developerWorks: I'm Scott Laningham. This is developerWorks interviews, where we feature conversations with technical luminaries and thought leaders from a variety of disciplines on topics of interest to technology professionals.

Our guest today is Dave Mitchell, IBM program director for Software as a Service. He joins us to talk about that. Dave, thanks for coming on the podcast.

Mitchell: Hi, Scott, thanks for having me.

developerWorks: Now, the hype in the late 1990s was applications service provider. I mean, that was the hot term at that time. Is SaaS just the newer name or the one settled on industrywide for the same thing? Or is it something different?

Mitchell: I mean, that's a great question because there's definitely a lot of confusion in the market between ASPs and SaaS, and what's the difference? And I mean, that's a great way to start to clear up some definitions.

So Software as a Service is really about a way of delivering application functionality. And the key thing about Software as a Service is in the SaaS model, the application functionality is delivered in a subscription model over the Internet. So the customer does not take ownership of the software, but they're going to rent this solution in a subscription model, and it's delivered remotely.

And that's very different from the ASP model. In the ASP model, or the application hosting model, what the customer is doing is they're buying the software. So they're buying, say, a license of SAP or a license of Oracle or a license of say, Lawson, and they're making a decision to have that hosted by someone else. So they buy the software and they say, "Rather than run this in-house, I'm going to have a company," and that could be like IBM — "host and manage that software for me." And IBM actually has a business called Applications On Demand, which is an application hosting, or ASP business.

But at any time, a customer can say "Well, I don't want to have that hosted by IBM anymore," for whatever reason. "Maybe I want to bring it in-house," and they own the software, and they can make that decision to bring it in-house.

That's very different than the Software as a Service model. In the Software as a Service model, again, the customer does not own the software. They subscribe to an offering and they buy that offering in a subscription model per user per month. So there's no software purchase to be made.

And the other key point here is in the Software as a Service model, the customer really has no say over what the infrastructure is. They don't get to decide what the hardware is or the middleware or the database — and more to the point, they don't really care.

So in the SaaS model, the customer says "I want to buy that application functionality. I'm willing to pay this much per user per month," usually is their typical model. "And the service-level agreement meets my needs. So I'm going to acquire that application that way."

developerWorks: But they obviously have functionality and performance expectations though, right?

Mitchell: Absolutely, absolutely. I mean, they need to place the same expectations that they would on their own IT department. So they need to go to these application providers and say, "You know, what is your service-level agreement? And where is my data going to be stored? And what's your performance level? You know, how many outages have you had in the last year?" So they need to ask the same kind of questions that they would look to ask their own IT department. They need to ask those questions of the SaaS provider.

And you know, I think one of the things that's very notable at the moment is there's a lot of, always a lot of press and a lot of attention when a big name SaaS provider has an outage. But the reality is the performance of these SaaS providers is far greater than the internal IT departments of many small and medium businesses today.

developerWorks: Right. So it's really pushing the management of quality and performance and everything back on the creator of the application in the first place, obviously, isn't it?

Mitchell: Absolutely. I think if you look at, if you wanted to just put in one sentence what is the major compelling value proposition of Software as a Service to a customer, it's really the transfer of risk back to the ISV; that ISV has now become a service provider.

So if you think about it in the traditional way of buying software, I as a customer, I make my application decision and then all the risk is on me. I've got to determine what infrastructure is going to be used to deploy this. I'm responsible for defining that architecture, for deploying the application. I'm responsible for making sure that it's configured properly, for the, making sure it performs and operates properly. And I'm responsible for ensuring the application is upgraded and maintained. And obviously I can choose to outsource some of that risk, to, say, a systems integrator or a hosting provider. But at the end of the day, I'm on the hook here for the operations of that application.

In the SaaS model, a lot of that risk is transferred back to the service provider. So the service provider in the Software as a Service model, they're responsible for defining the architecture. They're responsible for the deployment and the operations. Yes, the customer still has the ability and the responsibility to configure the application, but it's the provider that has to ensure the service level is there, and it's the provider who has to ensure that the software is upgraded properly. That would be for me is the one reason.

I mean, you hear a lot of things around, you know, if you ask people why they like SaaS and why they buy SaaS, you know, they'll talk about things like flexibility and ease of deployment and rapid time to benefit and low cost of operations. And these are all very important. And I think if you were going to bundle those together and say, "What's really compelling here it's that transfer of risk."

developerWorks: I'm wondering: Is the opportunity model for software developers the same with SaaS as with traditionally delivered software? I'm wondering what the model means for developers.

Mitchell: Well, I think from a developer's perspective, we're typically working today with two types of application developer. On one hand, we're working with the companies that are starting out or fairly young, say two or three years old. And I think for the most part, we're seeing those application providers use the SaaS model as their primary way of delivering applications.

developerWorks: OK.

Mitchell: I mean, you could almost go as far and our conversations with our venture capital partners that validated this, which is we're at a point right now where if you are a new software company starting up today and you want to have VC funding, you'd better have a really good reason for not doing the SaaS model if that's your choice.

So their expectation is now the SAAS model. It will be the way that new companies will deliver their applications. And the reason for that is if you can get going in the SaaS model and you can get the recurring revenue streams going in the SaaS model, there' s tremendous flexibility there. I mean, it allows you to enter a wide range of the market, so a lot of our SaaS providers, you know, the range of their customer size is incredibly large. They can work with companies as low as say 10 users or even lower, and they can scale all the way up to enterprise accounts.

developerWorks: Right — real flexible, yes.

Mitchell: Yes — I mean, you see things like salesforce.com, for example, who you know operates in the 10-user market and they operate in the, you know, some of the largest companies in the world. So there's a very wide range of opportunity in that SaaS model. You can also because of your distribution model, you can enter new markets, new geographic markets very quickly. You don't have the same distribution challenges that a traditional ISV has.

So for a lot of the startup companies, the SaaS model is incredibly attractive. And it also allows you to upgrade your software very quickly. So we have partners who make 10 or 15 or more significant changes to their application every year. They bring out new versions of their application, they make tweaks, and we'll talk more about that later I'm sure. But they're continually improving and updating their application based on the immediate feedback they 're getting from their users.

But the other type of ISV we work with are what I would call the more established, more traditional ISVs. And for them, you know, it's more of a challenge. I mean, there is clearly a major transition to go from a licensed model to a Software as a Service model. And we're working to help application vendors make that shift. But, you know, it's a very significant shift and not one to be taken lightly.

developerWorks: And hearing you describe this, it sounds like I'm sure that everything can't be delivered this way, but I would assume this means this signals a lot of change for the traditional in-house IT shop.

Mitchell: Well, it really does, and I think there's change all around here. I mean, yes, it's important not to get too caught up in the hype. I mean, there are clearly some segments of the market, some application areas that are going to move very quickly to the Software as a Service model. And some would say there are some application areas that have already migrated to SaaS.

I mean, you can look at CRM, you can look at areas like collaboration, Web conferencing, payroll. You know, a lot of the ... HR. I mean a lot of these front-office application areas are moving very rapidly towards Software as a Service. Yet there are other areas that are clearly going to move much slower. So some of the areas that require, you know, very heavy design.

developerWorks: Customization, right.

Mitchell: Design applications, yes. So heavy client applications like design and things like ... and some of the things like core financial data. Those things are going to move more slowly to Software as a Service model. But I would not say never. I mean, I think we'll find that, you know, the advances in technology, especially on the client side, I mean with things like Ajax, you know, the advances in the technology are making things that we didn't think were possible just a couple of years ago, you know, very possible in this SAAS model clearly on the ISVs. And then to answer your question, it is actually, you know, how customers, you know buy technology and the role of their IT department.

And there's also obviously an impact on the channel. I mean, the channel partners who are making their money today by distributing hardware, They need to look at this model, understand this model and see how their role needs to change.

developerWorks: Well, what about what IBM is doing in this SaaS area, and how would an ISV partner with IBM in this area? I guess that's a two-part question, but maybe go at that how you want.

Mitchell: Yes, sure. So I mean our major focus in Software as a Service area has been to work with our ISV partners. So just as we work with our established ISV partners to help enable them to IBM technology and help them go to market through our PartnerWorld program, so we've done the same with our Software as a Service. So what we did is we said well we know how to work with partners, we know how to work with ISVs, we have the industry-leading ISV partner program. Well, let's what from there, that's applicable to the SaaS vendors and then let's add what's unique about Software as a Service and create a program within the PartnerWorld umbrella, which is really focused on Software as a Service vendors.

So what we've done now for a few years is operate a Software as a Service partner program. And that partner program helps ISVs really around three main areas. The first one is all-around collaboration and enablement. So our focus there is to help ISVs learn about Software as a Service, meet other partners and other value-chain partners who can help them design and develop and then take to market their SaaS solutions.

developerWorks: Right.

Mitchell: And also help them with enablement. So if they're in a traditional license model today, and they want to move to SaaS, we have a lot of resources to help ISVs make that shift to the SaaS model.

So collaboration and enablement is a key part of our program, and we have a partner community. We actually have a SaaS community, which partners can join, free of charge, to get access to this research and these education and enablement tools. And we have 2,600 ISVs in our SaaS community today. So that's one area — all-around collaboration and enablement.

The second area is around delivery. So actually providing you with the tech ... you as an ISV with the technology you need to take your SaaS solution to market. And there we focus on three areas. The first one is managed hosting. Today, we have more than 150 ISVs, SaaS providers that are using our managed hosting to deliver their SaaS solution. So managed hosting is a big part of our proposition there. And clearly, you know, when customers look to buy SaaS solutions as we talked about earlier, you know, they want to know where this technology is being hosted. So if you can tell them IBM, that can really help allay some of the concerns they may have.

developerWorks: Right.

The other things we obviously offer them is software. We have the open standards software both at the price in the open source model, like the WebSphere® Community Edition and the DB2® Express C, as well as the commercial products, the DB2 and WebSphere and Tivoli®. And then the final area is obviously hardware and storage. And so we work with our SaaS partners to identify from those three areas, you know, what's the right mix of technology to help them go to market? And the third area is go to market. So you've got collaboration and enablement, delivery and technology, and then the third area is go to market. And really this is the most important one because, you know, all our SaaS vendors, they come to IBM, and they're very keen to see us, help them go to market.

And so we've actually created a specialty, a Software as a Service specialty, that provides our partners with the ability to use our branding, it helps them with awareness generate, and demand generation, and we provide them with marketing consultants to help them build their marketing plans and help them go to market.

developerWorks: So important because you have, you can have everything going and if nobody knows about it, it makes no difference, does it?

Mitchell: Well, this is it. The thing about the SaaS model is it's really a different way of marketing. I mean, you're not talking about the same distribution channels. You know, it's not a case of building a licensed product — you know, handing it off to a reseller and say, "Go sell." I mean, if you look at the SaaS model, you know, usually the SaaS model is much more around a Web sales model. So driving people to you Web site, providing things like free trials, 30-day demos and things like that. And trying, you know, to take action on your Web site, which you can then convert into a sale.

So it's a very different marketing and sales model around SaaS than it is from a traditional license product. And we have consultants who all they do day in, day out is work with SaaS vendors to help them create their marketing plans, and those are probably some of the most knowledgeable people in the industry about what it means to market a SaaS solution.

developerWorks: That's a very comprehensive offering you describe with the three parts. We'll mention this at the end, but I'm wondering if you want to mention where people go on the Web to get more information about this within PartnerWorld right now. Can they find it easily from the PartnerWorld home page?

Mitchell: Yes — it's very easy to find, but it's ibm.com/partnerworld/saas.

developerWorks: Well, that's easy.

Mitchell: And if you want to make it even shorter than that, you can go to ibm.com/isv/saas.

developerWorks: That should be easy to find. and we'll mention that both at the end of the podcast and I'll make sure in the show notes we have those links, too, for people.

I wanted to ask you another thing, Dave. When we were chatting ahead of this call, you spoke about SaaS ecosystems. And what exactly is that? And is that something else that IBM's doing things around that you want to mention?

Mitchell: Yes, absolutely. I mean, first ecosystems is almost within the world of SaaS which, you know, one could say is a very hot topic within the IT industry. Ecosystems is a hot topic within the SaaS community. And this is all about, well, how the companies both SaaS vendors, but also the companies that surround the SaaS vendors find each other and start to work with each other. And it's really very interesting because if you look at the SaaS vendors, we're seeing a lot of partnerships forming between SaaS companies. There's a great network happening here. I mean, it's very exciting, it's very innovative.

You know, what we find a lot of the times is these applications have been built on open standards. There's a lot of open source technology and this mentality, and I think it's also the Web 2.0 idea, you know, of social networking, collaboration. It's leading to just incredible levels of collaboration between SaaS vendors and other companies. So it's very exciting to see. And at the end of the day, it really benefits the customer.

And we want to try to foster those ecosystems and so we have actually created something called SaaSpace.com. So if you ... and that's the Web site, it's www.SaaSpace. If you go to SaaSpace.com, it's actually a Web site which is ... and the idea is it's kind of like a MySpace for SaaS, which is where we got the name from. It's the place where anybody, you don't have to be an IBM partner, but if you're interested in the SaaS world ... so let's say, maybe you're a SaaS provider, maybe you're an application provider who's offering a solution in a SaaS model. Or maybe you're a reseller or a systems integrator and you want to find out more and start meeting and working with SaaS vendors. Or maybe you're a venture capital company and you want to invest in SaaS companies. Maybe you're a consultant and you think you have the ability to help SaaS companies improve their business models. Or maybe you have a billing solution for SaaS companies. But really anyone who's involved in the SaaS area, this is a free site, all you have to do is be a member of PartnerWorld to join, and just like MySpace, you build your space within SaaS space. And you can go there and build a space and market your solution or your skills, and the idea is that other people in SaaS space find you, and you will be able to collaborate and communicate with them.

developerWorks: You must really love your job, Dave, being involved in something with such a, you know, such an evolutionary step around IT like this.

Mitchell: I mean, honestly, I think I have the best job in the company. I love it. I wouldn't be anywhere else, and this is an area that is, well, I've been in it for four years now. I feel we're just getting started.

You know, IBM's going to be doing a lot more in this area. We're going to have some announcements coming later in the year to make it easier for ISVs to build their SaaS solutions on IBM technology. So we've got some great things coming. And there's so much buzz around this in the market right now. We're really excited about it.

developerWorks: Any additional resources for developers that you want to mention that want to look into this topic some more beyond just the PartnerWorld site?

Mitchell: Yes. Actually, what we try to do is give our developers one site to go to, and then from there they can explore many different avenues. So the site to go to is the partnerworld/SaaS site. So that's the place to go. Some things that I would draw your attention to while you're there is the ability to get access to our Virtual Innovation Center. We have some great SaaS material on the Virtual Innovation Center. We've had more than 1,500 partners register for our courses on the VIC already. So they should go look at the Virtual Innovation Center. We also have a SaaS development environment available. So this is a free environment, where if you want to develop your SaaS solution, you can get access to a free development environment to do that.

And the other thing we have there are some great whitepapers and resources that you can get access to, free access to on some of the best practices in the SaaS area, and we're going to be building those up later in the year.

developerWorks: Excellent. You know, Dave, this has been very helpful. And it's been really fascinating to hear you talk about Software as a Service. We really appreciate your time today.

Mitchell: Great — thank you very much for having me.

developerWorks: Our guest again was Dave Mitchell, IBM program director for Software as a Service. Find links to many of the things mentioned here in the show notes for this podcast. You can find that at ibm.com/developerworks/podcast. That's all for this time. I'm Scott Laningham. Thanks for listening.

Resources

• IBM Software as a Service (SaaS)
  
  
• developerWorks community topics: SaaSpace
  
  
• Podcast blog
  
  

About the author

Scott Laningham, host of developerWorks podcasts, was previously editor of developerWorks newsletters. Prior to IBM, he was an award-winning reporter and director for news programming featured on Public Radio International, a freelance writer for the American Communications Foundation and CBS Radio, and a songwriter/musician.

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