Is SaaS Right for Lending?

After some coaxing I’ve decided to launch a blog. There's actually a “Blog Writing for Dummies” but I found it to be mostly advice on writing family vacation diaries. So it's with little experience or training that I'm going to embark on this blog site and hopefully learn very fast what's interesting to people and what isn't.

I hope to regularly share with you my thoughts on our complicated, fascinating, and critically important segment of the American economy. Our collective ability to achieve success translates into prosperity not only for our companies, investors, and shareholders, but also for people who are pursuing the American dream of home ownership.

The SaaS Confusion Persists

A few weeks ago, I had the chance to meet Tom Ernst, an analyst from Deutsche Bank, who is on record predicting that the software as a service (SaaS) model will achieve enough momentum in the next two years to radically and forever transform the market for enterprise software. Ironically – later that same day – I read an article on SaaS in one of the better-known trade magazines that posited that SaaS was solely about delivering software in a multi-tenant model. The article was was full of mistakes, and misconceptions so I threw it in the trash. It hammered home to me just how far our industry has to go to. We’re two years away from what some analysts predict will be pervasive adoption of the model, yet SaaS still confuses CIOs and CPAs alike. But Dorado is second to no one in its belief that SaaS is the way forward for enterprise software. And sometimes it’s difficult to stick to that philosophy. Let me share with you just how difficult it can be.

A week ago, a major North American lender politely excused Dorado from its RFP process. That’s a nice way of saying we didn’t make the short-list. The reason: our SaaS model. They simply didn’t get it. When the business executive asked me if I would reconsider – and allow them to install and run our software behind their firewall – I had to refuse. Even though this was a multi-million-dollar opportunity, the choice wasn’t difficult for us. Why? Why not give in? Why are we so fervent in our pursuit of a SaaS model in a market that doesn’t necessarily have a full understanding of its importance? Why embrace this potential drag on our performance? Well, if you’ll forgive the modest SaaS evangelism (and remember, this is a modest blog with much to be modest about), here are a few reasons why we passionately believe in the SaaS model for enterprise software.

1.		Faster ROI: SaaS solutions are quicker to implement via Web deployment.
2.		Ability to keep up with latest technology: It’s easier to leverage new Web technologies and keep them current.
3.		A shared infrastructure distributes the fixed cost burden: Customers share infrastructure such as disaster recovery, back-up, and connectivity, which lowers their costs.
4.		Fewer customized solutions: Dorado has greater visibility to usage and can adjust product development priorities.
5.		Improved customer responsiveness: Greater visibility to customer usage allows faster adjustments in real time.
6.		Efficient R&D leads to innovation cycles: Software versions are less important and shared resources are current. According to Deutsche Bank, legacy vendors spend 60 percent of their R&D supporting old products.
7.		Flexible pricing: Through the SaaS subscription basis, customers can rent service on as-needed basis.
Additionally there is a value unique to Dorado:
8.		Shared, reusable components: As we build out our Activity Competency Center, lenders and our own developers can collaborate to take advantage of a growing number of Activities from a catalog built by us, our lenders, and our third-party partners. In this manner, the SaaS model becomes more extensible than traditional enterprise software from legacy vendors because lenders can share and re-use these process and workflow components.

Sticking to our SaaS Guns

But let’s not skip past No. 7 too quickly. In this market, some lenders are increasing their production and others are decreasing. Providing our solution on an on-demand basis dovetails with the current dynamics in this environment. Lenders pay more for the software in good times and pay less in bad times. Yes, we build in contract minimums to protect ourselves but a lender can pick either a rate-plan model or a basic pay-as-you-go model that ramps up and down with their business.

That sounds scary. After all, public equity markets reward predictability and growth. Are we really willing to do that? Are we willing to take less money from a lender who is making less money (i.e. when their volume decreases)?

This quick answer is: of course. Dorado stands behind its value proposition – in fact we trumpet it every chance we get. We solve for predictability by smoothing the potential peaks and valleys with a pricing model that provides for minimums and incentivizes lenders to chose flat monthly plans at their option.

More importantly our close partnerships with our lenders allow us to accurately forecast usage for the year more accurately than other vendors in the market. Growth comes from Dorado selling into new channels, providing new software components, and building new additional transaction volume through new services and the network. The transaction becomes the harness for more services and value.

So back to the first question above. Why do we religiously hold on to the SaaS model in an environment where some decision makers may not understand it? I think there are two reasons. First we believe in it. SaaS isn't an architectural paradigm – despite what trade magazines might lead you to believe. It’s a software delivery paradigm and a business model. All software will be delivered this way. Second, I think we're good at it. And most importantly, I believe that once the market sees and understands the benefit and value of SaaS, they will enthusiastically adopt it and recognize Dorado for its leadership.

Tell me what you think.

Dain Ehring
CEO Dorado Corporation
dehring@dorado.com
650-227-7330