Sourcing and Vendor Relationships
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2    SOURCING AND VENDOR RELATIONSHIPS ADVISORY SERVICE


    findings, examine how enterprises           many of the firs...
EXECUTIVE UPDATE                                                                                                          ...
4    SOURCING AND VENDOR RELATIONSHIPS ADVISORY SERVICE


    important reasons for organizations                         ...
EXECUTIVE UPDATE                                                                                                          ...
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SAAS Survey Shows New Models Becoming Mainstream

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SAAS Survey Shows New Models Becoming Mainstream

  1. 1. Sourcing and Vendor Relationships Advisory Service Executive Update Vol. 6, No. 22 SaaS Survey One of the most significant trends fundamentally disrupting the way in the IT industry is the transfor- the software industry is structured. mation of the software business Shows model from packaged products to A recent Cutter Consortium subscription services. This move- survey found that enterprises are ment is being fueled by a combina- moving quickly to take advantage New Model tion of customer frustration with of software-as-a-service (SaaS). traditional software applications This is the first in a series of and the emergence of new Web- Executive Updates that examines this issue. Overall, those that have Becoming based software development mechanisms that make it possible already acquired SaaS solutions are to deliver robust software function- satisfied with the results and plan to ality via the Internet. expand the range of applications Mainstream The trend is not only changing the way many organizations leverage they acquire via this new model. Here in Part I, we provide a quick software applications, it is also history of the evolution of SaaS and, by Jeffrey M. Kaplan, based on Cutter’s recent survey Senior Consultant, Cutter Consortium SURVEY DEMOGRAPHICS In September/October 2005, Cutter Consortium conducted a survey of 118 enterprise IT professionals. The participants represent nearly every major industrial sector, government entity, and nonprofit institution, including universities and medical/healthcare service providers. One-quarter of the respondents have senior management/policy-making responsibilities, and another 23% are in IS/IT management. Almost half (48%) of the respondents work in organizations based in North America. One-fifth (20%) work for organizations located in Europe, another fifth (20%) are located in Asia, and the remainder are spread across the rest of the world. Approximately one-third (35%) of the respondents work in organizations with 50 or fewer employees. Almost as many (32%) work in organizations with between 50 and 1,000 employees. The remaining 33% work in organizations with more than 1,000 employees.
  2. 2. 2 SOURCING AND VENDOR RELATIONSHIPS ADVISORY SERVICE findings, examine how enterprises many of the first generation of ASPs partner with IBM to deliver a new are leveraging this important new and hosting companies disap- on-demand alternative to its tradi- software innovation to meet their peared with the dot-com bust. tional packaged software applica- business objectives. tions and, ultimately, to be acquired However, the costly challenges by Oracle, which has been building associated with implementing and its own hosted services business. BACKGROUND maintaining enterprise applications SAP has also been expanding its The concept of SaaS is not new. didn’t go away, and in many cases, hosted service capabilities to It emerged during the dot-com era they escalated. This permitted a respond to the competitive threat in two forms: application hosting new generation of ASPs and host- of SaaS alternatives. and ASPs. ing companies to enter the market from the embers of the original Even Microsoft has accelerated Application hosting generally subscription service model value the development and scheduled involved third parties housing proposition with a new set of Web- release in 2006 of its new Web- licensed software applications on enabled software solutions that based software services to keep behalf of enterprise customers on were easier to acquire and admin- pace with the rapid growth of the a set of remote, centralized servers. ister than the original offerings. The SaaS market. These “server farms” promised most prominent of these new SaaS to save the enterprise customer providers were Salesforce.com and hardware, electrical, and real NetSuite. CUSTOMER ADOPTION OF estate costs, while also promising SaaS GROWING FAST greater application reliability and With their astronomical customer Almost one-third of our survey performance levels because the growth, financial success, and respondents are already using SaaS, hosting company would dedicate recent series of strong IPOs, and another third are currently con- greater staff skills and resources to the SaaS leaders have attracted sidering it (see Figure 1). system maintenance and software a rapidly expanding array of updates/upgrades. imitators attacking every segment Of the respondents that are already of the enterprise software market. using SaaS, 70% have been doing ASPs, such as Corio and These include companies such so for more than one year, and 92% USinternetworking, took the as RightNow in customer rela- of current SaaS users are satisfied hosting model one step further tionship management (CRM), with this application delivery by modifying the original software SuccessFactors in human model. As a result of this high satis- application to address specific resource management (HRM), faction rate, 87% of current SaaS market segment requirements. For and Taleo in talent management. users expect to acquire additional instance, many of the ASPs targeted SaaS offerings, and 92% would rec- small-to-medium-sized businesses The rapid rise of independent SaaS ommend SaaS solutions to other (SMBs) or specialized in vertical providers has also fundamentally enterprises. market applications. changed the competitive landscape among the established independ- Of those enterprises that are cur- Unfortunately for the ASP and ent software vendors (ISVs). The rently considering SaaS, 82% expect hosting industry pioneers, main- emergence of Salesforce.com as to adopt this software alternative stream enterprise customers were a major player in the salesforce within the next 12 months (see not ready to entertain their new automation (SFA) and CRM Figure 2). software solutions. As a result, software market drove Siebel to This means that over 50% of survey respondents will be utilizing SaaS Not considering solutions within the coming year — 35% Currently using a clear indication of the rapid adop- 31% tion of this relatively new software alternative. WHAT TYPES OF SaaS APPLICATIONS ARE CUSTOMERS ACQUIRING? Currently considering 34% With the success of RightNow, Salesforce.com, and others in the Figure 1 — Are you currently using or considering using CRM and SFA application sectors, software-as-a-service (SaaS)? it shouldn’t be a surprise that these Vol. 6, No. 22 ©2005 Cutter Consortium
  3. 3. EXECUTIVE UPDATE 3 are the most likely types of appli- In fact, approximately 85% of the accelerate the software deploy- cations to be acquired via SaaS respondents expect to generate up ment process and the opportunity providers. However, Cutter’s to 30% cost savings by leveraging to have inhouse IT/application survey found that a substantial SaaS. In addition to the cost-savings development staff focus on more proportion of customers are cur- potential of SaaS, the ability to strategic projects are the next most rently using or considering SaaS alternatives for traditional enter- prise resource planning (ERP), 57% HRM, supply chain management 60% (SCM), and other application packages (see Figure 3). 50% Percentage of respondents WHAT’S DRIVING CUSTOMER DEMAND FOR SaaS? 40% SaaS is gaining attention and win- ning customer adoption because of 30% 25% its attractive combination of accel- erated deployment capabilities and 18% potential cost savings. 20% As Figure 4 illustrates, 86% of sur- vey respondents admit that they are 10% leveraging or plan to take advan- tage of SaaS because of the poten- 0% tial cost savings from this software Less than 6 months 6-12 months More than a year delivery model. Figure 2 — Within what time frame do you expect to adopt SaaS? 40% 38% 38% 34% 35% 30% 30% Percentage of respondents 25% 25% 20% 15% 13% 10% 5% 0% CRM SFA ERP HRM SCM Other Figure 3 — What types of SaaS are you using or considering using? (Please select all that apply.) www.cutter.com Vol. 6, No. 22
  4. 4. 4 SOURCING AND VENDOR RELATIONSHIPS ADVISORY SERVICE important reasons for organizations and improving application reliability innovations that have failed to win to migrate to a SaaS model. and performance (see Figure 5). widespread industry acceptance because they couldn’t be easily adopted. GREATEST SaaS BENEFITS WHAT DO THE According to those in our survey RESULTS MEAN? SaaS isn’t just another IT fad that who are currently using SaaS, it is The IT industry is notorious for will fade away because it doesn’t meeting their expectations by gen- promoting new technologies with fulfill its promise. Instead, there are erating a greater ROI than tradi- limited real-world value in search a growing number of enterprises of tional software packages while of a market. At the same time, all sizes that are generating meas- lowering staff support requirements there have been many worthwhile urable cost savings and perform- ance improvements as a result of adopting SaaS. No 14% This track record of success is accel- erating the rate of adoption and expanding the range of applications that are being converted to the SaaS delivery model. It is also dramati- cally changing the competitive landscape of viable SaaS providers. Relative startups, such as Salesforce. com, RightNow, and others, are Yes now viewed by customers as equal 86% or even superior to the far more established and historically more Figure 4 — Are you leveraging or do you expect to leverage powerful major ISVs, system ven- SaaS to generate cost savings? dors, and outsourcers. 30% 27% 25% 24% 21% Percentage of respondents 20% 18% 15% 8% 10% 5% 2% 0% Greater ROI and Lower staff Improved Quicker/ Systematic Other cost-effectiveness support applicability, easier software updates and requirements reliability, and application upgrades performance deployment Figure 5 — What is the greatest benefit of the SaaS offering? Vol. 6, No. 22 ©2005 Cutter Consortium
  5. 5. EXECUTIVE UPDATE 5 These trends should compel every ABOUT THE AUTHOR Strategic Marketing at Lucent enterprise to reevaluate their soft- Jeffrey M. Kaplan is a Senior Technologies Worldwide Services, ware sourcing, deployment, and Consultant with Cutter as a result of its acquisition of management strategies. As SaaS Consortium’s Sourcing and International Network Services alternatives become more perva- Vendor Relationships practice, and (INS). Before his position at INS, sive, and their operational reliability he is the founder and Managing Mr. Kaplan spent 13 years as a lead- and cost-effectiveness become Director of THINKstrategies, a strate- ing industry analyst and market more obvious, IT decision makers gic consulting firm that helps IT research consultant at IDC, the that do not pursue these options enterprise decision makers with Ledgeway Group, Dataquest, and will be doing their enterprises a their sourcing strategies; solution META Group. serious disservice. providers with their marketing strategies; and venture firms Mr. Kaplan is a frequent speaker In upcoming Updates, we will with their investment strategies. at industry conferences and a con- examine the key criteria that the Prior to forming THINKstrategies, tributing columnist for Mass High survey respondents have used to Mr. Kaplan served as VP of Market- Tech, NetworkWorld, Business select their SaaS providers and the ing and Business Development at Communications Review, types of providers they most often InterOPS Management Solutions — Computerworld, InfoWorld, select. We will also look at the long- an Internet operations management InformationWeek, eWeek, and term strategic sourcing implications services provider. Prior to joining the Financial Times. He can be of the movement toward SaaS. InterOPS, Kaplan was Director of reached at jkaplan@cutter.com. The Executive Update is a publication of the Sourcing and Vendor Relationships Advisory Service. ©2005 by Cutter Consortium. All rights reserved. Unauthorized reproduction in any form, including photocopying, faxing, image scanning, and downloading electronic copies, is against the law. For information about reprints and/or back issues of Cutter Consortium publications, call +1 781 648 8700 or e-mail service@cutter.com. www.cutter.com Vol. 6, No. 22
  6. 6. Workshop Developers/ Presenters Every workshop is led by one of Cutter Consortium’s expert Senior Consultants — experienced IT professionals who have honed Workshops their skills and developed their methodologies over years in the field, at companies like yours. Verna Allee Scott Ambler Rob Austin Christopher Avery Sam Bayer Kent Beck In these times of intense pressure to make every E.M. Bennatan development dollar and every development minute Bob Benson Tom Bugnitz count, the maxim you are only as strong as your Mike Cohn weakest link has never rung truer. Ken Collier Doug DeCarlo Tom DeMarco Moving your development organization Workshop Topics Jonathan G. Geiger up the productivity curve will improve Peter Herzum the ROI of every one of your projects. Agile Development Methodologies Jim Highsmith Just trace this back and you’ll discover Business-IT Alignment Wendell Jones the ROI in training is immense. And Data Quality Jeff Kaplan with training and workshops designed Data Warehousing Joshua Kerievsky and delivered by Cutter Consortium’s Enterprise Architecture Bartoz Kiepuszewski Senior Consultants, you can add to Tim Lister Estimation Techniques that equation the peace of mind you Lisa Loftis Extreme Programming get from being trained by the best Michael Mah of the best. IT Strategic Planning Terry Merriman Knowledge Management Larissa Moss Cutter Consortium offers inhouse training solutions from IT project Metrics/Benchmarking Ken Orr Carl Pritchard management techniques to software Outsourcing Helen Pukszta development methodologies, improving Project Management Thomas Redman data quality, architecting Web services Requirements Management Suzanne Robertson applications, aligning business and IT Risk Management Mike Rosen objectives and more. Software Development Practices Michael Schmitz Rob Thomsett Teamwork and Leadership Karl Wiig Testing Bob Wysocki Web Services For details about the courses offered in each Cutter Consortium 37 Broadway, Suite 1 of these areas, contact Dennis Crowley at Arlington, MA 02474-5552, USA +1 781 641 5125 or dcrowley@cutter.com, or visit www.cutter.com/workshops. Tel: +1 781 648 8700 Fax: +1 781 648 1950 Web: www.cutter.com E-mail: sales@cutter.com

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