Just words...?

In repsonse to a Linked-in discussion, I again draw attention to the grey areas surrounding key concepts in our industory...

Cloud providers, SaaS providers and OnDemand providers are all very different entities and the terms should not be user interchangeably. It seams marketing folks have no scruples.

Web based single tenant applications have been around since the mid 90's.Think Oracle, SAP, etc. OnDemand is simply a spin on the single tenant web delivery idea which was leveraged by the ASP's of the late 90's. SaaS was a coin termed by SFDC at that time to differentiate themselves from the ASP's and refers to applications that are provided on a purely subscription basis.

Typically SaaS applications were always characterized by the subscription model instead of traditional license models. This represented s fundamental shift in the software business from building a business around a core competency of writing software to delivering and supporting a domain expertise as a service. To the end user, the business benefit may have been the same, but the economics barriers to leveraging enterprise software were suddenly greatly reduced. But as customers began to request special enhancements for their own virtual instance, many SaaS companies began employ the concept of multi tenancy to insure the best leverage of economies of scale and keep their service delivery costs very low. Now, multi tenancy is becoming an expectation to be considered as SaaS.

On Demand is a term which describes taking a single tenant, web based application and delivering it over the web. Under such a scenario, the user may believe it is "Cloud based" but that is immaterial. The fact is, whether it serves a single user or 1,000,000 users, it is the same application for everyone, one size fits all. Good examples are e-Bay, Amazon.com, airline reservation systems, online banking applications, or any which allow users to check their accounts. They are typically read only although some allow write backs, but have no capacity for special enhancements in the underlying logic. Again, the main characteristic is that such applications can NOT be customized for the specific needs of groups of users outside superficial changes (colors and logos) without creating a second instantiation.

Many now view the fundamental difference between OnDemand and SaaS as a function of whether or not the provider leverages a multi tenant architecture as this one characteristic mandates the ability to not amortize customer acquisition costs on a per deal basis. As a result of this, many companies claiming to be SaaS companies are really modern versions of the ASP providers of the 1990's and must recapture the cost of new client instances before enjoying margin on any deal. Such companies are doomed to fail as cloud computing continues to drive the cost of service delivery downward below prices where the ASP model can sustain profitability.

Cloud is a term which refers to an elastic set of computing resources, or, in other words, inherent on demand resource scalability without additional capital outlay. The term was coined by IBM in the 60's, and revitalized by Amazon as part of their Elastic Computing Cloud initiative in the mid to late part of the last decade. It is often used in conjunction with yet has nothing to do with the SaaS model. This again refers to the concept of delivering software applications as a subscription service which, more and more will leverage multi tenancy in insure the lowest cost of service delivery.

Lately there is much debate regarding public, private and hybrid clouds. Interestingly, SFDC initially claimed there was only ONE cloud, now they have reversed that concept and are claiming there are different clouds based on function; a chat cloud, CRM cloud, support cloud, etc. They discount the idea of a "private" or "hybrid" cloud since they are committed to ONLY SELLING their own version of cloud.

IBM claims to support private, hybrid and public clouds, but again, they push clouds built on IBM assets. Google says everything is a cloud. Amazon, OpSource and other IaaS (Infrastructure as a Service) providers are pitching their "Cloud" and their own spin. Again, the only consistent characteristic is elasticity.

From a user perspective, only one thing matters; total cost of ownership. Users will want to part with the least amount of money to gain the maximum business value. I would argue that this is a function of critical mass and one's time horizon. If a solutions costs $50,000 to build and deploy and is expected to be in service for 4 years serving 50 users, than the cost is $50k/50u/4y or $250per user year. If users are willing to pay $250/month, this is a great SaaS investment. But also represents a great single tenant web investment in a private cloud environment that if it yields $251 per year is user productivity gain. It would appear to be "on demand" to user 51, as he had no capital outlay. Had it been built on cloud resources, the cost to build may have been only $25. Finally, if multi tenancy were added and a second tenant of 50 users could leverage the solution, it would, in turn, double the initial ROI.

All of these approaches will be leveraged more and more as cloud computing becomes more and more prolific. Marketing types will continue to confuse would be buyers by interchanging words like Cloud, OnDemand, SaaS and web based. Guys like me will continue to make blog post like this one.