Business Implications of Full SaaS Multi-Tenancy

As technical models evolve, the business models have changed and vice versa. The same is true with web based applications which evolved from on-premise to hosted and ASP models to recently the Software-as-a-Service (SaaS) model.

This article will attempt to clarify the Business Implications of Full SaaS Multi-Tenancy. It is primarily directed towards software executives that deliver software on an ASP model and are seeking to justify investing in making the changes to full SaaS.

First off, let's look at Microsoft's early description of the SaaS maturity model for a frame of reference. In Fred Chong's paper entitled Architecture Strategies for Catching the Long Tail, he outlines 4 maturity levels.

For those, like me that aren't that technical, and getting back to the point of the Business Implications of Full SaaS Multi-Tenancy, it should be easy enough to understand a few things about Level 4, Full SaaS Multi-Tenancy:

Cost Reduction for the ISV: With a multi-tenant database scheme, and a highly customizable single instance of your application, you can achieve automated provisioning for new customers. This means that news customers can just go online and sign up, rather than requesting that the ISV setup a new hosted version.

Additionally, with one version of the software, delivered via the web, all customers can benefit from product enhancements as they become available and choose to enable them.

All in all this reduces the number of human resources requried to support a growing customer base.

Increased Revenue: Now with a lower cost basis for running a software business, and a subscription based pricing model, you can now lower the cost barriers to entry for prospects. The decision to utilize a SaaS application becomes an operational expenditure (OpEx) of several hundred or thousand dollars per month, rather than a capital expenditure (CapEx) of several hundred thousand or millions of dollars for hardware, telecommunication lines, software licenses, and implementation fees. This creates a lower up front cost to your customers and increases the addressable market that can utilize your software.

Innovation: Tying back to the example of product enhancements and new feauture rollout. it is recommended as Best Practices that there is a community driven feedback sytem built into the product to drive innovation. This will allow product managers to organize active users, collect revenue generating enhancement ideas and push them through to development faster than ever before.