True to form, Dave Stephens has lobbed his own Molotov Cocktail onto the On Demand/Software as a Service (SaaS) fire. Thankfully, he failed to directly cite my post last week as the inspiration for his ire. But the connection was obvious. And just after I said all those nice things about him. (Truth be told, I’m glad to see that he has not waivered from his no-punches-held-for-anyone character.)

In his recent post, Dave touts his former ERP company’s “exchange” (read: online marketplace software) software as one of the original gangster’s of SaaS. He says that his former employer’s exchange offering eventually failed due to the fact that customers reached a maturation point where they were either “satisfied enough with the feature-set or looking to heavily customize the solution meet their needs.”

Dave goes on to compare the multi-tenant SaaS model to a flop house where renters are at the whim of their landlord’s preference and timing for upgrades. He then compares installed enterprise software to a model home that you own and customize to your liking. (I found it amusing that the graphic Dave used to represent the “model home” was merely an architectural drawing of a home that was not yet built. Sort of echoes the running joke about ERP providers: What’s their favorite development platform? Powerpoint.)

While amusing commentary, Dave’s post is a bait and switch. Comparing his former employer’s exchange software to a true SaaS solution is like comparing Dom Deluise to Luciano Pavorotti. They are both entertainers with similar appearance, but only one has any true talent. The exchange model failed because the promised functionality never fully materialized and the marketplace business models they aimed to support were unrealistic on the magnitude of Star Wars (the Ronald Reagan kind).

But probably the biggest reason for the failure of the exchange model is that most providers myopically focused on technology and failed to fully embrace what is now know as SaaS as a true business philosophy that permeates every aspect of operations – from application architecture and delivery to pricing and packaging to customer service.

To counter Dave’s flop house versus custom home analogy, I would argue that subscription-based pricing is the smallest and easiest aspect of SaaS to replicate. In addition, the rapid innovation development approach enabled by SaaS actually makes solution providers more responsive to customer requests. By comparison, innovation at traditional enterprise application providers (even those now trying to hop the On Demand bandwagon) is slowed both by a business approach that favors monolithic upgrades that are available to clients for an additional fees and the need to support legacy application versions for those customers that don’t want to undergo the costs and pains of upgrading to the newest release.

If any type of rental property metaphor is appropriate, it is one that compares SaaS to a luxury property in a highly secure and gated community where maintenance and gardening is included, remodeling occurs while you’re away on vacation, and you have access to the latest kitchen equipment and jaccuzzi tubs — all at no extra cost.

I agree with Dave that traditional licensed applications are like building your own custom home — except for different reasons. Anyone that’s purchased a pre-construction house knows the realities of custom home ownership: you are perpetually evaluating color palates, arguing with contractors about overcharges, and spending your precious nights and weekends pulling weeds, cleaning gutters, and leveraging a second mortgage for future home improvements.

Don’t worry, we SaaS “renters” will wave to you as we make the turn onto the back nine while you sweat over your matinenace and repairs.