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A closer look
What is SaaS
Software as a service is a software distribution model in which applications are hosted by a vendor or service provider and made available to customers over a network, typically the internet. Shortly, in the SaaS model software is deployed as a hosted service and accessed over the internet, as opposed to on premise.
The traditional model of software distribution, in which software is purchased for and installed on personal computers, is sometimes referred to as software as a product.
Problems Alleviated
In the traditional model of software delivery, the customer acquires a perpetual license and assumes responsibility for managing the software. There is a high upfront cost associated with the purchase of the license, as well as the burden of implementation and ongoing maintenance. ROI is often delayed considerably, and, due to the rapid pace of technological change, expensive software solutions can quickly become obsolete.
User Benefit
Lower cost of ownership The software is paid when it is consumed, no large upfront cost for a software license Salesforce.Com has a best-of-breed CRM system for $59.00 per user per month, with no upfront Since no hardware infrastructure, installation, maintenance, and administration, budgeting is easy The software is available immediately upon purchasing Access anywhere Users can use their applications and access their data anywhere they have an internet connection and a computing device This enhances the customer experience of the software and makes it easier for users to get work done fast Freedom to choose (or better software) The pay-as-you-go (PAYG) nature of SaaS enables users to select applications they wish to use and to stop using those that no longer meet their needs. Ultimately, this freedom leads to better software applications because vendors must be receptive to customer needs and wants.
Vendor Benefits
Increased Total Available Market Lower upfront costs and reduced infrastructure capital translate into a much larger available market for the software vendor, because users that previously could not afford the software license or lacked the skill to support the necessary infrastructure are potential customers. A related benefit is that the decision maker for the purchase of a SaaS application will be at a department level rather than the enterprise level that is typical for the perpetual license model. This results in shorter sales cycles. Lower Development Costs & Quicker Time-to-Market The main saving is at testing (35%). Small and frequent releases less to test Application is developed to be deployed on a specific hardware infrastructure, far less number of possible environment less to test. This, in turn, provides the software developer with overall lower development costs and quicker time-to-market.
Protecting of IP Difficult to obtain illegal copies Price is low, making getting an illegal copies totally unnecessary
Software Report
Two major business models are vying for an growing share of software spend: Software as a Service and Open Source. Although the market size for SaaS was relatively small ~$6 billion in 2005, it is poised to grow more than 20 percent annually. SaaS has already gained traction in number of application areas and should make gains across a much broader cross-section of applications over the next 3 years. Out of 34 application areas we have examined, only nine are unlikely to see some SaaS adoption over through 2008
Change In IT Spending
SaaS COGS (Cost of goods) represents amount going to infrastructure hardware, software and head count
A Look Ahead
The numbers show that SaaS is a far more attractive economic model than the perpetual license model. Over the next 3 to 5 years, the sharp distinction between SaaS and traditional software models will blur. Traditional vendors will introduce and expand their SaaS offerings.
SAP recently announced their On-demand CRM and Marketing solutions. Oracle inherited the on-demand business of Siebel.
The enterprise software market will see more offerings from these and other vendors based on SaaS. What will distinguish the winners from the losers will not be the model itself but how the model is executed. Open new markets, revenue streams, and distribution channels
Provide a stable, recurring revenue model Afford consolidation of development and support efforts around single versions of code
Earlier days the first step we are only mirroring the existing software (Tim Chou)
SaaS Steps
1. 2. 3. 4. 5. 6. Understand your business objectives and definition of a successful outcome (idea) Select and staff your services delivery team (people) Define and understand the infrastructure needed to deliver your SaaS application (hardware) Select your hosting facility and Internet Service Providers (ISPs) Procure the infrastructure and software required to deliver your SaaS application (security your platform) Ready to Run
I. II. III. IV. Deploy your SaaS delivery infrastructure Implement disaster recovery and business continuity planning Integrate a monitoring solution Establish a Network Operations Center (NOC), Client Call Center and ticketing system
7. 8.
Design and manage Service Level Agreements Document and manage the solution while open your business
Facilitate customization
ASP
Third, building effective sales channels (Systems Integrator , Independent Software Vendor, and VAR) will be critical to SaaS adoption growth, as companies will still require significant application and data integration with their IT environment. Non-traditional channels (e.g., banks, telcos, web portals) will become key success factors for many SaaS solution categories, especially when targeting SMBs.
Saugatuck
Concerns
Integrate into existing enterprise applications, architectures, and databases. Supporting complex business processes and cross-enterprise tasks is beyond current products. Protecting their proprietary data
How is the data protected from unauthorized access? How is the customer assured access to the data? How much effort is necessary to migrate data back to the enterprise or to another SaaS provider?
Service outages
Cutter Consortium Kaplan
Future of SaaS
Media and Content as a Service: MCaaS
Media distribution as a service Any digital content
Questions
SaaS Market
2.0 Already?
Software-as-a-Service (SaaS) is one of the most compelling and challenging IT and business innovations of the past two decades (Saugatuck). SaaS is now at a critical tipping point between the current generation of software functionality delivered as a service (what Saugatuck calls SaaS 1.0), and the emerging generation of blended software, infrastructure, and business services arrayed across multiple usage and delivery platforms and business models (what Saugatuck calls SaaS 2.0). That intelligence, and Saugatuck analysis, indicates that SaaS is beginning to shift from a pure software application delivery scheme to a very sophisticated usage and delivery model for business process functionality. Saas is entering a period of accelerated adoption, driven by the acceptance of SaaS as a viable software delivery model by the SMB market. Traditional business drivers such as efficiency and customer service are clearly leading SaaS customer adoption . SaaS adopters have been primarily seeking to reduce software costs and improve service levels for business applications. But, adopters are increasingly discovering SaaS offers additional flexibility, customization, and configurability for specific business or market conditions. Large enterprises have been the most prevalent early adopters of SaaS, as they seek to supplement existing enterprise applications and support distributed workforces. Over the past few years, SMBs have been more cautious in SaaS adoption, with many taking a wait-and-see attitude. However, SMB executives are now leading the SaaS adoption charge (2006-2010), and are embracing SaaS as a business critical, strategic investment at twice the rate than larger enterprises. SaaS 1.0 is characterized by horizontally-focused applications with web-services-based front ends and multi-tenant data models on the back ends. Multi-tenancy allows for economies of scale that were previously unavailable under the single-tenant application hosting model. Due to its highly decentralized procurement model, most user executives substantially underestimate how many applications are already in use in their companies today.
2.0 Already
Key market drivers will evolve from todays cost-effective software management solutions (SaaS 1.0) to enabling companies to change how they do business (SaaS 2.0). SaaS is now entering a period of accelerated market adoption (or a tipping point). SaaS 2.0 will incorporate advanced SOA and business process management technologies to provide richly configurable applications with robust application and data integration capabilities , along with improved workflow. The business drivers for SaaS 2.0 will be about helping users transform their business structures and processes, and the way they do business. In this way, SaaS 2.0 has the potential to have much in common with Business Services Provisioning. With this shift, it is very clear that SaaS is not about the technology. The nuts and bolts infrastructure and application functionality that make up a solution is becoming much less important, while the business results that can be achieved and getting the job done are increasingly paramount. SMB executives are embracing SaaS as a business-critical, strategic investment at twice the rate than are executives of larger enterprises. Further, SMBs have a higher propensity to adoption application that are database-driven, and that support a highly distributed workforce. While human resources/benefits administration, travel services, and a variety of core back-office and financial functions have led the way thus far (e.g., payroll, accounts payable, billing, accounts receivables), specialized vertical applications, CRM and collaboration technologies such as email will see the highest rate of new SaaS adoption over the next two years. 2006 Saugatuck Technology Inc. 2 The relatively low ranking of "pre-existing vendor relationships" as a key priority when selecting SaaS providers (10th on a list led by Price, TCO, Ease of doing business and Vendor Reputation) is an important warning signal to software vendors. While a one-size fits all deployment and licensing model (founded on the principals of net-native, pay-for-service, multi-tenancy) works well for SMBs, large enterprises will have much more demanding requirements for flexibility in how they want to deploy, pay for, upgrade, integrate and customize their SaaS applications. Improving system price performance, as well as accelerating SOA, open source and utility computing adoption will all have a multiplier effect on SaaS 2.0 growth. Accelerated adoption of SaaS will further be driven by the establishment of credible and advanced advertising-supported revenue models.
2.0 Already
Customers and stakeholders will discover that the business impact of SaaS is heightened by the SaaS Network Effect - the use of one common solution across many market participants, introducing new economies of scale and opportunities to improve business performance. White-label vertical SaaS solution stacks will come to be the primary vehicle for SMBs to access business functionality especially for small enterprises. Saugatuck expects numerous new entrants to bring solutions of this nature to market. Sales channels (SI, ISV and VAR) will be critical to SaaS adoption growth, as companies will still require application and data integration with their IT environment. Non-traditional channels (e.g., banks, telcos, web portals) will become key success factors for some SaaS solution categories. SaaS Integration Platforms (SIPs) solution hubs that provide application sharing, delivery, and management solutions will become critical to broader market adoption. Three or four dominant SIP Master Brands will emerge by 2010, and will manage more than 30 percent of core SaaS offerings to users. Monitoring and billing capabilities of these platform providers will enable increasingly attractive pricing. Further, these capabilities will create such value-added services as analytics, domain-specific best practices consulting, and business processspecific services. Ultimately, it will be large enterprises that demand richer SaaS integration and management services for the increasing complexity and mission-critical nature of SaaS 2.0. Software vendors face a fundamental rethinking of how they are organized, how they build software, and how they go to market. This will affect vendors core strategies and frameworks around product architecture, product management, pricing, licensing and sales models, as well as customer care.
Customer Expectations: Business Models: Early ASP business models (if they had one at all) ignored reality. They emphasized technology (what the ISVs understood) and played down (or ignored) issues like marketing and profit margins. Todays SaaS providers make use of hosting partners who can manage large data centers with economies of scale and offer the synergy of providing customers with a portfolio of applications. ISV Offerings: An individual ISV generally offers only his own application. But today there are many ways to be more appealing. We like double-dipper Intacct which hosts their application on IBMs SP infrastructure (IBM has a portfolio of SaaS offerings) and then they provide their offering on the SalesForce.com site, providing exposure to a growing audience. (SalesForce.com users employ Intacct on an IBM site, although they would be unlikely to notice.) SP Offerings: SPs have learned that their job is to provide great infrastructure and first level support and then to look for a way to differentiate themselves. (Early SPs tended to all look alike.) An SP might collect ISVs who sell to a particular vertical market, so that the could offer a complete portfolio and focus marketing efforts. Or an SP might provide some level of integration among applications or provide a platform for offering higher level function on top of his own (or a partners) offering.