Amazon Web Services and the ASP Model Redux

When the Software as a Service (SaaS) idea emerged from the embers of the failed Application Service Provider (ASP) model of the past, pioneers of the new generation of software solutions pointed to its multitenant architecture as the critical differentiator that would make it more scalable, economical and successful than its predecessor.

Leaving aside the real operational benefits of multitenancy for a moment, focusing on the revolutionary architectural innovation was important for a couple of marketing reasons. First, it was used to convince customers that SaaS wasn’t just another vain attempt to resurrect the ASP approach, which had failed to appeal to IT or business decision-makers in the past. And second, by emphasizing the unique business benefits of multitenancy, SaaS vendors forced established independent software vendors (ISVs) to confront the daunting task of re-architecting their applications in order to keep pace with customers’ changing needs.

This competitive tactic succeeded in fending off the established players who had to consider not only how to redesign their applications so they could operate in a multitenant environment, but also how to bring their new applications to market without cannibalizing their existing on-premises products, competing with their existing channel partners, and confusing their existing customers.

Start Making Sense

After a series of fits and starts, a number of major players are finally offering multitenant SaaS solutions, including SAP’s Business ByDesign and IBM Lotus Live.

Part of the challenge faced by other ISVs has been building or contracting for a cost-effective service delivery infrastructure. While many of the established hosting companies were aggressively selling SaaS-enablement services, the ISVs were hesitant to take advantage of them.

However, the emergence of Amazon Web Services’ (AWS) Infrastructure as a Service (IaaS) options is alleviating the anxieties of a growing number of established software vendors. The pay-as-you-go, commodity pricing of these services has made it easy for established software vendors to offer hosted versions of their legacy, on-premises applications.

The ISVs no longer have to worry about paying up front for expensive hosting facilities in anticipation of customer demand. Instead, they can “spin up” servers as they win hosted software deals.

For instance, Lawson Software has taken advantage of the AWS IaaS capabilities to offer “External Cloud Services.” Ironically, Lawson unveiled its new software services capabilities around the same time that its CEO had predicted — in an infamous 2008 interview — that the SaaS market would collapse because the economics didn’t make sense.

Another skeptic who made headlines skewering SaaS was Larry Ellison, Oracle’s founder/chairman. Today, Oracle is also teaming with AWS to support hosted software solutions.

Don’t Be Fooled

While AWS has made it economically feasible for established ISVs to host their legacy applications in the cloud, it is only partially fulfilling the expectations of their customers. Unfortunately, hosting customers’ apps in the cloud doesn’t equate with delivering true SaaS solutions.

Hosted apps still don’t satisfy the user-centric qualities that are being set by true SaaS applications. Vendors of hosted apps can’t aggregate the data derived from the entire population of users in the same way to fully understand which features are working and which need to be improved. And, hosted apps can’t be continuously enhanced in a uniform fashion across the population of users economically.

Therefore, users of hosted apps are not able to fully benefit from the innovations of the “crowd” in the same way that SaaS users do. Most importantly, hosted solutions don’t force the ISVs to think and act like service providers rather than product vendors. Success in SaaS depends on a proactive service orientation that is not found in most legacy software vendors, which have relied on reactive support to fulfill their customer obligations in the past.

So, AWS may be a simple fix that is easing the way for more ISVs to move toward a SaaS model. But ISVs using AWS to deliver their software applications should not be fooled into thinking that they’ve solved their SaaS challenges by hosting their legacy apps on this economical IaaS platform. There are plenty of additional software functionality, operational scalability and go-to-market sales issues that still need to be addressed beyond just hosting apps cheaper in the cloud.

And customers of these hosted apps should not be fooled into thinking that they are getting all the benefits of SaaS solutions. In reality, AWS has simply made it possible for legacy ISVs to recreate the old ASP idea, and users of these services are not gaining the greatest innovations via these hosted solutions.