SaaS and BI – December 2008

Customers do not want to pay for owning the software itself but rather for using it. This is just a reality of the modern times. Gartner has predicted with a reasonably high degree of probability
that by 2011, 25% of new business software will be delivered through a software-as-a-service (SaaS) model.

At the Gartner Open Source Summit in 2007, there was discussion about five discontinuities for IT (information technology). This article shall attempt to discuss them in depth and also share an
independent perspective. It is imperative that every person in IT study these discontinuities and be ready to deal with them. The five discontinuities are:

  1. Software as a Service (SaaS)
  2. Consumerization
  3. Web 2.0
  4. Open Source Software
  5. Global Class Computing


Software as a Service (SaaS)

In my September ‘08 article – On-Demand BI versus On-Premise BI – I talked
about the recent impact of on-demand business intelligence (BI) and what it means for on-premise BI, which continues to exist and will probably continue to exist for quite some time in bigger
enterprise environments. The biggest advantage that business units now see in SaaS is the ability that they now have to act independently of IT. They no longer have to wait months in line to get
their project accomplished. SaaS providers now guarantee uptime of their applications so enterprise IT does not have to bother about it. The key characteristics of SaaS include centralized feature
updates; a single-instance, multi-tenant architecture that is managed centrally and accessed over the Internet; subscription-based pricing on a per-user basis with no upfront license costs; and a
short implementation cycle. All these characteristics have made SaaS more attractive than ever before. In one of the DAMA presentations, I made a comment that “the relationship between users
and IT is becoming more like a “civil war.” Nobody was offended; in fact, they nodded their heads in agreement that what I said was indeed true. Business users want their requirements
fulfilled, and they want it now. And it’s not because they just want to be difficult. It’s more because the business is moving at a pace that it has never moved before, and business
users just want to be able to catch up and compete more effectively in this economy. The business leaders want to get away from the paradigm of “buying software” which is often a
capital expenditure exercise and, in turn, implies time, approval and spending. Security continues to crop up as a concern. Will the hosted service provide us with the level of confidentiality,
transport security and the management of user privileges that we need? Customers also want “data portability” – they want the hosted service to allow them to import and export
data to another service. They don’t want to fall into a lock-in scenario with data trapped with a particular vendor. They want high “accessibility” – they want the service
to be accessible using low bandwidth connections. They also want to be able to work offline, although this need has not yet been met to a great extent.


Consumerization

Consumerization can be defined to be a process or experience whereby technology is initially presented to and/or used by the generalized public and is then subsequently presented to or comes into
use by the business sector. In a Gartner press release in October ‘05, it was predicted that the growing practice of introducing new technologies into consumer markets prior to industrial
markets will be the most significant trend affecting information technology (IT) during the next 10 years. The consumers of today want and expect the same level of services at work as at home. They
want to be able to do everything online and without needing to install anything on their desktops. These expectations have already caused enough heartburn and anguish for the already short-staffed
IT departments. Gartner had also pointed out that the large scale, high-volume unit production and potential profit opportunities available to leaders in consumer markets will convince many leading
IT vendors to focus more resources and innovation on consumer products and services during the IT industry’s slow recovery from the dot-com collapse. As technology providers increasingly design
products for consumers, enterprise IT managers will have to learn how to manage these products as employees bring them into varieties of workflows and processes. Three years have passed, and the
trend has not changed significantly. The growth of the consumer segment is the single biggest factor that will drive semiconductor demand during the next 10-15 years. The dominance of consumer
markets will have dramatic implications for other sectors too. In fact, it has been predicted that consumer markets will drive much of the industry’s underlying research and development, rather
than the military and business markets. Consumerization will force business application managers to take an outward view and address how consumer-based technologies and interaction models will
change the end-to-end business process and its enabling applications. Thinking about the support and security issues involved in letting their business users access enterprise applications through
the diverse and unregulated home infrastructures makes IT managers cringe. But they are just now beginning to accept the fact that it “is” going to happen in a big way and that they
just have to be prepared for it. Consumerization of information is another key aspect here – where users expect to have their business info available just as they would any other
Internet-based data.


Web 2.0

Web 2.0 is a trend in the use of World Wide Web technology and web design that aims to facilitate creativity, information sharing and, most notably, collaboration among users. These concepts have
led to the development and evolution of web-based communities and hosted services, such as social-networking sites, wikis, blogs and folksonomies – the practice of categorizing content
through tags. Although the term suggests a new version of the World Wide Web, it does not refer to an update to any technical specifications, but to changes in the ways software developers and end
users use the Internet. Web 2.0 is also a term often applied to a perceived ongoing transition of the World Wide Web from a collection of websites to a full-fledged computing platform serving web
applications to end users. Business users want the user interface for business applications to be as easy to use as Facebook, MySpace and other social networking applications. They want to
collaborate and connect in ways that no one ever thought of before in the context of business applications. These applications are totally reshaping the culture of communication. Business users
want to be able to provide requirements online and want to collaborate with developers as they are looking through reports and other system artifacts. And they expect IT to be able to act on it,
act on it fast and produce results. Knowledge must be created rapidly and categorized so that it can be searched and personalized for alerting. This implies almost instant initiation of
collaboration processes that enable the creation of these artifacts. Another interesting aspect of Web 2.0 sites is the “architecture of participation” that encourages users to add value to the
application as they use it. Work time and personal time seem to be blending so computing services have to become centered on the individual. Younger workers have grown up with computers and, by and
large, the Internet. Therefore, their expectations for how software systems should behave are vastly different from an older worker who has grown into computers and software during the course of
his career.


Open Source Software

Open source software has acted as a great catalyst for figuring out new ways of doing things. The enterprise software providers of today see open source software as “just another piece of
business.” Just about a year ago in 2007, most software vendors worldwide were struggling to understand the demand for open source software, the role of open source within their portfolios and the
most effective business models for profiting from open source. But in the past 12 to 18 months, many software vendors have moved from fear to aggression, pursuing open source development firm
acquisitions, incorporating open source code into offerings throughout their portfolios and looking for (or planning) open source offerings. In February ‘08, Microsoft announced changes in
its business practices to work better with software from other providers, especially open source communities. Microsoft said it will publish the documentation for the application programming
interfaces and communications protocols in its “high-volume products.”

Developers will not need to buy a license or pay a royalty to access the information. Microsoft said it will not sue open source developers who create non-commercial software based on Microsoft’s
protocols. Open source projects have changed the fundamental economics of software production, which has traditionally been based on collocated teams. You can hire the right talent for the right
job anywhere on the globe rather than locally (and often at lower cost), get a productivity increase from flat and asynchronous Internet-based communication, achieve the power of collaboration
where anybody can contribute to solve a given problem, and also gain adoption of more agile and iterative software development models rather than the waterfall approach. Non-profit organizations
that leverage technology for their functioning are in a constant state of evaluation of how they are using donors’ money, looking for ways they can reduce overhead and anything that doesn’t
translate directly into mission-related impact. Most often, their approach will lean toward using open source software in an infrastructure that requires no intranet and no on-premise servers.


Global Class Computing

Big enterprises generally run their own data centers – well, that was true, until now. But now that is changing – storage and computing services are provided by companies such as
Google, Amazon and others. More and more companies are switching over to reap the benefits of somebody else doing the work. An interesting prediction to note is that in 2010, Google alone will
consume 30% of all the world’s servers. The day is not far off when enterprises reach the conclusion that you don’t need to own your own compute resources. Consider Amazon S3 (Simple
Storage Service), which is an online storage web service offered by Amazon Web Services. Amazon S3 provides unlimited storage through a simple web services interface. Amazon launched S3, its first
publicly available web service, in the United States in March 2006 and in Europe in November 2007. Since its inception, Amazon has charged end users $0.15 per gigabyte-month, with additional
charges for bandwidth used in sending and receiving data, and a per-request charge. Amazon S3 is reported to store more than 29 billion objects as of October 2008. This is up from 14 billion
objects as of January 2008, and from 10 billion in October 2007. S3 uses include web hosting, image hosting and a back-up system. Although S3 comes with no guarantee that customer data will not be
lost, it is amazing to see such stats that provide an indication that global class architecture is a concept that’s here to stay.


Five Discontinuities: Is There a Sixth One?

Of all the five disruptive discontinuities, it may seem that rise of consumerization would probably have the biggest impact on IT, but in reality they are all sort of dependent on each other. For
example, consider the link between SaaS and global class computing. SaaS providers themselves can avail these global cloud computing resources to host their own applications, thus only needing to
become expert in their own domain rather than needing to know how to manage a data center. The sixth trend that I feel is not really covered in the five discontinuities mentioned above is the trend
of SaaS vendors feeding off each other to become a global network of loosely coupled services – a SaaS ecosystem. For example, there are numerous SaaS vendors that provide applications in
niche areas, and all of them need to bill their customers. But billing is a mundane, yet complex activity and not the core expertise of these SaaS vendors. So, in such situations, the billing
infrastructure for smaller SaaS vendors can be established using the help of other SaaS companies that specialize in billing for customers of SaaS vendors, thus forming an ecosystem in which one
SaaS vendor is dependent on another.


Virtues of Necessity

So far we have talked about the 5 discontinuities and what it means for IT. These discontinuities have the potential to disrupt user deployment models as well as business models provided by leading
vendors. IT will have to recognize that users have become more independent and control doesn’t work. The image of IT is that it locks everything down with rigid standards, over-engineered
solutions built upon complex architectures. So how can IT deal with this? I will make 3 recommendations.

  1. Foster innovation and independence: This seems to me to be the most important virtue that needs to be adopted by IT. Users should be given the freedom to figure out what they
    need in order to accomplish what they need to accomplish. Users will buy what they need from the web, and IT will have to just accept it. Authority is needed, but certain sorts of tasks are best
    served by social mechanisms. Social mechanisms can prove to be quite helpful in situations where enterprises need broad understanding of trends and when enterprises need to know what people are
    thinking. IT management should be supportive of projects that want to introduce interactive tools, such as content tagging systems, RSS feeds, blogs and wikis. There are IT analysts that want to
    hoard their value to the company and protect their jobs. This happens because, in my opinion, there is neither a reward for sharing nor does the culture enable an environment for sharing. This
    mind-set has to change. There are so many IT problems to be solved; and the more IT holds onto mundane things, the more they make themselves distant from solving tougher, knottier problems. IT
    need not manage every system that business users consume. With the advent of SaaS-based applications, IT should allow users to experiment with them and evaluate if they can be of value to the
    company. If IT can foster an open environment to facilitate productive social interactions, it will encourage interaction with the rest of the business ecosystem and pave the path for new
    business models and opportunities to emerge and evolve over time.

  2. Understand your customer base: If you are an IT professional, then you will need to be more intimate with your customers. This recommendation has probably been talked about many
    times before, but the relevance of it is probably bigger than ever. IT support is not identical for users; users have different needs. IT managers should constantly attempt to segment users into
    categories based on experience, responsibilities, access requirements and their respective roles in the enterprise. Doing this will enable IT professionals to devise better services for their
    customers.

  3. Architect around loosely coupled services: With SaaS-based services becoming more popular, IT would need to design its architecture around loosely coupled services in order to be
    able to create, manage and aggregate web services across networks and devices. With the Google-ification of our lives, we all expect to find information quickly. This can only happen when related
    services are tied together in a manner that promotes easy and seamless interaction between them.

The key to successfully incorporating consumer-driven technologies into the business application portfolio will be for IT leaders and business application managers to rethink their approaches to
all phases of the application life cycle in order to ensure rapid response to user demands while at the same time maintaining high quality, secure and compliant business application portfolios. The
answer does not seem to lie in restricting or prohibiting the influx of consumer devices, behaviors and services. It lies in capitalizing on the opportunities they afford.


Conclusion

CIOs will have to more perceptive than ever. As they seek to transform their rigid infrastructures into agile, efficient, service-driven delivery mechanisms, they must adopt a pragmatic approach to
managing the risk of consumer IT while embracing the benefits. And if they don’t, what will happen? They risk being sidelined as the “enemy” by their business counterparts. CIOs
will have to find capable, lower-cost alternatives in all technology categories. This is where new development and delivery models will become even more popular, which benefits open source and
software-as-a-service vendors because, in most cases, the up front and ongoing costs are just lower.

As once commented by Tom Austin, Gartner Group analyst, information technology is no longer under the control of the IT organization. The only guide to IT survival is “openness and not
control” – the ability to embrace the inevitable and putting more control in the hands of the users themselves so that they can innovate on their own. As they say – “the
walled garden model of enterprise” will eventually fade away or at least become less conspicuous over time. IT managers who are responsible for overseeing applications must incorporate these
trends into their long-term planning process. IT cannot afford to be an inhibitor of change but has to embrace and encourage it. In the next 2 decades, the Internet will take over storage, and
users will federate personal resources with enterprise resources. Enterprise IT executives can design policies to govern what SaaS applications can or cannot be used, but SaaS software vendors are
going to go around it to gain adoption of their software. So it’s best for IT to assume the role of advisor and facilitator.

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About Diby Malakar

Diby works as a Principal Product Manager for Informatica, the data integration company. His prior experience includes working as Acting-VP of Engineering and Senior Director of Product Management for Cloud9 Analytics, a SaaS-based startup focused on building sales performance management applications. He has also worked for companies like KPMG, Neoforma and TiVo in various engineering management and product management capacities. He has more than 14 years of experience in the information technology industry and specializes in business intelligence, data warehousing and data quality management. He holds a Bachelors degree in Computer Science and a MBA in Information Systems.

He is an active member of IAIDQ and the Program Director for the San Francisco chapter of DAMA. His articles have been published in a variety of places such as TDAN, Wharton’s Leadership Digest and Oracle Magazine.

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