The Multi-tenancy SaaS Argument – It’s a Vendor, Not a Customer Issue

I am sitting in Workday’s 2010 Technology Summit hearing the pitch about the supremacy of multi-tenancy, and despite their best efforts, Workday’s rationales about this key piece of SaaS orthodoxy are coming down solidly on the vendor side of the equation, not the user side. While the benefits that multi-tenancy can provide are manifold for the vendor, these rationales don’t hold water on the user side.

That is not to say that customers can’t benefit from multi-tenancy. They can, but the effects of multi-tenancy for users are side-benefits, subordinate to the vendors’ benefits. This means, IMO, that a customer that looks at multi-tenancy as a key criteria for acquiring a new piece of functionality is basing their decision on factors that are not directly relevant to their TCO, all other factors being equal.

The “other factors” issue needs explaining. The reason vendors think multi-tenancy is so important is that it is the best way to guarantee a low cost platform for customers – today. The problem is that perspective is based on an early adopter view of the SaaS market that has depended on the initial successes of relatively few companies in a very nascent market.

Multi-tenancy promises to age gracelessly as this market matures – there’s a tremendous amount of innovation that is being thrown at the SaaS platform cost problem, from virtualization to in-memory databases to huge advances in hardware that guarantees that multi-tenancy will not stand the test of time as the sole guarantor of cost-effectiveness in SaaS platforms.

This is why I believe, from a customer standpoint, this multi-tenancy technological choice issue is secondary to the real question that customers should be thinking about: is the total package offered by SaaS vendor X – functionality, cost, TCO, lots of happy customers, etc. – competitive with the total package offered by SaaS vendor Y. Full stop.

While multi-tenancy might be one way in which vendor X competes, it’s an “Intel-inside” factor that is irrelevant to the customer’s ultimate decision. If vendor X can outcompete vendor Y without relying on multi-tenancy, then vendor X deserves to win. How the issue of tenancy works for the vendor should be of little nor no importance to the buyer – to me it’s like worrying about the quality of the rubber in my car’s tires. If I were driving a high-performance car on a closed race circuit, I might want to worry about the rubber in tires. Otherwise, the chemical composition of the tire is irrelevant compared to its cost and functionality.

This is the basis of my argument with Workday about the competitive differentiation they offer on the technology side, and it mirrors my problems with Netsuite’s positioning as well. Most of the main benefits of multi-tenancy – every customer is on the same version and is updated simultaneously, in particular – are vendor benefits that don’t intrinsically benefit customers directly. What benefits customers is the ability to have a low TCO and a painless upgrade process, none of which is the unique domain of multi-tenancy. It’s definitely possible for a single tenancy vendor and an applications hosting company to both offer low TCO and painless upgrades while eschewing multi-tenancy, assuming their technology and business models are up to it.

That latter point isn’t meant as a throw-away, and any company not offering multi-tenancy will have to prove that they are up to the competitive task. But nothing in multi-tenancy gives its proponents an unbeatable position, it’s merely one of many technological directions that were important in the early stages of the market but less and less important as the market matures.

Customers want predictable pricing, elastic infrastructures, and, of course, an IT department-free implementation. Multi-tenancy is just one way to do that, but it’s hardly the only way today. And tomorrow, if the history of innovation is any indication of where the SaaS market is headed, multi-tenancy will be an also-ran, and we’ll be arguing about the new orthodoxy. Whatever that may turn out to be.