another major difference from traditional models (and also helps explain why version numbers are redundant), all of the customers are on the same codebase. This seems obvious since they share the same production application servers, but this means that there are no “old versions” to support. If you are a software or service vendor, you can appreciate the incredible productivity gained from this — which translates into higher quality (focus on single version is powerful), and muchhigher support productivity.

One final point of discussion was the difference in business model, which I know helps GXS succeed as well. In the Software as a Service model, the bulk of revenue comes from existing customers using the service (this is how GXS has operated for its entire history). This is very, very different from enterprise software, where license revenue is the primary contributor of revenue (maintenance is important, but customers are “invested” once they pay the license fee, and switching costsare historically very high….). The effect of this is to focus SaaS vendors on features that drive value in the opinion of current customers using the system, while traditional enterprise software companies must tilt more toward features that appeal to buyers of software. Geoff makes the point that SaaS companies have the upper hand because their financial rewards are better aligned with continuing customer satisfaction than software vendors — and I agree.

Good article over at Optimize Magazine by Barry Rosenberg and Craig Wright about figuring the TCO of Software as a Service offerings versus software. They offer a really good framework for thinking about it.

There are two points in the article I’d like to throw in my thoughts on, calculating the cost of people around traditional software, and competitive differentiation.

The authors tread lightly around the topic of staffing — but I think this is almost always underestimated. People are good at costing out licenses and servers, but usually not so good at the human side of things. In particular, because it is so obviously possible to customize software — you will. And because the easiest way to customize is to use the vendor’s proprietary language/configuration system/magic wand — you do. This means you end up performing customizations you didn’t originallyplan on, using skill sets you hadn’t expected to. All of this leads to maintenance challenges and a never-ending process of acquiring, retaining and replacing people with vendor specific skill sets.

This is not a theoretical for me, we are in the middle of implementing a CRM system, and I am seeing it first hand. The good news is that we have a great set of IT leaders in our company who can manage through this, but is still very difficult — and leaves me wondering how things might have been different if we had chosen a software as a service option instead (interestingly, we went with our current vendor because we already used them for core ERP, and believed — possibly wrongly — that integration wouldbe much easier).

Interestingly (and we didn’t plan this), at about the same time we started CRM we launched a new project management initiative leveraging a software as a service provider. This was also fraught with challenges and difficulties — particularly concerns about being able to customize the information to our business (akin to the “differentiation” listed in the article). Despite the difficulties, we had the basic setup in one month, ramped the professional services team the next month, and went live rightafter. Although the team expressed frustration at the pace and difficulties, I personally sat back in wonder at the rollout of a global enterprise system — in use by our largest division — inside of 3 months! Oh, and did I mention that it involved the full-time participation of just a handful of people…

I don’t claim these two projects are similar in scope (they aren’t, CRM is much bigger), or that a different organization would have the same results. But I do find it interesting that in a short time we could easily tailor a “commodity” service, while the challenge of customizing the CRM system continues to make life difficult. I loved this article, but I’m not at all sure that buying software allows you to differentiate your business any more than the SaaS model, and may in fact inhibit it if youcan never finish the project….

For the past year, we have been working with a company called Covast to connect their B2B Suite product (built on Microsoft BizTalk) to the GXS Trading Grid.  The idea was to build a highly functional connector using a combination of AS2 (for moving files back and forth) and web services (for everything else).  We selected AS2 for file movement because both companies have a lot of AS2 business, and it was popular with customers.  We chose web services because most of what we wanted to do was not addressed by widely used document standards — and we felt that we could also leverage some existing web services already deployed on the Trading Grid.

Our initial concept was to allow a company that had installed Covast’s product (which we also resell…) to do all of their Trading Partner administration (add/update/delete, request relationship, etc) as well as their document tracking, from within the B2B Suite interface.  Our assumption was that they would enter some info about a partner and then query the service for them.  If located, the profile would be sent back to populate the software, and a trading relationship would be requested.  Almost as an afterthought, a service was implemented to pull all the partner data connected (via relationships) to the customer — mostly to provide a tool for synchronizing the software and the service.

Well, I still have hopes for the original model, but that is not what our joint customers are doing!  Read the rest of this entry »

Managed Services and Outsourcing are a big topic in B2B these days, but people interpret these phrases in different ways, particularly “outsourcing”.  Outsourcing’s traditional meaning — paying someone else to do something for you (like ADP in payroll) — has morphed to include other meanings, including:

• Paying someone else to “employ” your staff
• Paying someone else in another country to “employ” their staff as your staff

That’s too bad, because these are not the same things at all…

Real “outsourcing” is about taking advantage of another organizations skills, scale and technology to more efficiently accomplish some task — freeing capital up for some other use, NOT finding a way to do it yourself for less money.  Many technology outsourcing firms are actually outsourcing HR, not technology.  This has gotten so confusing I tend to call our B2B outsourcing business “managed services” so that people do not think we are selling bodies. Read the rest of this entry »

I’ve spent the last two days at webMethods Fairfax Headquarters, receiving “preview training” of Fabric 7.0, which includes a revamped Process Engine, My WebMethods Server and Optimize (the BAM, or Business Activity Monitoring, tool).  I’m really excited about the new platform, as it is a nice combination of new features, improved integration and improved performance.

But these two days got me thinking about the evolution that enterprise software companies go through, starting from software — routines that solve a specific problem, to platforms — a set of complementary capabilities that customers can combine to build their own solutions, and finally to ecosystems Read the rest of this entry »