SaaS: The Real Scoop on Multiple vs Single Tenancy
Let's face the obvious. VCs plain love SaaS! What's not to like?
SaaS (Software as a Service) architecture has gained tremendous momentum in the software world as it is the evolution of the ASP model allowing a software delivery without the need for any local data or software installation. Any browser with a robust Internet connection is able to access the software and the clients are billed via a subscription model, hence the service part. No ownership, no installation, no maintenance.
I recently vetted a SaaS company for a VC client of mine and the SaaS model & revenue model made an extremely compelling business case. For VCs looking to invest in companies with a scalable business model this is an ideal revenue structure as it generally involves a fixed cost of initial development and infrastructure then they can scale up for countless clients who also subscribe to their software.
Many technology pundits argue that Single Tenancy is not a "pure SaaS" model but it is really not that simple. Each architecture has valuable qualities that lends itself to different industries. For instance, Single Tenancy is more suited for regulatory controlled industries such as trading platforms or government clientele that prefer NOT to have their data co-mingled with others on a shared database platform.
This is great but there is more to it as the architecture for SaaS comes in two basic flavors. The question was posed by several members of the VC deal time about what type of SaaS is best, so here are some details I provided to clarify the issue:
Single Tenant: Each instance of the software provided is unique to the client and database is isolated without any chance of co-mingling with other data; additionally, the application instance can be customized as needed and maintenance / administration can be decided by client
Multi-tenant: A single instance of a hosted software solution is distributed to multiple clients
with co-hosted databases that are accessed as needed by the application layer; all clients run same version of software with centrally managed maintenance which improves standardization and offers more efficient and effective cost structure for all parties.
The following chart provides a conceptual diagram of the Multi Vs Single Tenant application architecture:
Many technology pundits argue that Single Tenancy is not a "pure SaaS" model but it is really not that simple. Each architecture has valuable qualities that lends itself to different industries. For instance, Single Tenancy is more suited for regulatory controlled industries such as trading platforms or government clientele that prefer NOT to have their data co-mingled with others on a shared database platform.
More generic software services such SalesForce are really perfect for Multi-Tenancy as this allows them to have a centralized control of software versioning & customization, thereby saving infrastructure costs and passing the efficiency/savings on to their clients.
For the VC, understanding what platform to use is all about understanding how it aligns with the company's business strategy. Do they profit by virtue of what benefits their SaaS model provides? Would they be more successful operational or via marketing if they shifted to another model? That's really the bottom line in terms of what type of SaaS to use.
Comments
Just to get an idea these two models in reality, do you know what model google docs follows? I assume that it is multi-tenant but that, the application splits at some point so that the data of different users can be kept secure and separate. Would this mean that it is kind of a hybrid of the two?