The Enterprise and SaaS


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At the ISG Sourcing Industry Conference in the Americas, Stanton Jones and Paul Schmidt discussed how the enterprise demand for SaaS is surging and what the implications will be.

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The Enterprise and SaaS

  1. 1. © 2013 Information Services Group, Inc. All Rights Reserved. Proprietary and Confidential. No part of this document may be reproduced in any form or by any electronic or mechanical means, including information storage and retrieval devices or systems, without prior written permission from Information Services Group, Inc. #ISGSIC A Mismatch Made in Heaven The Enterprise and SaaS 9 September 2013 Stanton Jones Paul Schmidt
  2. 2. © 2013 Information Services Group, Inc. All Rights Reserved 2 The Enterprise and SaaS: A Mismatch Made in Heaven Enterprise CIOs estimate that in 5 years, they expect to spend a majority of their software budgets on SaaS, including ERP. - Citi Research
  3. 3. © 2013 Information Services Group, Inc. All Rights Reserved 3 The Enterprise and SaaS: A Mismatch Made in Heaven Enterprise demand for SaaS is surging. Providers are building, acquiring and partnering SaaS platforms at a breakneck pace. What happens when they meet? Financial Contractual Operational Buyers Expect Financial ►Substantial savings over on-premises Contractual ►To negotiate all aspects of contract Operational ►To dictate “how” operations should occur (e.g., security, support, updates) Providers are Delivering Financial ►Premium for up-to- date technology Contractual ►Short, standardized MSAs and exhibits Operational ►Standardized operations with focus on transparency of “what” over “how”
  4. 4. © 2013 Information Services Group, Inc. All Rights Reserved 4 The Enterprise and SaaS: Closer and Closer to the Core SaaS is generally accepted at the periphery of the enterprise; however, this mismatch becomes more acute when evaluating it for the core… Finance HR IT Workforce Administration Corporate ERP Email Business Unit ERP Talent Management Spam Management
  5. 5. © 2013 Information Services Group, Inc. All Rights Reserved 5 Why the Mismatch? Multi-tenant architectures Single line of code for all customers Creating a intuitive “black box” for business buyers Creates new contracting models with focus on: Shared, multi-tenant architectures create huge strategic benefits. However, they are hard to quantify and conflict with traditional enterprise sourcing archetypes. Cash to fund customer acquisition and R&D Standardization in order to scale
  6. 6. © 2013 Information Services Group, Inc. All Rights Reserved 6 Buyers: Where Does ISG See Most SaaS Demand? Stand-alone platform comparisons, BPO provider platform changes, systems integrator selection and SaaS business case/strategy are in most demand: SaaS Platforms in DemandTypes of Client Demand Platform-based BPO • Platform change • Process harmonization • Business case Platform Comparisons • RFX & feature comparisons • Negotiations • Business case Systems Integrator • Who can implement? • Who can configure? • RFX, financial, negotiations ISG believes this list will expand significantly over the next five years as leading outsourcing suppliers productize their IP into vertical SaaS offerings.
  7. 7. © 2013 Information Services Group, Inc. All Rights Reserved 7 Sellers: A Stampede to SaaS The enterprise SaaS market is seeing a tremendous amount of acquisitions, partnerships and IPOs… Acquisitions Adoption trends over the next three years support 33% annual growth in SaaS with significant headroom beyond this as long-term SaaS adoption could be 9x current levels. -- Citi Research Partnerships IPOs
  8. 8. © 2013 Information Services Group, Inc. All Rights Reserved 8 Barriers to Adoption: Financial Up-front payments that begin before the system is live, combined with prices that increase over time create sticker shock for enterprise SaaS buyers. RealityBuyer Expectation Cheaper than on-premises Scale up and scale down easily Short contract durations Easy termination Monthly payments Pay only for what you use Price decreases over time May be more expensive Baselines make scaling down difficult Multi-year commitments Limited to no term for convenience Up-front / annual payments Payment begins on signing Price may increase over time / CPI
  9. 9. © 2013 Information Services Group, Inc. All Rights Reserved 9 Barriers to Adoption: Contractual Procurement and internal counsel are often unprepared to negotiate SaaS agreements. Leading providers are sticking to their guns and holding firm on terms. RealityBuyer Expectation Contract will be on buyer’s paper Unlimited liability for data breach Termination for convenience Outsourcing SLAs and reporting “Try before committing” Transition assistance Step-in rights Contract on supplier paper Limited liability (breach exceptions) No termination for convenience Web 2.0 SLAs; self service reporting “Commit then try” Self-service data exports No ability to step-in
  10. 10. © 2013 Information Services Group, Inc. All Rights Reserved 10 Barriers to Adoption: Operational The standardized nature of SaaS operations requires a movement from “how” to “what”, causing challenges for buyers that want to dictate requirements. RealityBuyer Expectation ITIL-based operations On-site security audit & pen testing Dictate data location; no changes Robust BC/DR; participate in testing E-Discovery / Legal Hold Process Dictate maintenance/release window All data is encrypted Service health and ops portals Rely on 3rd party audit(s) Changes; customer can limit to region Simple BC/DR based on RTO & RPO E-Discovery / Legal Hold Functionality Standard windows/continuous update In-memory DBs vs. persistent stores
  11. 11. © 2013 Information Services Group, Inc. All Rights Reserved 11 Recommendations: Creating a Match Made in Heaven Early in the process, be transparent about the SaaS business model, then focus on specific pain points of executive decision makers: CIO CMO CHRO COO Inherent modernization Decrease reliance on IT Embedded analytics Early transparency around SaaS business model with IT, Finance, Procurement & Counsel: • Cash up front • Multi-year term • Supplier’s paper • Standard SLAs • 3rd party security audits A B C D Digital platform (prospects, customers, influencers)
  12. 12. © 2013 Information Services Group, Inc. All Rights Reserved 12 Let’s Talk… ►Stanton: ►Paul: ►@stantonmjones ►@phshss ►Blog on Consider the Source focused on how emerging technology is impacting the broader sourcing market ► ►
  13. 13. Information Services Group is a leading technology insights, market intelligence and advisory services company, serving more than 450 clients around the world to help them achieve operational excellence. ISG supports private and public sector organizations to transform and optimize their operational environments through research, benchmarking, consulting and managed services, with a focus on information technology, business process transformation, program management services and enterprise resource planning. Clients look to ISG for unique insights and innovative solutions for leveraging technology, the deepest data source in the industry, and more than five decades of experience of global leadership in information and advisory services. Based in Stamford, Conn., the company has more than 800 employees and operates in 21 countries. knowledge powering results® #ISGSIC