The Next Web Apps Architecture: Challenges for SaaS Vendors

44 IT ProSeptember/October2011 P u b l i s h e d b y t h e I E E E C o m p u t e r S o c i e t y 1520-9202/11/$26.00 © 2011 IEEE

The FuTure oF Web Apps

Stéphane Gagnon and Véronique Nabelsi, Université du Québec en Outaouais

Katia Passerini, New Jersey Institute of Technology

Kemal Cakici, International Finance Corp.

Many vendors dream about making it big in the cloud, but licensing Web apps is a fiercely competitive market with rampant risks. Software as a service must overcome several challenges to prove itself as a successful business model.

Cloud computing was the key buzzword of 2010 in IT media, confirming Gart-ner analysts’ prediction that it would be the year’s top trend and leading

them to predict similar excitement in 2011.1

Software and Web apps vendors are indeed buy-ing into the promise of cloud expansion, with both large and small businesses increasingly consi-dering this form of application delivery.2,3 Unfor-tunately, too many developers are envisioning unlimited demand, overlooking obstacles to busi-ness adoption, and designing complex products with short life spans—in effect putting their businesses on a straight road to bankruptcy. IT leaders look-ing at Web apps solely from a technical feasibility viewpoint fail to understand the industry dynamics and the market-related and legal risks involved.

We offer a reality check of the Web apps land-scape, where cloud technology could replace tradi-tional Web architectures in key market segments.

We begin with an outline of the cloud industry ecosystem and analyze the implications for the next Web apps architecture.

The Cloud Industry EcosystemCloud computing comprises three service models4:

• software as a service (SaaS), which delivers device-independent Web apps with Web ser-vices extensions;

• platform as a service (PaaS), which hosts a development environment for mashing up composite processes and apps; and

• infrastructure as a service (IaaS), which deploys high-end apps configured for elastic comput-ing resources.

The software layer seems to be a good proxy for the entire cloud industry. Over the next five years, industry analysts predict a 15 percent

The Next Web Apps Architecture: Challenges for SaaS Vendors

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compounded annual growth rate for SaaS demand, while the overall soft-ware market is growing at a rate of just 5 percent.5 Gartner estimates that worldwide vendor revenues reached $9.2 billion in 2010, with content, communications, and collaboration being the most active segment ($2.9 billion), followed by customer re-lationship management ($2.6 billion).5

As new SaaS and other cloud vendors continue to enter the mar-ket, new business models will likely emerge, refined to better address customer needs. Figure 1 presents six key players in the cloud industry, grouped according to the value-added service they provide.6

InfrastructureThis group includes providers of utility-type services for hosting enterprise applications and computing workloads. It also includes firms that support quality-of-service (QoS) monitoring or that provide services focused on keeping the cloud fast and clean—such as network, storage, or caching services.

An important but often overlooked comple-ment to this group are new providers offering centralized Web-centric identities as well as ser-vices that combine subscriptions, usage, and bill-ing management.

PlatformsThis group includes diverse commercial and nonprofit organizations and individuals. The key to PaaS is using common languages and stan-dards to integrate services in composite applica-tions. Fully integrated PaaS will play a significant role in offering complete integrated development environments (IDEs), which could eventually replace traditional on-premise platforms.

The other entities represented—open source projects and standards organizations—are di-verse stakeholders sharing a common interest in the emergence of PaaS as a new channel for tech-nological innovation.

SoftwareThis group includes end-user companies. It also includes SaaS vendors and the SaaS

marketplaces (formerly called business services networks) in which they’re listed, where they can centralize their subscription and billing features.

SaaS vendors might come to rely increasingly on cloud resellers—a group of SaaS integrators with solid reputations who will pay the SaaS vendors a fixed license fee to build packages and market value-added applications that resell certain products. Cloud distributors might also emerge as key intermediaries by building and le-veraging rich catalogs of software and data ven-dors, charging end users for order-routing and QoS assurance services.

ServicesNot to be confused with the traditional IT ser-vices companies, this group provides support services for SaaS platforms that create value for the end users. Given the strategic importance of regulatory compliance, formal SaaS auditors will emerge as crucial partners for SaaS vendors. Product certification agents will play a similar role but will focus on conformance to technology standards as opposed to regulation.

Security and privacy will remain crucial chal-lenges on the Web, so cloud-service end users will need proper insurance services, possibly sold by cloud distributors. Vendors will also need to automate the management of legal issues, such as service-level-agreement negotiation, availabil-ity or service default management, and warranty and recovery services.

Figure 1. The cloud industry ecosystem. The industry’s key players are grouped according to six value-added services.6

Product certification

Development

Audit and compliance Insurance and legal

Developmentenvironments

Cloud resellers

Standardsorganizations

Servers, networks,and quality of service

Identities, billing,and subscriptions

SaaS vendors SaaS marketplaces

Cloud distributors

Testing

Reuse

Consulting

Integration

Outsourcing

CommunitiesPartners

Services

Open sourceprojects

Software

Platforms

Infrastructure

SaaS customers

1

2

3

4

5 6

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46 IT ProSeptember/October2011


PartnersCompanies in this group are the traditional IT services companies. Enterprise system consult-ing, integration, and outsourcing services have all proven dominant players in fueling the growth of most software industry segments. They’ll also determine the survival of small and mid-size vendors.

CommunitiesThis group remains an important class of indus-try actors who play roles similar to those in the open source movement and Web development industry. Knowledge sharing among developers and testers has been essential to most IT vendor strategies, both for new entrants and incumbents. A new category of communities focused on ser-vice reuse might also emerge to become a kind of “service referral” system. These communities could become a user-friendly entryway to help new customers learn how to integrate complex cloud and SaaS offerings.

Implications for the Web Apps ArchitectureAlthough cloud services could replace the tra-ditional Web apps architecture, the exact tech-nology mix could depend on the growth and coexistence of private, public, and hybrid cloud environments. Recent research on cloud business models reveals many unresolved issues.7–13 We summarize these issues in Table 1, focusing on research that presents the developer’s viewpoint and signals a major shift in development toolkits.

One key issue for developers is the increasing challenge of flexibility, not simply in applica-tion functionality but also in development envi-ronments. More agile, adaptable solutions must combine SaaS and PaaS while simultaneously allowing enterprise customers the flexibility they need to meet evolving business requirements. Composite applications, relying on Business Process Execution Language (BPEL) in a multi-tenancy environment, will also become a key to product differentiation and lead to more innova-tive Web-enabled enterprise systems. Finally, a range of support services, depicted at the bottom of Figure 1 (consulting, integration, and outsourc-ing), will become crucial to building trust in the market and driving more vendors and customers to invest in cloud services development and reuse.

Cloud Industry ShakeoutMany software and Web apps vendors will even-tually overcome their business model risks and challenges. However, beyond present-day capa-bilities and offerings, which are bound to evolve radically, new problems might emerge in the im-pending cloud industry growth and shakeout. The services industry seems to be following a path similar to that taken by the mobile apps in-dustry (see the related sidebar).

Cloud innovation has undoubtedly come from emerging vendors, but as large vendors—such as IBM, Microsoft, Oracle, and SAP—start entering the industry, they raise some interesting ques-tions. We venture some predictions in answering them here.

Table 1. Recent research on cloud business models.

Research contribution Risks and challenges Implications for Web apps

Vendor classification by service type and pricing model7

pay-per-use is most common, but dynamic pricing is more economical

Commodity services will become the basis for reselling value-added services

Issue clustering by strategy, implementation, and policy8

Lack of industry leadership and standard practices is slowing adoption

standards and regulations will become determinant design factors

Vendor security, privacy, auditability, and service-level-agreement assessment9

Transparency is improving, but independent scoring methods are lacking

Vendors will need to design services for real-time auditability

Layered view of cloud infrastructure and services10

Data center automation must be improved to integrate seamlessly

Developers will continue to be tied to low-level server configurations

business process execution Language (bpeL) provisioning in a multitenant environment11

Current servers require multiple instances and need new access controls

saas vendors will extend products with bpeL design and maintenance

Framework to enable bpeL multitenancy on paas12

Need more customization for business process Management (bpM) rules, events, interfaces, and mashups

paas vendors will need to interact with off-premise bpM development

subscription-based broker for saas vendors13

persistent trusted environments are rare, and pricing models are still emerging

saas brokers will become key to cloud growth and vendor alignment

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Will Large Vendors Prevail?Large vendors will likely take over the industry. However, they’ll be mostly IaaS vendors, moving away from core infrastructure innovation (which will rapidly become commoditized) and toward innovative SaaS and support services.

Will New Standards Emerge?We’ll get new standards, but until then, this could be a show stopper. Standards organizations depend on industry leaders, as evidenced by the mobile apps industry. The lack of such leadership in the cloud is preventing progress.

Will Developers Adjust?Developers will likely follow a similar learning curve witnessed with SOA, BPM, Web 2.0, and Web 3.0 technologies. Off-premise development remains an anathema to most organizations, and business innovation depends on a requirements-driven IT shop.

Will End Users Trust Vendors?This will take time. The main issue will be whether IaaS and PaaS vendors can properly in-tegrate the critical success factors identified by recent research (see Table 1). As with the mobile

Lessons from the Mobile Apps Industry Shakeout

Over the past seven years, core wireless operators have leveraged their privileged position in the

mobile apps value chain. Figure A shows how they shaped strategic alliances with vendors, playing four integrated roles driving the innovation cycle.1

Cloud vendors can learn from the mobile apps industry. smaller vendors have remained the key value chain innovators, while the overall innovation cycle has been driven by wireless operators.1 Large Iaas

vendors will likely emerge to play a similar “utility” role for Web apps and saas.

Reference1. K. passerini et al., “opportunities in the Digital

economy: redefining the Value Chain of Wireless

Telecom operators,” Proc. Am. Conf. Information

Systems (AMCIs 04), Am. Assoc. Information systems,

2004.

Figure A. The mobile app innovation cycle.1 Cloud vendors can learn from the mobile apps industry.

Connectivity• Public/local integration• Embedded sensors• QoS optimization

Optimize:• In-network use• Identity sharing• Data sourcing• Timely info• Task planning• Billing

Channel:• Seamless move• User privacy• Task switching• User guidance• Location advice

Enrich:• Relationships• Collaboration• Productivity• Customer loyalty

Aggregate:• Workspaces• One-stop shop• Anchor partner• Trusted source• Open applications

Devices• Handheld/tablet PCs• Phone/PDA integration• Entertainment pods

Intelligence• Ubiquitous searches• Context awareness• Access management

Applications• M-commerce portals• Enterprise portals• Web services

Wireless network provider Content aggregator model

Shared services provider Customer liaison model

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industry, trust grows with vendor automation and transparency.

Will Profit Margins Be Sustainable?Profit margins will be extremely volatile until large IaaS and PaaS vendors integrate the nec-essary networks of SaaS vendors and supporting partners and communities. Innovation will re-quire a solid cash flow that IaaS can best capture, again something we’ve seen in the mobile apps industry.

SaaS Architecture: Risks and ChallengesVendors’ ability to address the inherent risks and challenges of Web apps and the SaaS architec-ture will determine the outcome of the cloud in-dustry shakeout.

Overcoming IT leaders’ natural inclination to focus on technical feasibility requires integrating the business and technical issues. We propose taking a “cloud transaction” perspective from four viewpoints when commercializing SaaS components and solutions:

• vendors, • marketplaces,• customers, and• infrastructure.

We’ve identified 20 issues regarding transac-tional automation between industry players (see Figure 2).14

Issues to consider in terms of the vendors include

• Inventory: What SaaS components, applica-tions, and processes available inside an app portfolio are likely to succeed in the cloud?

• Refactoring: How can the code and processes be refactored and SaaS-enabled to favor cloud reuse?

• Mining: How can we identify components and processes that meet stringent SaaS and cloud requirements?

• Composition: What new standards and develop-ment tools are needed to automate the com-position of cloud-grade services, applications, and processes?

Figure 2. Software as a service (SaaS) risks and challenges.14 These can be categorized into four main perspectives: vendors, marketplaces, customers, and infrastructure.

1. Inventory

2. Refactoring

3. Mining

4. Composition

5. Development

6. Publishing

7. Pricing

8. Marketing

9. Discovery

10. Testing

11. Benchmarking

12. Evaluation

13. Contracting

14. Payment

15. Integration

16. Delivery

17. Security

18. Balancing

19. Monitoring

20. Compliance

Vend

or is

sues

Mar

ketp

lace

issu

es

Cust

omer

issu

esIn

fras

truc

ture

issu

es

Vendor 1

Customer 1 Developer

Marketplace

Customer 2

Web

1

2

3

4

5

6

Developer

16

11

7 8

9

1012

13

14

15

Vendor 2

Integrator

17

18

19

20

Legend:

Manual transactionsAutomated transactions

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• Development: How should we adjust develop-ment methods and IDEs around PaaS to blend application, software, market, and venture development methods?

The marketplace issues involve

• Publishing: What new standards should we de-velop to make it more seamless to publish and understand SaaS product features?

• Pricing: How should we price new SaaS offer-ings to ensure competitiveness and stability in market demand?

• Marketing: How should SaaS solutions be seg-mented, bundled, and aligned with the neces-sary sales process?

• Discovery: What new standards should we develop to automate the discovery of SaaS components?

• Testing: What framework will allow automated testing and validation of SaaS products?

When taking the customer perspective, it’s im-portant to consider

• Benchmarking: How can end users benchmark applications and identify the need for adopt-ing SaaS-enabled components, applications, or processes?

• Evaluation: What decision models are most effective in evaluating how new SaaS products meet requirements?

• Contracting: How will SaaS adoption depend on automated negotiation, contracting, licensing, authorization, and configuration?

• Payment: How should SaaS consumption be billed, and what new intermediaries will emerge to ensure a strong and stable market?

• Integration: How should adopters prepare in-house applications for the risks of integrating and deploying new SaaS-enabled solutions?

Finally, infrastructure issues deal with

• Delivery: What new standards should be devel-oped to ensure flexible and reliable delivery of SaaS-enabled solutions?

• Security: How should we integrate SaaS-related security and privacy standards to ensure products that better meet global business requirements?

• Balancing: How will SaaS-enabled applications perform once they depend on a secondary market for excess capacity?

• Monitoring: How should we adjust enterprise application management to monitor both oper-ations and commercial issues of SaaS-enabled solutions?

• Compliance: How can SaaS real-time monitor-ing support more efficient regulatory compli-ance and also reduce the risks associated with component commercialization?

These 20 issues represent a starting point for helping decision makers assess the cloud archi-tecture’s value.

Emerging cloud offerings are merely sin-gular products of a vast ecosystem, so it’s important not to lose sight of the forest by

focusing on the trees. A single vendor can’t fully dominate the market, but the impending industry shakeout will leave standing only those who can locate the value.

More research is required to explore the un-folding cloud industry dynamics. We’ll continue to fine-tune our four-perspective framework, focusing on emerging SaaS and Web apps busi-ness models. However, it’s clear that the various stakeholders need to focus their investments on products and market segments that offer long-term value.

Innovative end-users and business require-ments will soon become the driving factors be-hind most cloud initiatives. Vendors who will win in this market will be those who build strong business models that weave the various market perspectives together.

References 1. D. Clearly and C. Claunch, “Top 10 Strategic Tech-

nologies for 2011,” Proc. Gartner Symp./ITxpo, Gartner, 2010; www.gartner.com/it/page.jsp?id=1454221.

2. Y. Dharmasthira, D. Ganly, and C. Pang, “Emerging Technology Analysis: ERP SaaS Suites for SMBs,” white paper, Gartner, 2010.

3. C. Jutras, SaaS ERP: Trends & Observations 2010, tech. report, Aberdeen Group, 2010.

4. P. Mell and T. Grance, “The NIST Definition of Cloud Computing,” Information Technology Labo-ratory, Nat’l Inst. Standards and Technology, 2009.

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5. S.A. Mertz et al., “Forecast Analysis: Software as a Service, Worldwide, 2009–2014,” white paper, Gart-ner, 2010.

6. S. Gagnon and V. Nabelsi, “Cloud Computing, Soft-ware as a Service & Next Generation ERP,” Readings on Enterprise Resource Planning, P.-M. Léger et al., eds., Pearson Education, 2011.

7. C. Weinhardt et al., “Business Models in the Ser-vice World,” IT Professional, vol. 11, no. 2, 2009, pp. 28–33.

8. S. Marston et al., “Cloud Computing—The Business Perspective,” to be published in Decision Support Sys-tems, 2011, doi: 10.1016/j.dss.2010.12.006.

9. W.A. Pauley, “Cloud Provider Transparency: An Empirical Evaluation,” IEEE Security & Privacy, vol. 8, no. 6, 2010, pp. 32–39.

10. Q. Zhang et al., “Cloud Computing: State-Of-The-Art and Research Challenges,” J. Internet Services and Applications, vol. 1, no. 1, 2010, pp. 7–18.

11. T. Anstett et al., “Towards BPEL in the Cloud: Exploiting Different Delivery Models for the Ex-ecution of Business Processes,” Proc. Services-I 2009 World Conference on Services, IEEE Press, 2009, pp. 670–677.

12. Y.C. Zhou et al., “Business Process Centric Platform-as-a-Service Model and Technologies for Cloud En-abled Industry Solutions,” Proc. IEEE 3rd Int’l Conf. Cloud Computing (Cloud 2010), IEEE CS Press, 2010, pp. 534–537.

13. B. Moore and Q.H. Mahmoud, “A Service Broker and Business Model for Saas Applications,” Proc.

IEEE/ACS Int’l Conf. Computer Systems and Applications (AICCSA 09), IEEE Press, 2009, pp. 322–329.

14. S. Gagnon and K. Cakici, “Integrating Business Ser-vices Networks and the Internet of Things: A New Framework for Mobile Software as a Service,” Proc. Conf. the Italian Chapter of the Assoc. for Information Sys-tems (ITAIS 08), Am. Assoc. Information Systems, 2008.

Stéphane Gagnon is an associate professor of IT manage-ment and chair of the Business Department at Université du Québec en Outaouais. He’s also CEO of Intracuba-tor, an R&D consortium in IT running ventures for an international network of intra-enterprise developers. His research interests include cloud computing, risk manage-ment, and financial applications of intelligent systems. He received his PhD in business administration, specialized in technology management and strategy, from the Université du Québec à Montréal. Contact him at [email protected].

Véronique Nabelsi is an assistant professor of technology management at Université du Québec en Outaouais. She has consulted on enterprise resource planning, RFID, and process optimization in such diverse sectors as industrial product development and healthcare. She received her PhD in industrial engineering, specialized in technology man-agement, from École Polytechnique in Montréal. Contact her at [email protected].

Katia Passerini is an associate professor and the Hurlburt Chair of Management Information Systems in the School of Management at the New Jersey Institute of Technology. Her research interests include IT strategy, knowledge man-agement systems, and mobile applications. She received her PhD in information and decision systems from the George Washington University School of Business. Contact her at [email protected].

Kemal Cakici is a risk officer at International Finance Corp., a member of the World Bank Group. His work as a systems architect has led him to develop Web-enabled intel-ligent systems for more than a decade in such diverse sec-tors as government, healthcare, and financial services. He received his PhD in information and decision systems from the George Washington University—School of Business. Contact him at [email protected].

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The Next Web Apps Architecture: Challenges for SaaS Vendors