Friday, October 17, 2008

Bessemer SaaS Law #8

Bessemer SaaS Law #8. Single instance, multi-tenant, single datacenter - Have only one
version of the code in production. Really. “Just say no” to on-premise deployments.

This is a guiding architectural principle for best-of-breed SaaS companies. The notion of a multi- instance, single tenant offering should only apply to legacy software companies moving to a dedicated hosting model because they don’t have the luxury of an architectural re-design. It is possible to use virtualization to provide multiple instances, but this hybrid strategy will make your engineering team much more expensive and much less nimble. If designing a SaaS product out of the gate, the best situation is single instance, multi-tenant. There are hybrid models that have worked, but in general it is a hard and fast law that should not be debated and we will leave
the hybrids to the “clean tech” entrepreneurs. The same can typically be said about a single global data center. You want to leverage your core infrastructure as much as possible, even when expanding internationally for as long as possible. You should invest early in backup and disaster recovery, but stick to one data center as long as
possible and at least past $2M CMRR. SaaS companies have this debate all the time, and yet the recent data is pretty clear: most SaaS companies can get by with a single datacenter in North America until well past their IPO. In fact, is passing $1 billion in revenue and announced plans for additional datacenters only a year ago.

Data centers are extremely expensive and create significant organizational complexity on every level. Many of the historical issues around data backup, disaster recovery, and global application latency that caused companies to add a second datacenter can also now be better addressed in other ways.

With a single code base in North America, it will obviously make it much more difficult to sell a SaaS deal to foreign governments or defense departments (yet another reason why the Swiss military probably won’t be a beta customer for you!), but focus is a good thing. You still have the vast majority of the global market available to you, and the macro trends are only moving even more in your direction.

It really does add a lot of overhead cost and operational complexity that is hard to absorb unless the business is at scale…meaning typically $2M++ of CMRR. And when you do open a second facility make sure it’s funded by customers, typically as part of a broad international expansion.

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