Leading SaaS companies continue to drive a disproportionate 30 to 45 percent annual top-line growth as compared to on-premise software companies.
How do they do it? And why does the venture community continue to fund and investors continue to reward these SaaS companies with 5-10x valuations?
Looking for the common thread across successful SaaS companies, one discovers that their applications are all built on a multi-tenant architecture that gives them tremendous economies of scale. SaaS applications built on sophisticated multi-tenancy support thousands of customers on a single application instance and a single instance of the software stack (i.e. the operating system, database and application server).
The decision of “custom build” vs. “buy” of multi-tenancy technology can result in making or breaking a SaaS company. It is more than a technical decision; it is a strategic business decision that must be made at the highest level since it affects the entire company from sales to engineering to operations. In other words, it can be the difference between becoming the next Salesforce.com or going out of business.
Rather than looking at multi-tenancy as simply a technical decision, one should examine the broader picture as to why top SaaS companies like SuccessFactors who brag about their multi-tenancy are so disproportionately successful. It’s important to consider the full life cycle of SaaS:
- SaaS Readiness—implementing a robust multi-tenant architecture
- Operational Capabilities—operating and managing a SaaS business
- Ongoing Sustainability—evolving and growing a SaaS business
Most agree that multi-tenancy is the most effective way to scale a SaaS business. But how do you get there? Should you perform a custom build or buy a multi-tenant architecture? Before looking at this question, one should define and understand the architecture. At a minimum, a robust multi-tenant SaaS architecture should provide:
- Support for multiple customers on a single application instance with a single instance of the software stack
- A secure data access mechanism that ensures data security between tenants
- Support for frequent transparent updates
- Billing and subscription management capabilities
- Tools to manage and monitor a SaaS business
A robust multi-tenant SaaS architecture affects the full life cycle of a customer. It is not simply a technique to efficiently support multiple customers; it is much more than that. It allows a business to quickly bring prospects on-board, monitor how they are using the applications, convert them to paying customers, and efficiently bill and manage their subscriptions over time —hence, software as a service.
The wrong decision on custom build vs. buy can be costly, as the SaaS market is constantly changing with new competitors and solutions. Companies entering the market that are able to provide self-provisioning, free trials, rapid feature innovation, and insight on how their customers are using their applications have a distinct advantage in the market. In established SaaS markets, these advantages can be leveraged into taking market share away from incumbent providers. In new SaaS markets, these advantages can be leveraged by grabbing a “green field” share with a first-mover advantage, since time to market often plays a critical role in determining success.
The custom build approach requires building multi-tenancy into a SaaS application by weaving it into the application layer. Weaving in multi-tenancy throughout the application is a complex, error-prone and labor-intensive process. Besides, it only addresses the multi-customer component of a robust multi-tenant architecture.
Developing a robust multi-tenant architecture from scratch is an order of magnitude more expensive and more time-consuming than plugging in a middleware solution. Not only is it more expensive and more time-consuming, in the end it may not be a differentiating factor. Multi-tenancy is a necessary component for an efficient and scalable SaaS business model, but a feature-rich application that is constantly evolving is where the differentiation comes in.
Instead of weaving it in at the application level, the “buy” approach allows multi-tenancy to be plugged into an existing application without rewriting the application. This cleanly separates the application from the multi-tenancy component, similar to other middleware products such as relational databases and application servers.
A plug-in approach to multi-tenancy has significant business advantages:
- Reduced time to market—plugging in multi-tenancy allows you to bring a multi-tenant SaaS application to market in weeks or months instead of years.
- Reduced complexity with data security—dealing with multi-tenancy at the application level can be error-prone and is significantly more complex than dealing with it at a middleware level. A plug-in approach provides a proven secure data access mechanism that ensures data security between tenants. Errors such as one customer having access to another customer’s data can be catastrophic.
- Substantially lower cost-eliminates costs associated with recruiting, training and retention of specialized personnel who are experts in multi-tenancy and SaaS.
Operational Capabilities—Operating and Managing a SaaS Business
A basic multi-tenant architecture gets a company into the game. But the SaaS battlefield is about the second “S,” service—getting customers on board quickly while enabling them to have a unique environment that meets their needs. A multi-tenant architecture that simply supports multiple customers on a single code base ultimately falls short of the target. The architecture must also support the ongoing operational activities of the business in an efficient manner.
When the decision is made to do a custom build of a multi-tenant architecture, it’s easy to overlook the time, effort and cost required to build and maintain capabilities to support operations such as per-tenant customizations, self-provisioning, billing, and subscription management.
Other key components such as self-provisioning, billing, management tools, security and scalability are often overlooked after weaving multi-tenancy throughout the application. The cost, time and risk to fully develop a robust multi-tenant solution are often grossly underestimated.
A plug-in approach to multi-tenancy reduces time to market, complexity, and cost by providing:
- Scalable architecture—As the business grows, it scales up to handle a large number of tenants and users. Multi-tenancy also handles the elastic scaling of the underlying hardware as the volume of transactions increase.
- Self-provisioning—New prospects and customers receive streamlined on-boarding; for the SaaS provider, no operations or engineering resources are required.
- Per-tenant customizations—Each customer receives a tailored environment that does not have to be modified between application upgrades; for the SaaS provider, no operations or engineering resources are required.
- Out-of-the box integration for leading billing providers—reports can be easily created along with support for data exports.
On-going Sustainability—Evolving and Growing a SaaS Business
Sustainability is largely about delivering a SaaS solution with the lowest possible cost structure. In order to do that, the two largest costs -- support/operations staff and infrastructure (hosting and bandwidth) -- must be managed effectively. The previous section discussed how the support and operations resources can be reduced with a plug-in approach to multi-tenancy.
As the SaaS market continues to grow, there will be increased competition and lower prices among the infrastructure providers for hosting and bandwidth. As a SaaS provider, the ability to take advantage of lower infrastructure costs will be a key element in profitability and sustainability. Any multi-tenant architecture, whether made or bought, must be easily portable across clouds to take advantage of declining competitive prices in a maturing infrastructure market. A competitive advantage is gained when the SaaS application can be moved easily and as frequently as necessary in order to take advantage of these declining infrastructure prices.
Deciding to do a custom build of a multi-tenant application is similar to the decision to build a relational database. Although it is possible to construct a set of basic relational data structures, much of the value comes in the form of the auxiliary tools for data loading, backup and performance monitoring. These tools allow more effective utilization of the underlying technology.
This is no different in the SaaS world. To manage a SaaS business effectively, you need a series of dashboards and tools that will allow you to see the key metrics of your SaaS business (usage, feature coverage, etc.). In a custom build approach, the development and maintenance of these tools is yet another cost and risk that must be considered.
A plug-in multi-tenancy approach provides these sustainability advantages:
- Portability—The transformed SaaS solution can be deployed and easily moved between any public, private or hybrid cloud, leveraging the technology stack of the SaaS provider’s choice.
- Dashboard-driven management—A metric- and automation-rich environment provides key management data to all stakeholders in the organization including the sales, operations, product and executive teams.
When considering the “custom build” vs. “buy” decision for a multi-tenant SaaS architecture, one must evaluate all the development and maintenance costs for the architecture as well as the supporting tools. A team of engineers focused on converting your business toward multi-tenancy, is time taken away from building value-added core business solutions for your customers. In addition, the risks of delayed time to market, complexity and cost overruns must also be weighed. As many companies have found in this decision process, the “custom build” approach can take 5 to 10 times longer and cost 5 to 10 times more than a “buy” approach from a trusted and proven vendor.
Corent Technology offers a plug-in approach to multi-tenancy as discussed in this article.
For more information, contact Larry Aiken at firstname.lastname@example.org.
About Larry Aiken
Director of Marketing at Corent Technology, Inc
Larry Aiken has over 25 years of experience in the high technology industry in the areas of engineering, sales and marketing. His focus has been on marketing in the areas of product marketing, product management and alliance management. He has held positions with leading high tech and consulting companies such as Motorola, Oracle, Sun Microsystems and Booz, Allen & Hamilton.
About Corent Technology, Inc
Corent’s Multi-Tenant Server™ (MTS™) provides a smarter path to SaaS. It is a software “plug-in” that instantly transforms conventional software applications into robust multi-tenant SaaS (Software as a Service) solutions. Corent’s Smarter Platform for SaaS Transformation and Service Delivery not only helps clients avoid the time consuming and costly process of re-architecting their applications into SaaS, but provides them with a turnkey environment to deploy, operate, and manage their newly transformed SaaS solutions on any public, private or hybrid cloud with the technology stack of their choice while ensuring the lowest cost of service delivery.