SaaS: Is Multi-tenancy Really an Advantage in On-Demand?

Salesforce.com, Microsoft and others are promoting SaaS multi-tenancy as a competitive advantage for their on-line offerings.
Multi-tenancy means that a single software instance is used by and supports multiple organizations.
How can this feature make companies more competitive? The advantage of the technology is that the operational costs for the vendor are less, and that in turn often translates into a more cost-effective offering.

The disadvantage of multi-tenancy is that they are often more complex to design and maintain. Applications that are of ‘common denominator’ functionality work best. But for applications that grow to be more complex and require organization-specific customizations, the maintenance costs will typically grow, and the greater the chance is that there will be accidental ‘leakage’ of information between different customers.

SaaS software often evolves, not following the standard release cycle, with incremental design changes happening sometimes daily. The advantage of the approach is that it’s evolutionary and not ‘big bang’ — the changes made are often small. The model of incremental evolution means that if problems occur in the new code released, it’s easy to roll back and usually affects only a small piece of functionality. The results are that it typically is not very disruptive.

But when the system houses the data, configurations and customizations of many organizations, testing the changes against the environments of all those organizations can be challenging, especially when rollouts happen on a very regular basis. There is cause for concern.

Oracle has been saying for some time that the multi-tenancy model isn’t a good one, at least not for customers. In fact they say that their large customers are interested in on-demand, but only when configured so that their data is securely isolated from other customers. Industries like financial services, insurance and healthcare customers are particularly sensitive to this and will not accept multi-tenancy.

“Beyond the security and compliance implications, the multiple instances allow for flexibility in timing maintenance and upgrades”, said Anthony Lye, senior vice president of Oracle CRM On Demand. Oracle is seizing on single tenancy as a differentiator of their offerings.

Yesterday Oracle announced that they’ve offering the single-tenant version of Siebel CRM on demand. The story is unique because many traditional software vendors are struggling to re-architect their software to allow for multi-tenancy to tap into SaaS and the hype around multi-tenancy. Oracle has gone through the same process in reverse, converting Siebel to single tenancy.