Ottawa, Canada
2009
Riding the Crest
of a New Wave:
How the Original
SaaS Companies
Have Gained the
Upper Hand
White Paper
A Knowledge Leadership
Publication By
Procurement Insights Author
Jon Hansen

Riding the Crest of a Wave: How the Original SaaS Companies Have Gained the Upper Hand
Table of Contents
EXECUTIVE SUMMARY: OUT IN FRONT OF THE PARADIGM SHIFT . . . ..................2
THE END OF AN ERA …... ……….. ………………………………………. . . . . ……………4
WHAT IS SOFTWARE AS A SERVICE OR SAAS? . . . .........................................................5
MODELLED FOR SUCCESS ......................................................................................................5
THE PERFORMANCE FOUNDATION.....................................................................................7
AGENT-BASED VERSUS EQUATION-BASED . . . ................................................................8
AN ADAPTIVE EVOLUTION BY DESIGN ….………………………….. …………………..9
A FINAL POINT . . . ...................................................................................................................10
ABOUT SOURCE ONE . . . ........................................................................................................12
Appendices
APPENDIX A ...............................................................................................................................15
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Riding the Crest of a Wave: How the Original SaaS Companies Have Gained the Upper Hand
Executive Summary: Out In Front of the Paradigm Shift
With tier one vendors such as Ariba and SAP moving into the SaaS space, a
model upon which organizations such as Source One’s reputation and
business have been built, it is in effect an admission that the traditional
licensing model does not work.
Because of what can only be described as a monumental shift (remember
the old analogy about big ships turning slowly), overall awareness and
acceptance for SaaS-based or on-demand solutions is on the rise. And with
it, the players who are and have already defined this new paradigm.
As a solidly established SaaS vendor Source One, who does not receive a
single cent for their strategic sourcing services until they deliver to their
clients’ expectations, is indicative of the how the industry is truly evolving.
And unlike the mega-projects of yesteryear, when the lion’s share of the
costs were born by the client before the “projected savings” were realized,
Source One’s “trailblazing” approach has helped to pave the way for a
contingency-based pricing model that has been long overdue.
And while “traditional model” vendors like Ariba are now claiming that
they are in “the on-demand business” having just reported “a 71 percent
leap in subscription software revenues,” does not necessarily mean that they
are truly an on-demand company. After all, proficiency in delivering under
the SaaS model is not based upon an internalized increase in subscription
revenues, but is instead tied to an historic performance record in terms of
meeting and exceeding customer expectations.
So rather than heralding a triumphant entry into a new phase of a successful
business, Ariba’s historic performance would tend to indicate that the move
into the SaaS world was predicated more on admittance that their old model
did not work. This latter point is driven home by the fact that between 2001
and 2005, the company lost $3 billion on $1 billion in sales.
This of course would lead me to ask the million, or in the case of Ariba
billion, dollar question; “if they could not make it work under the old
model, why would they be able to make it work with a new pricing
structure?”
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Riding the Crest of a Wave: How the Original SaaS Companies Have Gained the Upper Hand
The fact remains, that now is the time for the original and true innovators
such as Source One to emerge from the shadows of trailblazing to assume
the mantle of broad, mainstream acceptance as the new standard for e-
procurement/supply chain solutions and services.
The purpose of this paper is to delve into the foundational elements of the
key differentiators between what I refer to as the original SaaS innovators
and the “interlopers” whose ability to deliver results will not likely change
despite heralded announcements of a new day.
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Riding the Crest of a Wave: How the Original SaaS Companies Have Gained the Upper Hand
The End of an Era
“Seth Godin predicts the end of installed software in a recent post and really
hits the nail on the head
Salesforce.com popularized this craze in the CRM world and rivals soon
emerged (see Netsuite’s impending IPO). You know they are on to
something when Microsoft, king of the installed software world, enters the
space. Microsoft has announced an on-demand version of its CRM offering,
Dynamics. Not only will it have functionality mirroring Salesforce’s, but
they will price it at roughly 40% less in a bid to capture market share.”
from the B2B Marketing ROI Blog
The end of installations, by Adam Blitzer
October 4, 2007
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Riding the Crest of a Wave: How the Original SaaS Companies Have Gained the Upper Hand
What is Software as a Service or SaaS?
While research indicates that the term Software as a Service originated as a
concept prior to 1999, its revelation within the mainstream has largely been
credited to a 2000 white paper titled “Strategic Backgrounder: Software as a
Service.”
According to the acknowledgements this paper, which was written and
published in February 2001 by the Software & Information Industry
Association’s (SIIA) eBusiness Division, “grew out of discussions between
SIIA staff and a growing contingent of association members who,” at the
time, were “either evaluating or entering the Software as a Service (SaaS)
market.”
In its opening paragraph, this seminal effort to explain the evolution from
traditional licensing models in which “packaged desktop and enterprise
applications will soon be swept away by the tide of Web-based, outsourced
products and services,” accurately establishes the core principles or elements
of the SaaS or on-demand model. Specifically, that the new model will
“remove the responsibility for installation, maintenance and upgrades (and
the associated heavy costs) from over-burdened MIS staff.” And that as a
result “packaged software, as a separate entity will cease to exist.”
Even though the paper at the time of its publication stressed that “due to
technical and business issues, such drastic predictions,” had not yet
happened, it nonetheless sent up the first flare indicating that a change was
definitely on the horizon. A change that has in fact affected “all participants
in the software industry.”
Modelled for Success?
In numerous articles, papers and posts over the years I have often expressed
my position that the fee structures associated with traditional software
licensing models had very little to do with the viability of the enterprise
application being installed, or the actual results that it was expected to
ultimately deliver. In fact my research had clearly demonstrated that at
minimum, 85 percent of all enterprise application/IT initiatives worldwide
failed to deliver the expected results.
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Riding the Crest of a Wave: How the Original SaaS Companies Have Gained the Upper Hand
This of course led to the obvious question, what are the fees associated with
an End User License Agreement (EULA) which included software
maintenance, ongoing operation patches, and patch support actually based
upon? What was really behind the somewhat complex (some would even
suggest obfuscated) pricing structures involving seat numbers or licenses per
users or devices?
The answer to this question can be found in a March 16, 2009 article from
Procurement Leaders Magazine that appeared under the heading, “Ariba is
in demand claims finance chief.”
While revealing that “the first quarter was traditionally the toughest for
Ariba,” and that this year marked a definitive change in the company’s Q1
fortunes,” CFO Ahmed Rubaie’s reference to the organization’s “heady
dotcom past” was telling. Specifically, his statement that “The only thing
we carry that’s related to the legacy Ariba is the name, the logo, $2 billion
dollars of tax nols (net operating losses in the US), and an albatross of a
lease in Sunnyvale California.”
Rubaie concluded that Ariba “is a drastically different company today, and
now operates under a “drastically different leadership team and model.”
Based on the above, it would appear that traditional licensing fees had more
to do with supporting a business model that ultimately did not work. Now I
may be missing something here, but this is hardly the solid foundation of
success upon which a “new” model can be reliably built.
In my March 4, 2009 Procurement Insights post (There’s a slow, slow train
comin’ up around the bend: Epilog for the Ariba Interviews), I observed that
the “only real question that remains is how will the market respond as albeit
smaller but more nimble and technologically seasoned vendors who have
been in the SaaS space from the beginning emerge to compete directly with
what was undoubtedly one of the industry’s former traditional model
titans?” A titan I added, that “racked up enormous losses that if not for a
war chest that rivalled that of a small country might have fallen prey to
becoming a distant memory of a failed experiment.”
The experiment of course was the “big up front pay, future ROI programs
associated with the old school licensing models” that never seemed to live
up to expectations. At least not from the standpoint of the client who saw
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Riding the Crest of a Wave: How the Original SaaS Companies Have Gained the Upper Hand
the majority of a program’s promised savings dissipate into a tangled morass
of change management strategies and increased consulting service costs.
Don’t get me wrong, this diminished return on client investment was not
limited to Ariba alone, as industry giants such as Oracle and SAP have with
surprising frequency, also missed the mark in terms of expected outcomes.
This again prompts the question, can you transition a poorly executed
application platform that has routinely failed to deliver results to one that
can meet or exceed client expectations through the introduction of a new
pricing model?
The Performance Foundation
“History,” claimed Winston Churchill, “is written by the victors.” He also
said that “history will be kind to me for I intend to write it.” I have often
referred to this quote in previous work because it demonstrates that it is not
necessarily how one starts the race, but instead how one finishes the race that
matters.
Very few people for example will remember that CP/M was the first
operating system for the microcomputer. Even the youngest of PC users will
have some indirect knowledge of Microsoft’s DOS operating software,
which served as the stepping stone to the ubiquitous Windows platform that
dominates the global infrastructure of high speed computing today.
Based on this, it is possible and perhaps even reasonable to presume that
even though an Ariba is a “late comer” to the on-demand world, their sheer
size and presence would serve as an equalizer with those vendors who have
slowly evolved from within the SaaS framework and quietly grown into
mature, reliable vendors with a proven performance history.
However the on-demand world, and more specifically the solutions upon
which it has and is being built, is vastly different from the applications that
have been produced under the traditional licensing model banner. It is not
merely a matter of semantics or payment plans, but is instead tied to a
difference that exists within the very foundations of the on-demand
solution’s structure and adaptive qualities. Qualities that are largely absent
from the enterprise applications with which the market has been most
familiar.
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Riding the Crest of a Wave: How the Original SaaS Companies Have Gained the Upper Hand
Agent-based versus Equation-based
“A true centralization of procurement objectives requires a decentralized
architecture that is based on the real-world operating attributes of all
transactional stakeholders . . . in other words, your organization gains
control of its spend environment by relinquishing centralized functional
control in favor of operational efficiencies originating on the front lines.
This is the cornerstone of agent-based modeling.”
When I wrote this excerpt from my 2005 white paper titled “Acres of
Diamonds: The Value of Effectively Managing Low-Dollar, High
Transactional Volume Spend, I based its premise on extensive research into
the utilization of an agent-based model operating within the framework of a
Metaprise platform.
A Metaprise or centralized private hub is the intelligent conduit that
connects and manages the seemingly disparate (and dynamic) relationship
between various internal and external stakeholders on a real-time, real-world
basis to achieve the desired “best value” outcome at that particular point in
time. As a means of providing some context, Source One, and more
specifically its solutions and related services, acts as a centralized hub.
Solutions that are developed in accordance with an agent-based
methodology, otherwise referred to as meta-enterprise applications, deliver
an on-demand capability that provides the purchaser with the needed insight
or intelligence to consistently make the best spend decisions possible.
Unlike the equation-based models or platforms upon which traditional, ERP-
centric applications have been built, on-demand solutions represent the
future of eProcurement/supply chain application development. A future that
has now arrived, and signalled by the first of what is likely to be several
migratory strategies starting with Ariba.
This is one of the reasons why, in his August 30, 2007 article titled “Small
fish, big sea” business writer Mike Ouellette identified the on-demand
“hosted ERP and SaaS” models as a “potential competitive advantage for
smaller ERP-type providers.”
A sentiment that was echoed around the same time period by the ARC
Advisory Group’s Simon Bragg. And even though Bragg later suggested
that the ability to “exploit niche markets,” was not necessarily within the
8

Riding the Crest of a Wave: How the Original SaaS Companies Have Gained the Upper Hand
sole domain of the small provider, as players such as SAP and Oracle “are
getting exceedingly good at identifying niches which could be served with
only minor tweaks to their core products,” he did not provide the data or
basis to support this latter claim.
An Adaptive Evolution by Design, Rather than Necessity
Where Bragg missed the mark was his emphasis on a niche market. This
implied a limitation of opportunity whereby, and for the time being, the
smaller players were better positioned to serve for example the SME
community.
What he did not touch on of course was the consistently high-rate of
initiative failures that plagued the majority of implementations that were
associated with the larger players operating under a traditional, equation-
based licensing model within their supposed indigenous client market.
And it is this “gap” in serviceable results, regardless of client company size,
that the smaller on-demand vendors like Source One are best equipped to
address through their historic focus on strategic areas of an enterprise’s
overall supply chain practice. In short, the advantage is not linked to an
untapped market where it is only a matter of time before the big boys catch-
on and catch-up.
It instead goes much deeper than that, into the very core foundational
elements under which the applications themselves have been developed, and
the related service value delivered.
In the case of Source Once, who provides strategic sourcing capabilities on a
global scale for clients whose annual sales range between $500 million and
$10 billion, it is their “proprietary database of commodity information”
which distinguishes their offering. Information that includes critical data on
suppliers, products, service levels, prices, industry tariffs/regulations, and
specifications for over 70,000 product and service terms structured into
multiple categories across all industries.
This competitive advantage, which is not confined or limited to a particular
market niche, was compiled through the utilization of an agent-based
solution that “evolved” or matured over a period of 17 years. In other
9

Riding the Crest of a Wave: How the Original SaaS Companies Have Gained the Upper Hand
words, they haven’t just “revamped” their business model retaining only a
small segment of a past life, in an effort to finally succeed.
In fact, Source One’s expertise (and value) actually extends even beyond the
capabilities of a SaaS or On-Demand model, as their indigenous knowledge
platform which includes their proprietary commodity information data base
builds on a history of proven results. And it is for this reason that Source
One confidently provides their solutions and services within the framework
of a “pay-for-results-only” SaaS model.
A Final Point
Referencing the Churchill axiom that history is “written by the victors” the
importance of a solid track record for delivering results cannot be
underestimated in terms of predicting future success.
If we place a high degree of importance on past performance when selecting
a vendor and their corresponding solution, then the following excerpt from
an article that appeared in the May 2008 Outsourcing Journal will go a long
way toward favoring the services of a “technologically seasoned” on-
demand veteran like Source One.
In the article, the CFO for Source One’s client Spraylat Corporation
“enthusiastically proclaimed” that the vendor “blew right past the targeted
numbers we set and came up with savings we never dreamed of.”
The CFO then added, “We ended up paying them more for our two-tier
pricing than if we’d gone for their original offer, but we saved more than we
ever expected. They are truly professional sourcing experts.”
If I were asked to sum up the differences between traditional licensing
models, and on-demand models, as well as the differences between agent-
based solutions versus equation-based applications, I would probably say
that with the former you will pay less for more, while with the latter you will
pay more for less.
The only question that remains is what organization you believe is better
positioned to deliver the best results; the one that has been in the on-demand
world from the beginning, or the one who has just recently fled to it? I
believe that the answer is pretty clear.
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Riding the Crest of a Wave: How the Original SaaS Companies Have Gained the Upper Hand
Source One Operates Under A Set of Guiding Principles
Source One is a completely independent third-party consultant. Unlike many other organizations in the procurement consulting industry, Source One Never
Accepts referral fees, agency fees or commissions from suppliers. We work on exclusively on behalf of our clients and ensure they are getting the best value for
their procurement initiatives.
Source One is unique. We live by a set of Guiding Principles that set us apart from the rest of the industry.
Our Guiding Principles:
 Reward for Value... It's a matter of principle and practicality...Our contingency model holds us accountable for achieving results. We must produce value.
 Exceed Expectations... Continually move the bar higher.
 Treat People Like People... People are not customers, employees, suppliers... People are People. Treat People Well.
 Always with Integrity... There is no compromise.
 And Do It Together... Team, Collaborate, Share.
Source One recognizes that the lowest cost purchase is not necessarily the highest value purchase. Consultants that focus exclusively on the bottom line often
loose focus of the needs of the organization they set out to assist. Source One will work with our sponsors to ensure the best total value solution is implemented in
our client's organizations and will help you sell the initiative internally.
Strategic Sourcing
Throughout our 16 year history, Source One has sourced over one billion dollars worth of products and services for our clients. On average, our clients saved 18%
on their total procurement costs. For details of some recent strategic sourcing projects, please take a moment to read our Case Studies and review our Results.
To see a sampling of our previous and current clients, please click here.
To read strategic sourcing success stories and case studies, please click here.
Procurement
Source One is a Procurement Service Provider that has been assisting companies with their strategic sourcing and procurement initiatives for over 16 years. We
bring an entrepreneurial spirit to Strategic Sourcing and Procurement, and realize that the internal selling of your initiatives and your organization's total buy-in is
imperative to the success of the initiative.
To read more about our procurement change management services, please click here.
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Riding the Crest of a Wave: How the Original SaaS Companies Have Gained the Upper Hand
About Source One Management Services, LLC
Our services help clients optimize their performance and profitability
through cost reduction and process improvement in their Strategic Sourcing
and Procure-to-Pay operations. Source One has built a strong and diverse
staff with collective industry experience in Strategic Sourcing, Procurement
Best Practices, e-Sourcing (visit www.whyabe.com), Project Management,
Negotiation, Telecommunications, Logistics, Inventory Management,
Purchasing Management and Strategic Planning.
We tailor our services to the unique needs of our clients using creative
sourcing strategies, our visibility into billions of dollars of spend, and state
of the art technology. This enables us to achieve superior results for our
clients.
Since 1992, Source One as serviced a diverse, global client base that has
included customers such as Exelon, Amerigas, L3 Communications, Lincoln
Education, Universal Health Services, Eileen Fisher and Teva
Pharmaceuticals. For more information, visit www.sourceoneinc.com.
© Procurement Insights 2008-2009
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Riding the Crest of a Wave: How the Original SaaS Companies Have Gained the Upper Hand
About the Author
Jon Hansen has studied and written extensively about e-Procurement and the
changing face of procurement around the globe. In addition to being a
highly acclaimed international speaker, his Procurement Insights Blog
reaches 300,000 syndicated subscribers each month worldwide, and is
currently available in several languages. He has written more than 200
articles and papers on subjects ranging from supply chain optimization and
the utilization of agent-based modeling in the software development process
to the evolution of sustainable purchasing practices and the impact of
traditional ERP-centric implementation methodologies on the high rate of
supply chain initiative failures. Funded by the Government of Canada’s
Scientific Research and Experimental Development (SR&ED) program Mr.
Hansen’s work in both identifying the existence of Commodity
Characteristics as well as defining and recording their impact on “best
value” purchasing practices represented a seminal breakthrough that led to
the establishment of new theories surrounding the practical utilization of
synchronized platforms in achieving sustainable coordinated savings and
overall process efficiencies.
Other white papers by Jon Hansen:
The Greening of Procurement: How Social Consciousness is Re-Shaping
Procurement Practices
Talent Attraction and Retention in a Global Economy
SAP Procurement for the Public Sector
Preserving Supply Base Integrity During an Economic Downturn
Yes Virginia! A Profile in Excellence
To obtain copies of the above referenced white papers, or to inquire about
Jon’s availability to speak at your next conference or seminar contact
Jennifer Cameron at jenncameron@sympatico.ca, or 819-986-8953.
13

Riding the Crest of a Wave: How the Original SaaS Companies Have Gained the Upper Hand
Riding the Crest of a
Wave: How the
Original SaaS
Companies Have
Gained the Upper
Hand
White Paper
Appendices
14

Riding the Crest of a Wave: How the Original SaaS Companies Have Gained the Upper Hand
APPENDIX A
Pages 2, 6 (Ariba Announcement Reference); There’s a slow, slow train
comin’ up around the bend: Epilog for the Ariba Interviews, Procurement
Insights (March 4, 2009)
Page 4 (The End of an Era Reference);
http://b2bmarketingroi.com/2007/10/04/the-end-of-installations/, from the
B2B Marketing Blog, The end of installations, by Adam Blitzer (October 4,
2007)
Page 5 (Software as a Service Reference); http://www.siia.net/estore/ssb-
01.pdf , from the “Software as a Service: Strategic Backgrounder” white
paper, by the Software & Information Industry Association (SIIA)
(February, 2001)
Page 6 (Ariba “in demand” Reference);
http://www.procurementleaders.com/news/latestnews/ariba-in-demand/,
from the Procurement Leaders Executive Network, Ariba is in demand
claims finance chief, Latest Procurement News (March 2, 2009)
Page 8 (Acres of Diamonds Reference);
http://www.edocr.com/doc/664/acres-diamonds-value-effectively-managing-
low-dollar-high-transactional-volume-spend, from the “Acres of Diamonds:
The Value of Effectively Managing Low-Dollar, High Transactional
Volume Spend” white paper, by Jon Hansen (September 2005)
Page 8 (Small fish, big sea Reference);
http://www.canadianbusiness.com/innovation/article.jsp?content=20070830
_095911_5596, from the ERP: Small fish, big sea article, by Mike Ouellette,
Canadian Business Online (August 30, 2007)
Page 10 (Outsourcing Journal Reference); http://www.outsourcing-
journal.com/may2008-sourceone.html, from the Source One Provides End-
to-End and On-Demand Strategic Sourcing Solution for Mid-market
Companies article, by Kathleen Goolsby, Outsourcing Journal (May 2008)
15