Multi-Tenant vs. Single-Tenant: SaaS Debate 1.0 Needs an Upgrade

There’s a debate raging again in the on-demand, software-as-a-service market that bears some curmudgeonly commentary. The essence of the debate — which I contend seriously needs to be upgraded to reflect the real future of SaaS –is whether multi-tenancy or single-tenancy is the true path to enlightenment in SaaS. My curmudgeonly comment is this: Neither methodology will matter in a few short years, because the SaaS market is set to evolve beyond delivering a “faster-better-cheaper” version of on-premise enterprise software into delivering significant value above and beyond anything that on-premise can deliver today. And once that evolution truly sets in (and the market’s DNA is recombining constantly in the service of this ideal) these tenancy debates — which are basically about the cost-structure of competing with on-premise solutions — will cede their primacy to debates about the premiums that SaaS 2.0 solution providers will be able to charge their customers. At which point the basic cost issues that are fueling the great Debate 1.0 will be off the table.

There are two basic characteristics about these SaaS 2.0 solutions that stand out. The first is that, by aggregating data, processes, connectivity, and stakeholders in the cloud, these solutions are able to provide functionality that was simply not possible in the on-premise world. Take landed cost estimates as an example. You can run a logistics application inside the firewall that will give you a landed cost estimate for your  widgets if you ask it, but as that application cannot possibly have access to the myriad data points in the real world of logistics (shipper costs, shipper performance, broker fees, customs costs and regulations, to mention but a few), it will return a number that is marginally useful at best.

Shift that same function to a SaaS 2.0 vendor like GT Nexus, and now you’re doing something you couldn’t do in the on-prem world: GT Nexus’ SaaS cloud acts as a clearinghouse for virtually every available data point from every possible stakeholder in the global logistics chain, normalizes those data, and makes them available to every eligible user or partner in the logistics supply chain.  GT Nexus handles the integration, updates, on-boarding, etc., and the customer reaps the benefit of a SaaS 2.0 service that couldn’t be replicated on premise at any price.

This model is repeated across the burgeoning SaaS 2.0 industry: E2open and Amitive have a similar function to play in the supply chain, collecting data and processes from all those “outside the firewall” partners and using the power of SaaS to provide a level of functionality and service well-above what on-premise ERP and SCM products can do. SmartTurn does this in the warehouse.  Panaya does this for the SAP upgrade market. Actio does this in the chemicals industry. The list keeps growing and growing.

The second reason why SaaS 2.0 stands out, and why the low-cost, cheaper-than-thou SaaS 1.0 debates will become increasingly irrelevant, is that SaaS 2.0 applications are a self-improving and self-appreciating asset for the customer, and not just for the vendor, the latter point being the essence of the value model of SaaS 1.0. This is an extremely important distinction, and one that bears consideration as we look to the Salesforce.com‘s of the world for guidance as to the market’s future (which I believe would be a mistake.) A solution like any of the SaaS 2.0 examples above becomes more valuable to each individual customer as more customers sign up. Significantly more valuable. Because in every case the more customers are added, the more their industry knowledge, partnerships, connectors, and best practices become part of the common good that SaaS 2.0 can bring. If you’re in a trading or industry network environment like most of the examples above, your cost to add new partners, new customers and new best practices actually goes down over time as more and more companies in a given industrty are on-boarded and more of those companies’ technological challenges are met by the SaaS 2.0 environment,  and thereby become part of that vendors’ standard operating procedure. If you’re more in the services business, like Panaya, the more anomolies Panaya tackles in the customer base the more solving those problems become STOP as well.

And, just so we don’t miss the self-appreciating asset portion of this, as no SaaS 2.0 vendor charges more for self-improvement, a company’s investment in a SaaS 2.0 stands to provide greater ROI going forward, for no change in cost. If only all enterprise software worked this way.

So, I propose we move on to Debate 2.0: what is the value of SaaS 2.0, and how can more companies deliver this kind of functionality and get the market moving in a completely different and more interesting direction. Because I contend that SaaS 1.0 is going to become as interesting as debating the merits of one micro-processor over the other. There will be lots to talk about, but little that will be important to the buying decisions that end-users and customers have to make. To whit: why should I care if one commodity-level SaaS CRM vendor is multi-tenant versus single tenant as long as the SLAs and price meet my needs?

The answer is as relevant as Intel Inside is to running a desktop PC. As is the multi-tenancy versus single-tenancy debate. It’s interesting, but so 20th century. Sic transit gloria.