Software as a Service in Asia Pacific: Expanding the Reach ...

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Software as a Service in Asia Pacific: Expanding the Reach ...

  1. 1. MARKET RESEARCH REPORT July 23, 2007 Lead Analysts: Ravi Shekhar, Senior Market Analyst Dane Anderson, Vice President, Research Software as a Service in Asia Pacific: Expanding the Reach & Appeal of Software
  2. 2. Table of Contents E X E C U T I V E S U M M A R Y ................................................................................................................................. 3 T A X O N O M Y .................................................................................................................................................. 6 What is Software-as-a-Service (SaaS)? ................................................................................................ 6 Who is a SaaS Provider? ........................................................................................................................ 7 R E S E A R C H M E T H O D O L O G Y ........................................................................................................................ 8 Secondary Research.............................................................................................................................. 8 Supply-side Primary Research ............................................................................................................... 8 Demand-side Primary Research ........................................................................................................... 8 O V E R V I E W O F T H E A S I A P A C I F I C S A A S M A R K E T ................................................................................. 10 SaaS vs. Traditional Enterprise Software Applications Market......................................................... 10 SaaS Application Dynamics ................................................................................................................ 11 Vertical Market Dynamics ................................................................................................................... 13 Adoption Trends by Country ............................................................................................................... 14 Key Adoption Drivers............................................................................................................................ 14 Barriers to Adoption.............................................................................................................................. 15 S A A S : P R I M A R Y S U R V E Y R E S U L T S ........................................................................................................... 16 SaaS Awareness.................................................................................................................................... 16 Adoption Drivers and Inhibitors........................................................................................................... 19 Satisfaction Level with SaaS Applications ......................................................................................... 21 Data Residency .................................................................................................................................... 22 Future SaaS Adoption Plans ................................................................................................................ 23 K E Y S A A S D Y N A M I C S B Y A P P L I C A T I O N ................................................................................................. 24 On-Demand CRM ................................................................................................................................ 24 Web Collaboration............................................................................................................................... 26 ERP and SCM Applications.................................................................................................................. 27 On-Demand HR Applications ............................................................................................................. 28 C O U N T R Y P R O F I L E S ................................................................................................................................... 30 Australia ................................................................................................................................................. 30 China/Hong Kong ................................................................................................................................ 32 India ....................................................................................................................................................... 34 Singapore .............................................................................................................................................. 35 S A A S & A S I A P A C I F I C I S V S ................................................................................................................... 42 T H E A S I A P A C I F I C C O M P E T I T I V E L A N D S C A P E ....................................................................................... 44 Salesforce.com ..................................................................................................................................... 45 WebEx .................................................................................................................................................... 45 RightNow Technologies ....................................................................................................................... 46 Oracle .................................................................................................................................................... 46 NetSuite ................................................................................................................................................. 46 Citrix Online ........................................................................................................................................... 47 IBM.......................................................................................................................................................... 47 Microsoft ................................................................................................................................................ 48 Progress Software ................................................................................................................................. 49 SAP ......................................................................................................................................................... 49 Symantec .............................................................................................................................................. 50 S P R I N G B O A R D R E C O M M E N D A T I O N S ....................................................................................................... 51
  3. 3. List of Figures Figure 1: Asia Pacific SaaS Applications Market Revenue (US$M) and Annual Growth, 2006- 2010................................................................................................................................................. 10 Figure 2: Asia Pacific SaaS Revenue by Application, 2006............................................................. 12 Figure 3: Asia Pacific SaaS Revenue by Country, 2006 ................................................................... 14 Figure 4: SaaS Awareness among Asia Pacific Companies ........................................................... 16 Figure 5: SaaS Awareness among Asian Enterprises, by Country .................................................. 17 Figure 6: SaaS Adoption among Asian Enterprises........................................................................... 18 Figure 7: SaaS Applications Used By Asia Pacific Enterprises ......................................................... 19 Figure 8: Primary Reason for Adopting SaaS ..................................................................................... 19 Figure 9: Primary Reason for Not Adopting SaaS ............................................................................. 20 Figure 10: Perceived Savings from Adopting SaaS .......................................................................... 21 Figure 11: SaaS Application Satisfaction............................................................................................ 22 Figure 12: Data Residency & Perceived Performance.................................................................... 22 Figure 13: SaaS Applications Being Considered for Deployment in Next 12 Months ................. 23 Figure 14: On-Demand CRM Market Revenue (US$M) and Annual Growth in Asia Pacific, 2006-2010 ....................................................................................................................................... 24 Figure 15: Web Collaboration Market Revenue (US$M) and Annual Growth, 2006-2010 ......... 26 Figure 16: On-Demand Back-Office Revenue (US$M) and Annual Growth, 2006-2010 ............ 27 Figure 17: On-Demand HR Applications Revenue (US$M) and Annual Growth, 2006-2010 ..... 28 Figure 18: Other* On-Demand Applications Revenue (US$M) and Annual Growth, 2006-2010 ......................................................................................................................................................... 29 Figure 19: Australian SaaS Market Revenue (US$M) and Annual Growth, 2006-2010 ................ 30 Figure 20: Primary Reason for Adopting SaaS, Australia ................................................................. 31 Figure 21: Primary Factor Preventing SaaS Adoption, Australia..................................................... 31 Figure 22: China/Hong Kong SaaS Market Revenue (US$M) and Annual Growth, 2006-2010 . 32 Figure 23: Primary Reason for Adopting SaaS, China ...................................................................... 32 Figure 24: Primary Factor Preventing SaaS Adoption, China ......................................................... 33 Figure 25: India SaaS Market Revenue (US$M) and Annual Growth, 2006-2010......................... 34 Figure 26: Primary Reason for Adopting SaaS, India ........................................................................ 34 Figure 27: Primary Factor Preventing SaaS Adoption, India ........................................................... 35 Figure 28: Singapore SaaS Market Revenue (US$M) and Annual Growth, 2006-2010 ............... 36 Figure 29: Primary Reason for Adopting SaaS, Singapore .............................................................. 36 Figure 30: Primary Factor Preventing SaaS Adoption, Singapore .................................................. 37 Figure 31: Share of Direct Sales in SaaS Business by Application ................................................... 38
  4. 4. Figure 32: Local Resellers: Necessary or Not When Buying SaaS ................................................... 39 Figure 33: Local Resellers: Helpful or Not When Buying SaaS.......................................................... 39 Figure 34: Areas Local Resellers can Add Value To the Procurement & Installation of SaaS Applications................................................................................................................................... 40 Figure 35: Channel Roles That Can Add Greatest Value................................................................ 40 Figure 36: Asia Pacific SaaS Revenue Vendor Market Share ......................................................... 44
  5. 5. List of Tables Table 1: Respondent Breakup By Country & Users/Non Users .......................................................... 8 Table 2: Respondent Breakup by Employee Size ............................................................................... 9 Table 3: SaaS Enterprise Applications by Category......................................................................... 12 Table 4: Vertical Specific SaaS Applications..................................................................................... 13 Table 5: Local Vendors Offering SaaS Applications......................................................................... 42
  6. 6. INTRODUCTION The appeal of Software as a Service (SaaS) is growing rapidly in Asia Pacific. Many organizations are deploying SaaS to meet their key IT needs and overcome challenges posed by the rising cost of deploying and managing traditional software systems. Increasingly, SaaS is also creating a new breed of first- time software users, mostly among small and medium enterprises. This trend is encouraging many local ISVs to use the SaaS model to widen their business universe and serve new markets and customers. Focusing on these and many other key trends in the Asia Pacific enterprise SaaS market, this report analyzes the growing adoption of SaaS in the region. A key focus area of the report is to provide an array of market data – including market size and growth forecasts – for key segments of the enterprise SaaS market in Asia Pacific (excluding Japan). Through our survey of 385 CIOs and IT decision-makers at large and SMB enterprises in Australia, China, India, and Singapore, we have assessed the level of awareness, adoption and usage in more depth. We have also analyzed trends in the SaaS business model pursued by local ISVs, in addition to profiling leading SaaS vendors in the region. 2
  7. 7. E XECUTIVE S UMMARY The appeal and reach of software as a service (SaaS) continues to grow rapidly among enterprises in Asia Pacific. A substantially increased awareness of the SaaS concept, coupled with a growing inclination among enterprises and business users to try web-based applications, are among the key factors that have contributed to a dynamic regional SaaS market. The success of vendors like Salesforce.com and WebEx in reinforcing the credibility, reliability and sustainability of the SaaS model, definitive announcements by large software vendors like Microsoft and Symantec who have declared their intention to deliver software on demand, and the growing interest in SaaS among local ISVs who have begun to develop SaaS applications, are other factors that have led to market expansion. From a numbers perspective, SaaS market momentum picked up in 2005 and continued in 2006, with growth rates close to what we had projected in our first report on the Asia Pacific SaaS market (The Software as a Service Market in Asia Pacific, 2005 to 2008: Blazing New Routes-to-Market (May 2006). Our six key findings from this research study are provided below: 1. SaaS Market Growth Momentum Will Last for the Long Run: The Asia Pacific SaaS enterprise applications market amounted to US$154 million in 2006, and generated 93% revenue growth over the previous year. The market is projected to grow at a CAGR of 66% from 2006 to 2010. Springboard Research believes that given its current momentum, SaaS will account for more than 15% of the enterprise software applications market in Asia Pacific by 2010. We expect the Asia Pacific SaaS market to reach US$ 1.16 billion at the end of the period under review. 2. Business Users Emerging as Key Drivers of SaaS Adoption: While the IT department remains firmly in control of software deployments in most organizations, especially large ones, business users are emerging as key influencers of SaaS adoption. In many instances, SaaS applications are deployed for business applications without the involvement or knowledge of the IT department, as business users find it easy to subscribe to and use SaaS themselves. Ease of use is also one of the key reasons why SaaS applications are increasingly finding favor with SMBs who do not have IT departments or who have little exposure to IT applications. 3. CRM is One of Many Applications Used in the Asia Pacific SaaS Market: Although customer relationship management (CRM) remains the largest SaaS application segment by revenue, representing 45% of total Asia Pacific SaaS revenue in 2006, Springboard Research data shows that organizations are aware of and use many different types of SaaS applications. The most widely used include desktop office applications (word processors, spreadsheets), e-mail, security/compliance applications, and HR- payroll/workforce management. CRM (mostly salesforce automation (SFA)), collaboration tools (web conferencing & 3
  8. 8. messaging), enterprise resource planning (ERP), accounting, and supply chain management (SCM) are next in order of usage. 4. SaaS is Encouraging New Entrepreneurship in Asia Pacific: The success of SaaS is attracting a significant number of local IT professionals and ISVs to the application software market. SaaS is offering new market opportunities for small ISVs that could previously not sell to SMBs without an IT staff. Moreover, partnerships with leading SaaS providers are helping ISVs reach markets beyond their local geographies. 5. Large Vendors Now Have More Definitive SaaS Strategies: Vendors like Microsoft and Symantec have now developed more clear-cut SaaS market strategies. Springboard Research believes that these big players’ entry in SaaS will change the competitive landscape of the market, currently dominated by pure-play SaaS vendors like Salesforce.com, RightNow Technologies and WebEx, among others. The entry of the large vendors into the marketplace is also expected to force mergers and acquisitions, re-alignment of players and emergence of new alliances, as in the case of the recent partnership between Salesforce and Google. 6. SaaS Needs Channels to Grow: The majority of the respondents (71%) Springboard Research interviewed for this report believes the involvement of a local reseller or agent is necessary when buying software-as-a-service applications. However, most SaaS application sales in Asia Pacific are made directly without the involvement of a channel partner. A number of factors, including lack of experience and knowledge of application business processes, as well as low profit margins for SaaS applications are keeping channels away from selling SaaS. In addition to these key findings, other prominent study results are outlined below: The primary factors driving enterprise adoption of SaaS applications are the ease of its use and management, followed by the lower cost of ownership when compared to traditional software. Springboard Research considers “ease of use” as the key factor driving SaaS adoption by both large and SMB enterprises. The primary inhibiting factor to SaaS adoption is lack of perceived business benefit. Many respondents are not deploying SaaS because they believe traditional licensed software is less expensive, and they also view SaaS applications as technologically less mature. Security concerns and a lack of awareness of the concept also prevented many companies from deploying SaaS. Even as leading SaaS vendors like Salesforce.com, WebEx, RightNow Technologies and NetSuite continue to lead the SaaS market, local ISVs and some small US vendors are beginning to find customers in Asia Pacific. According to Springboard Research data, small vendors accounted for 54% of SaaS market revenue in 2006. 4
  9. 9. Compared to 2006, there has not been much change in SaaS’ geographical spread across Asia Pacific. Australia is still the most mature market in the region with a 37% share, and China, Korea, India and Singapore are the other leading markets in the region. 5
  10. 10. T AXONOMY What is Software-as-a-Service (SaaS)? Springboard Research defines Software-as-a-Service (SaaS) as a software delivery model in which application software is delivered to users via a web browser. Users do not buy the license for the software, but only a right to use it on a subscription basis. A user may subscribe to all the features/functionalities of the software or just a portion of them. Springboard Research also defines the SaaS model as on-demand software and/or on-demand application. The key characteristics of SaaS are: The software application is not owned by the customer, and is only rented for use. The software resides on a central server and not on the customer’s computer. The user accesses the application via a web browser and the SaaS provider is responsible for software maintenance and performance. The primary value delivered by SaaS is the continuous and ongoing support for the application by the service provider. Network-based access allows maintenance, support and upgrades to the software from the provider’s data center. The SaaS provider is 100% responsible for the maintenance and upgrade of the software. The architecture, management and pricing of the application mimic the one-to-many model rather than the one-to-one model. Enterprise software delivered as SaaS include business applications such as customer relationship management (CRM), web conferencing and collaboration applications, HR applications like talent management and payroll, enterprise resource management (ERM) applications like ERP, supply chain management (SCM), product lifecycle management (PLM) and so on. This report excludes software applications or services aimed mainly at the consumer market. While online companies like Yahoo and Google also deliver software as a service, we have excluded them for two reasons: a) those services are mostly used by consumers, which is a distinct market with unique characteristics and, b) their revenue is not exclusively derived from selling software services, but often provided for free or subsidized by advertising. We have also excluded the business of application hosting from the scope of this report since the model does not meet our definition of SaaS. In the application hosting model, the customer has to pay for the software license. The customer therefore owns the software application and is responsible for upgrades and maintenance. 6
  11. 11. Who is a SaaS Provider? A SaaS provider is any company that delivers SaaS over the Internet and is accountable for the software’s maintenance, upgrades and associated services. The SaaS provider is responsible for hosting, deploying, customizing, configuring and delivering the software. In our view, there are three broad categories of SaaS providers active in the Asia Pacific region. These are: 1. Net-Native Software-as-a-Service Application Providers: These are SaaS providers with proprietary multi-tenant software applications designed for delivery over the web. These companies have their own data centers that host, manage and deliver SaaS applications. SaaS vendors like Salesforce.com, RightNow Technologies and WebEx fall in this category. 2. Hybrid Software-as-a-Service Application Providers: These providers are traditional enterprise software vendors who primarily deploy on- premise software delivery models that are diversifying into SaaS offerings to supplement their on-premise businesses. Vendors such as Oracle, Microsoft, SAP and Symantec fall into this category. 3. Software-as-a-Service Providers Delivering Third-Party Applications: These providers primarily play the role of application aggregators and deliver SaaS applications over the web using their infrastructure. Application service providers (ASPs), web hosting companies, telecom and Internet service providers who deliver third-party multi-tenant software applications via a web browser form this group of SaaS providers. A prominent example of such a company in the region is Australia-based Web Central. 7
  12. 12. R ESEARCH M ETHODOLOGY The research conducted for this report was executed from March to May 2007. The methodology employed included secondary research, and both supply- and demand-side primary research. Additional details on each of these research elements are provided below. Secondary Research The first research phase involved an extensive secondary research exercise to review public information sources on the Internet and other mediums. Key information sources included SaaS vendor websites, earnings statements and white papers. In addition, reports, articles, websites, blogs and journals from other research bodies, associations and government entities were used to create an initial framework of understanding on the SaaS dynamics both globally and in Asia Pacific. Supply-side Primary Research Interviews were then conducted with the heads of Asia Pacific operations for leading SaaS vendors and large traditional software providers. Respondents were led through a structured questionnaire to gather quantitative and qualitative input on their operations, performance, strategies and views on the overall Asia Pacific SaaS marketplace. Data from interviews was consolidated, checked for consistency and accuracy, and then inserted into Springboard’s SaaS data model. Demand-side Primary Research In order to include user perceptions and adoption into the research methodology, a total of 385 CIOs, IT managers and line of business managers from both large enterprises and SMBs were interviewed in Australia, New Zealand, China, India and Singapore. Structured interviews were conducted over the phone to gather quantitative and qualitative information regarding SaaS adoption and usage within the company. A breakdown of survey respondents follows below: Table 1: Respondent Breakdown by Country & Users/Non-Users Country SaaS Users Non-SaaS Users Total Australia 42 40 82 New Zealand 11 10 21 China 50 50 100 India 50 48 98 Singapore 32 52 84 Total 185 200 385 8
  13. 13. Table 2: Respondent Breakdown by Employee Size Verticals SaaS Users Non-SaaS Users Total 1-99 54 71 125 100-299 35 29 64 300-499 24 14 38 500-999 18 19 37 1000 & Above 48 73 121 Total 179 206 385 9
  14. 14. O VERVIEW OF THE A SIA P ACIFIC S AA S M ARKET The Asia Pacific Software-as-a-Service (SaaS) market continues to grow at one of the fastest rates in the world. A host of factors, primarily a significantly increased awareness of the SaaS concept and a proliferation of new SaaS applications – several of them being developed by local ISVs – have added to market momentum. In almost every way, SaaS is more mainstream than it was a year ago. This is amply reflected in not just the growing reach of the on-demand applications that are being deployed with ease by both large and SMB enterprises across verticals, but also the increasing involvement of business users in influencing SaaS deployment in their organizations. Local ISVs have also grown increasingly interested in providing applications via the SaaS model. Springboard Research estimates show that the Asia Pacific SaaS market (excluding Japan) has been growing along the lines we had projected in our earlier report (The Software as a Service Market in Asia Pacific, 2005 to 2008: Blazing New Routes-to-Market (May 2006). Per our forecast, the SaaS market grew by 93% in 2006 to reach US$154 million. We expect this market to grow to US$1.16 billion in 2010, registering a CAGR of 66% from 2006 to 2010 (Figure 1). Figure 1: Asia Pacific SaaS Applications Market Revenue (US$M) and Annual Growth, 2006-2010 1400 120% 1200 1000 80% 800 600 40% 400 200 0 0% 2006 2007 2008 2009 2010 Revenue (US$M) 154 274 501 785 1165 Growth 93% 78% 83% 57% 48% Source: Springboard Research, 7/2007 SaaS vs. Traditional Enterprise Software Applications Market Springboard Research forecasts that at its current pace of growth, SaaS will gain share rapidly against the traditional enterprise software applications market in Asia Pacific over the next several years. It is noteworthy that while the SaaS applications market, as mentioned earlier, will grow at a CAGR of 66%, the traditional enterprise software applications market will only grow at a CAGR of 11-13% to reach during the same period. We believe that by 2010 SaaS will represent over 15% of the enterprise applications market in Asia excluding Japan. 10
  15. 15. From a global perspective, Springboard Research estimates that Asia Pacific accounted for around 10% of the global SaaS market in 2006, up from 8% in the previous year. Springboard Research forecasts for Asia Pacific’s SaaS market size is based on the following key assumptions: • The increased hype surrounding web-based applications, combined with growing Internet penetration and usage among businesses, especially the SMBs, will drive many organizations to adopt web-based applications. We expect most organizations that use enterprise application software to deploy some sort of SaaS application in the near future. • A significant portion of the growth in SaaS adoption will come from SMBs who have very little or no exposure to IT applications. SMBs represent a market that is currently not being served or has been beyond the reach of on-premise enterprise application vendors. Given cost advantages, ease of use and management, SaaS is now likely to be among SMB’s top choices for software. • There will be an increased effort by large application vendors like Oracle and SAP to tap the SMB market by customizing their existing applications to meet SMB-specific IT needs. SaaS will be a key part of their strategy for this market. • There will be a proliferation of new SaaS applications that are more easily available, leading many more organizations to use them. The increase in new SaaS applications will be driven by both local ISVs, as well as leading licensed application vendors. SaaS Application Dynamics As we had indicated in our first study, SaaS is moving beyond CRM. The proliferation of new SaaS applications (detailed in Table 3) has been one of the most noticeable trends in the Asia Pacific market. While many of these new applications have come to the region from US- based vendors looking to gain a foothold in the Asian market, several SaaS programs are now being offered by local ISVs. Additional details on Asia Pacific ISVs and their recent SaaS activities are provided in the SaaS & Asia Pacific ISVs chapter of this report. Springboard Research data shows that organizations are aware of and are using many different types of SaaS applications. The most widely used include Office applications (word processors, spreadsheets), e- mail, security/compliance applications, and HR, payroll/workforce management. CRM, collaboration tools (web conferencing & messaging), ERP, accounting, and supply chain management are next in order. It is important to note that not all of these applications generate revenue. For instance, Google Docs and Spreadsheet – two applications that are gaining popularity among enterprises – are basically free software. CRM remains the largest SaaS application segment by revenue in the region, representing 45% of total SaaS revenue in 2006. However, its share in the overall SaaS market is declining. CRM is followed by 11
  16. 16. collaboration applications. Our understanding is that among all the SaaS applications, these two generate the most revenue. As such, even if more organizations are using other types of SaaS applications, these two contribute most to regional revenue (Figure 2). Figure 2: Asia Pacific SaaS Revenue by Application, 2006 Other 7% HR 7% ERP/PLM/SCM 9% CRM 45% Collaboration 32% Source: Springboard Research, 7/2007 Key SaaS applications are illustrated in greater detail in Table 3. Of note is that collaboration is emerging as the most dominant form of SaaS application. That is because even as licensed software applications dominate the software applications category, collaboration software applications, like conferencing, messaging, and document management, are becoming mostly web-based. Table 3: SaaS Enterprise Applications by Category Front IT Back Office Collaboration Desktop Office/BI Infrastructure IT Word CRM ERP Conferencing infrastructure processors management Web Document Remote PC SCM Spreadsheets Analytics Management Access Shared Remote IT calendars, Services Billing PLM contact lists & tasks HR/Workforce Security E-mail Management/Performance management Management Payroll Messaging Accounting Whiteboards Budgeting & Desktop sharing Planning/Expense Management Content Management Source: Springboard Research, 7/2007 SaaS applications are often being deployed in “islands” within an enterprise, in contrast to licensed applications that are usually deployed throughout the enterprise. Despite this, Table 3 shows that 12
  17. 17. there is an array of SaaS applications that can be deployed in many different departments across an enterprise. A key SaaS trend has been the proliferation of vertical-specific SaaS applications, some which are mentioned in Table 4. Table 4: Vertical Specific SaaS Applications Application Vertical Vendor Policy & claims administration system for Insurance BIPT property & casualty insurance industry Educational campus Education Campus Management management solution Litigation lifecycle Legal Services CaseCentral management Retail Management Retail CORESense Commerce & fulfillment solutions for retailers & Retail Vcommerce direct-to-consumer initiatives Dealer tracking/management Automobile DealerTrack solution Medical Appointment Scheduling & Electronic Healthcare Medtech patient record, collaboration Healthcare operations Healthcare Working Systems Hi-Tech Manufacturing Sales Information System Platte River Systems (Semiconductor) Hotel reservation Hospitality vSplash TechWorks Derivatives risk Financial Services Pyxis Systems management Source: Springboard Research, 7/2007 Vertical Market Dynamics High-tech businesses, financial services, healthcare and business services (HR, recruiting firms, and legal services), education and the non-profit sector have been the more enthusiastic adopters of the on- demand model. Companies in these verticals have a relatively better understanding of the SaaS model and its benefits. Springboard Research data shows that SaaS is gaining almost equal traction in both large and SMB enterprises in many of these vertical industries. In Australia and Singapore, a significant number of government organizations also have deployed SaaS. In Singapore especially, the government has been a significant driver of SaaS adoption. In one example, the National Council of Social Services, which is the umbrella organization for all social services in Singapore, has deployed justlogin.com, an online software service, in all its departments. 13
  18. 18. Adoption Trends by Country Australia remains the largest market for SaaS applications in the region and is the closest aligned to North America in terms of adoption trends. The country has a thriving community of ISVs and other SaaS providers who have helped build awareness and momentum in the market. China, India, Korea and Singapore are other key markets in Asia Pacific. Together with Australia, these countries account for around 77% of the SaaS market in the region. Additional detail on country dynamics in key markets is provided in the Country Profiles chapter of this report. Figure 3: Asia Pacific SaaS Revenue by Country, 2006 Other 23% Australia 36% Singapore 7% Korea 10% China/HK India 13% 11% Source: Springboard Research, 7/2007 Key Adoption Drivers The relatively lower cost of SaaS applications as opposed to traditional software, ease of use, management and implementation are the key factors that make SaaS attractive. Although cost is important, our research has shown that factors other than cost are the primary considerations for the majority of organizations deploying SaaS. Most organizations find SaaS attractive because it can be deployed quickly and easily, which is a dynamic observed in both the SMB and large enterprise market segments. The growing adoption of the Internet as a business tool (or Web 2.0, as some call the trend) by regional enterprises is the key external factor driving SaaS adoption, especially among SMB enterprises. Internet penetration among Asian enterprises has been growing steadily and is increasingly pushing them toward using web-based applications. In a significant number of cases, implementation of web-based applications is initiated by business users without IT department involvement. 14
  19. 19. Moreover, many of the region’s SMBs that could not afford licensed software applications because they involved capital and operational expenditures beyond their budget, and also because they did not have IT manpower to manage them, are adopting SaaS applications to enhance operational efficiency and boost productivity. Barriers to Adoption The primary factor preventing companies from adopting SaaS is lack of recognition of the business benefit. Many respondents are not deploying SaaS as they perceive licensed software to be cheaper and also consider SaaS applications technologically less mature. Concerns related to security also prevented many companies from deploying SaaS. All this essentially points toward an inadequate awareness and understanding of the SaaS concept. As such, Springboard Research believes this insufficient awareness and understanding is the most important challenge facing SaaS market growth in the region. Detailed data on the key drivers of SaaS adoption among organizations and the inhibiting factors preventing adoption is presented in the next section of this report. 15
  20. 20. S AA S: P RIMARY S URVEY R ESULTS As highlighted in the methodology section of this report, Springboard conducted interviews with CIOs and IT managers in 385 large and SMB enterprises in Australia, New Zealand, China, India and Singapore to assess the level of SaaS awareness, adoption and perception in the region. Vertical industries covered in our survey primarily included banking and financial services, public sector, healthcare, retail, education, manufacturing, telecommunications and business services. SaaS Awareness There has been a substantial increase in SaaS awareness among Asia Pacific enterprises. From our respondent base comprised of both large and SMB enterprises, 75% reported awareness of SaaS with only 25% reporting a lack of awareness (Figure 4). Awareness levels are nearly equal in large and SMB enterprises. It should be noted that in our first survey on SaaS awareness and adoption, we had reported a 41% SaaS awareness rate among the SMB respondents. This dramatic shift clearly demonstrates the gained awareness SaaS is experiencing in the market within just 12 months. Figure 4: SaaS Awareness among Asia Pacific Companies Yes 75% No 2007 25% 41% 2006 59% 0% 20% 40% 60% 80% Q: Are you aware of the concept of Software-as-a-Service or On-Demand Software? N=385 (2007); 210 (2006) Source: Springboard Research, 7/2007 Increased marketing by SaaS vendors, hype generated by announcements from Microsoft and Google, among others, and growing Internet usage among businesses, have all played a key role in building SaaS awareness in Asia Pacific. Furthermore, many respondents, even if unfamiliar with the term “SaaS,” were fairly aware of the general concept. This increasing awareness of SaaS is a key contributor to growth in the market. However, it is 16
  21. 21. important to emphasize that awareness does not always equal understanding. Although respondents may have heard of SaaS, some might have an incomplete or inaccurate understanding of the concept, how it works and what benefits it offers (as is reflected in some of the reasons they have cited for deploying SaaS applications). Among countries in the region, Australia has the highest awareness levels while China has the lowest. Nevertheless, SaaS awareness has increased substantially across the four countries that we surveyed (Figure 5). Figure 5: SaaS Awareness among Asian Enterprises, by Country Australia/NZ 92% India 89% Singapore 89% China 72% 0% 20% 40% 60% 80% 100% Q: Are you aware of the concept of Software-as-a-Service or On-Demand Software? N=385 Source: Springboard Research, 7/2006 As with any new technology or concept, a rise in awareness is a positive sign and a foundation upon which the market can be built. From that perspective, the current level of SaaS awareness in Asia Pacific is a very encouraging trend that can be exploited by SaaS vendors to tap the growing opportunities in the regional market. SaaS Adoption Increased awareness and the continuous hype surrounding SaaS have raised the level of penetration of web-based applications among Asia Pacific enterprises. As Springboard Research data shows, 46% of respondents indicated their company had subscribed to SaaS. Once again, survey results clearly demonstrate the SaaS momentum generated in the region over the past 12 months, as the share of adopters in our survey rose from 29% the previous year to the aforementioned 46% in 2007. (Figure 6) A majority of the respondent companies have deployed SaaS in specific departments or for specific business uses. Examples of enterprise-wide deployment of SaaS are few and far between. This is largely because of two reasons. One, organizations are still wary of relying too much on SaaS and prefer to deploy it for non-core functions; 17
  22. 22. two, most SaaS applications in the market are function-specific (for instance, SFA, payroll management, etc.). Figure 6: SaaS Adoption among Asian Enterprises Yes 46% No 2007 54% 29% 2006 71% 0% 20% 40% 60% 80% Q: Does your organization currently subscribe to any SaaS applications? N=385 (2007); 210 (2006) Source: Springboard Research, 7/2007 Although CRM remains the largest SaaS application segment by revenue in the region, representing 45% of total SaaS revenue in 2006, Springboard Research data shows that organizations are aware of and use many different types of SaaS applications. The most widely used include Office applications (word processors, spreadsheets), e-mail, security/compliance applications, and HR-payroll/workforce management. CRM (mostly SFA), collaboration tools (web conferencing & messaging), ERP, accounting and SCM come next. (Figure 7) It is important to highlight that respondents were not asked to follow very strict definitions of SaaS applications when identifying the application they use. Although we see high demand for security SaaS applications, we believe the adoption figures from the survey are skewed upward by software application upgrades and renewals done online, which does not fit into our SaaS definition since most of these applications resides on premises. Nevertheless, with Symantec’s impending SaaS release – and those of other security vendors – we expect to see strong adoption of pure security SaaS software throughout the forecast period. 18
  23. 23. Figure 7: SaaS Applications Used By Asia Pacific Enterprises Desktop Office Applications 39% E-Mail 33% Security / Compliance 30% HR-Payroll Management 27% CRM 22% Conferencing / Collaboration 20% ERP 18% Supply Chain Management 10% Other 8% 0% 10% 20% 30% 40% 50% Q: What SaaS/On-Demand Software Application are you currently using? N=179 (SaaS Adopters) Source: Springboard Research, 7/2007 Adoption Drivers and Inhibitors The primary adoption driver cited by the respondents is SaaS’ ease of use and management (33%). When combined with ease of implementation and low maintenance, it is clear that the ease with which SaaS applications can be deployed, used and managed are the key SaaS drivers in the region. Collectively, these factors represent over 55% of the primary drivers cited by respondents (Figure 8). Figure 8: Primary Reason for Adopting SaaS Other 9% Ease of use Scalability and 6% management Zero / Low 32% maintenance 9% Easy and quick to deploy 15% Lower cost of Business ownership Benefits 18% 11% Q: What is the primary reason your company subscribed to SaaS? N=179 (SaaS Adopters) 19
  24. 24. The lower cost of ownership associated with SaaS applications remains a key driver of its adoption in Asia Pacific. Although only 18% of the SaaS user respondents cited it as the primary factor in adoption, 39% stated it as the second most important factor in their decision to deploy a SaaS application. A significant number of these respondents were first-time users of any enterprise software application. ”Lack of business requirement” is the prime inhibiting factor for 33% of respondents. Interestingly, vendor support and reliability are not significant concerns, even though 12% of respondents still consider SaaS applications less secure. However, when asked if there were any other reason that prevented them from deploying SaaS, a significant number of respondents cited factors like lack of technological maturity, security and difficulty in finding a SaaS vendor. Springboard Research believes that the lack of business requirement is the prime inhibitor due to three key reasons. One, respondents find it difficult to get a SaaS application that meets their business requirements; two, they have inadequate understanding of how a SaaS application can meet their business needs; and three they are not aware if the applications they need even exist. Figure 9: Primary Reason for Not Adopting SaaS No business requirement 34% Technology is not mature 15% Licensed software is cheaper than SaaS 15% Low awareness about the concept 11% Security is an issue with SaaS 11% Centralized decision 7% Finding a SaaS vendor is difficult 4% Reliability is an issue with SaaS 3% Vendor support is an issue with SaaS 2% 0% 5% 10% 15% 20% 25% 30% 35% 40% Q: What is the primary reason your company does not subscribe to SaaS? N=206 (Non-Adopters) Source: Springboard Research, 672007 [[ Bandwidth limitations in some Asian countries and user concern with transitioning mission-critical applications to the SaaS model are the other factors inhibiting adoption in the region. Bandwidth is particularly an issue in China and India where organizations still find it difficult to get quality bandwidth. On the other hand, an increased awareness and understanding of the SaaS concept has had a positive impact on cost perceptions. As such, unlike in 2006, this year has seen a lower number of respondents who believe that buying SaaS software licenses is less expensive. However, 20
  25. 25. since 14% of respondents still consider licensed software cheaper, the importance of increasing awareness and market education remains very high despite the fact that not many respondents cite a lack of awareness as a reason for not deploying SaaS. A lower TCO and the ability to easily and quickly deploy SaaS have surely meant significant cost savings for SaaS adopters. Although 40% of SaaS adopters were unable to quantify the amount of money saved by deploying SaaS instead of traditional licensed software, they emphasized SaaS had helped bring down their IT expenses. Overall, 33% of respondents reported a savings of more than 10%, with 23% of respondents reporting a savings of 11% to 25 % (Figure 10). It should be noted that respondents were not guided to provide scientific measurements of savings. Instead, rough estimates were provided by respondents to provide an estimate of perceived savings. Figure 10: Perceived Savings from Adopting SaaS Not Aware 40% Less than 10% 28% 11% to 25% 23% 26% to 50% 8% More than 50% 2% 0% 10% 20% 30% 40% 50% Q: How much (in percentage terms) do you estimate your organization saved by subscribing to SaaS instead of deploying licensed software? N=179 (SaaS Adopters) Source: Springboard Research, 7/2007 Satisfaction Level with SaaS Applications On a scale of 1 to 10 (where 10 represents highest satisfaction and 1 the least), most respondents have rated their experience of using a SaaS application a 7 or higher (Figure 11). The level of satisfaction was highest with security/compliance applications, followed by ERP. CRM and SCM ranked lowest on the satisfaction scale; however, satisfaction for all applications was high in general and when compared to on- premise satisfaction. 21
  26. 26. Figure 11: SaaS Application Satisfaction Security / Compliance 7.98 ERP 7.88 Desktop Office Apps 7.81 E-mail 7.79 Web Conferencing / Collaboration 7.79 HR 7.46 SCM 7.39 CRM 7.33 Q: How would you rate your satisfaction with the performance of the SaaS application(s) deployed in your organization? (10 =highest level of satisfaction; 1=the lowest) N: 179 (SaaS Adopters)/Multiple Responses Source: Springboard Research, 7/2007 Data Residency The majority of SaaS users (57%) believe that application performance and reliability is not dependent on data center location. On the other hand, 39% think SaaS applications perform better and are more reliable when hosted at a data center close to the user. The fact that the majority of respondents do not consider data residency as a factor in application performance and reliability can be seen as a manifestation of the growing maturity of the SaaS user as well in the Asia Pacific market. (Figure 12) Figure 12: Data Residency & Perceived Performance Performance and reliability is not 57% dependent on data centre location Performance is better and reliable when 39% hosted in a data centre close to the user Don't know 4% Q: Which of following two statements is more correct: a) SaaS applications perform better and are more reliable when hosted in a data center close to the user b) Application performance and reliability is not dependent on data center location c) Don’t Know; N: 179 (SaaS Adopters) Source: Springboard Research, 7/2007 22
  27. 27. Future SaaS Adoption Plans In our interviews with respondents, only a small number (9%) indicated a definite plan to implement one or more SaaS applications in the next 12 months. However, we do not believe this represents a slowdown in overall adoption for a number of reasons. First, previous surveys we have conducted in different areas generally show that Asian enterprises have very little visibility or conviction of the solutions they will deploy looking forward within the next 12 months. Second, application investments are often driven by business needs that arise quickly, and SaaS has clear time-to-adoption advantages versus traditional software license sales. Finally, our survey had a larger representation of IT managers than it did line-of-business (LOB) department heads, and we have found that many SaaS deployments are being driven from the lines of business with little or no knowledge from the IT department. Figure 13 lists the various SaaS applications that enterprises in Asia Pacific are likely to deploy in the next 12 months. The future adoption of SaaS applications contains few glaring differences from the adoption patterns already presented in this document. However, security and compliance ranks further down the list of planned deployments than it does when viewing actual deployments. We are uncertain of the key factors driving this difference, and we believe security SaaS could in fact be a strong application performer within the next 12-24 months. Figure 13: SaaS Applications Being Considered for Deployment in Next 12 Months Desktop office applications 37% CRM 37% Web conferencing / messaging 21% ERP 21% HR-Payroll- Workforce Management 16% Supply Chain Management 11% Security / Compliance 11% Others 11% 0% 5% 10% 15% 20% 25% 30% 35% 40% Q: Which SaaS application are you considering for deployment in the next 12 months? N=20 (Multiple Response) Note: sample size is low, and data should be viewed as indicative only Source: Springboard Research, 7/2007 23
  28. 28. K EY S AA S D YNAMICS BY A PPLICATION On-Demand CRM Even though CRM’s share in the Asia Pacific SaaS applications market declined in 2006, it continues to be the leading form of SaaS in the region. CRM not only enjoys the highest mindshare among all SaaS applications, it also contributes most to the market in terms of revenue. Within CRM, salesforce automation (SFA) is the most popular application with business users. A lower TCO, quick deployment time, and ease of use and management have been the key factors that are driving the region’s enterprises to opt for SaaS-based CRM. A large part of the credit for SaaS market momentum also goes to the on-demand CRM pioneer, Salesforce.com, which has done a good job of marketing and delivering its CRM solutions in Asia Pacific. As Springboard pointed out in its previous report, SaaS CRM applications continue to outpace growth of the traditional on-premise CRM applications many times over. According to our data, the on- demand CRM market will grow at a CAGR of 61% from 2006 to 2010, to reach US$460 million by 2010 (Figure 14). A large part of this growth will come from first-time SMB adopters of CRM. Figure 14: On-Demand CRM Market Revenue (US$M) and Annual Growth in Asia Pacific, 2006-2010 500 80% 70% 400 60% 300 50% 40% 200 30% 20% 100 10% 0 0% 2006 2007 2008 2009 2010 Revenue (US$M) 69 116 193 315 460 Growth 68% 67% 63% 46% Source: Springboard Research, 7/2007 ON-DEMAND CRM ADOPTION BY VERTICAL INDUSTRY As Springboard Research indicated in its earlier study, education, healthcare services, telecommunications, consumer packaged goods, business services and the technology sector have been the key markets for on-demand CRM. However, of these, the technology sector, financial services and business services have emerged as the most significant adopters of on-demand CRM applications in the region. The growing use of the Internet as a business tool and the growth in broadband access has helped on-demand CRM find a significant 24
  29. 29. foothold in the region’s SMB segment. However, the market still remains a tough challenge for SaaS CRM vendors, as many SMBs still have an inadequate understanding of how the application can help their business. Springboard Research predicts that a substantial portion of the growth in Asia Pacific’s SaaS CRM market will come from the SMB segment. The affordability and ease of use that on-demand CRM offers is likely to encourage many of these businesses to deploy on-demand CRM as an essential business tool. We expect SMBs in Asia Pacific to go for simpler CRM solutions that are not overly complex. This trend in turn will drive CRM vendors, especially the traditional licensed software companies, to either downgrade their on-premise offerings or adopt the SaaS distribution model. ON-DEMAND CRM ADOPTION BY COUNTRY Australia, Singapore, Hong Kong, Korea, India, China and Thailand are the key SaaS CRM markets in Asia Pacific. Of these, Australia remains the top market, accounting for 35% of all SaaS CRM sales generated in the region. A relatively high awareness level, growing use of the Internet as a business tool among companies, and better broadband infrastructure, have helped Australia become the top target market for leading on-demand CRM vendors like Salesforce.com, RightNow Technologies and NetSuite. Similar trends can be seen in India, Singapore, Hong Kong and Korea, where on-demand CRM is finding a growing number of adopters. China shows high-growth market potential, but is turning out to be a challenging market for SaaS CRM vendors due to local market and cultural challenges. ON-DEMAND CRM COMPETITION Springboard Research has identified 5 key SaaS CRM vendors active in the region. These are Salesforce.com, RightNow Technologies, Oracle- Siebel, NetSuite and SugarCRM. Salesforce.com remains the number one player with close to a 50% share of the market. Our research showed that Salesforce.com was the most widely available on-demand CRM vendor in Asia Pacific. Although competition is beginning to take shape in the market, other vendors have a long way to go before they can challenge Salesforce.com’s dominance. Springboard Research believes that two key factors that are going to define the competitive environment in the region are the entry of vendors like Microsoft, Oracle and SAP in the on- demand CRM space, and the emergence of local ISVs who are using the on-demand model to attract SMBs. Both Microsoft and SAP have been actively courting the on-demand CRM market for some time. While Microsoft is launching a SaaS version of Dynamics CRM in the US by the end of 2007 (specific plans for Asia have not been announced), SAP is launching its on-demand suite of business applications (A1S), including CRM, in mid-2008. Oracle has also announced aggressive plans to pursue the CRM SaaS opportunity, with a product launch in the US slated for the second half of 2007. Local vendors including Gate13, Practical Business Systems, Talisma, Sitek Villagemall Pty., 3i Business Solutions, Aldea Infotech, Xtools, 25
  30. 30. Woznet, 800CRM, and CRM24x7 are also actively targeting Asia Pacific’s SaaS CRM market. Web Collaboration Springboard Research forecasts that web collaboration will soon emerge as the most dominant and widely-used form of software-as-a- service in Asia Pacific. As business Internet usage increases and as organizations are able to access an abundance of quality bandwidth, a broad spectrum of companies are adopting online collaboration and conferencing tools. We believe that as collaboration is inherently on- demand in nature due to the collaborative power of the Internet, SaaS- based collaboration solutions will emerge as the natural choice for organizations. The flexibility to buy services like web conferencing “at will”, and the power of pay-per-use is already encouraging many organizations to adopt web collaboration SaaS applications. According to Springboard Research, the web collaboration market will grow at a CAGR of 68% from 2006 to 2010, to reach US$400 million by 2010 (Figure 15). The market has been growing due to the strong presence of drivers like an increasing tendency among business users to buy services on an as-needed basis and growth in cross-company collaboration. Figure 15: Web Collaboration Market Revenue (US$M) and Annual Growth, 2006-2010 500 120% 400 100% 80% 300 60% 200 40% 100 20% 0 0% 2006 2007 2008 2009 2010 Revenue (US$M) 50 89 169 270 400 Growth 108% 78% 90% 60% 48% Source: Springboard Research, 7/2007 WEB COLLABORATION ADOPTION BY COUNTRY There is strong demand for on-demand collaboration services and tools, especially web conferencing, in countries like Australia, Korea, India, China and in ASEAN. While large companies have definitely been early adopters, there is a growing demand from SMBs in Australia, New Zealand, India and the ASEAN. ON-DEMAND COLLABORATION TOOLS ADOPTION BY VERTICAL INDUSTRY Web-based conferencing and other collaboration applications have also been gaining traction across verticals. However, high-tech industries, including IT and BPO companies, financial and banking services, manufacturing, healthcare, pharmaceutical, government, 26
  31. 31. and education are the more enthusiastic adopters of on-demand collaboration software. One recent trend that has been gaining ground is the growing availability of web services for one-time or occasional users. These services have helped extend the reach and awareness of web-based collaboration tools, especially among small and mid-sized companies. ON-DEMAND COLLABORATION TOOLS COMPETITION Springboard Research estimates that WebEx has a 33% share of the Asia Pacific web conferencing market. Microsoft is the second most important vendor in the region. Other companies with a growing presence in Asia Pacific include Citrix Online and Interwise. ERP and SCM Applications Awareness and understanding of the benefits of SaaS-based ERP and SCM applications is growing steadily in Asia Pacific. Applications like on- demand ERP and SCM are finding a foothold in markets in Australia, China, Hong Kong, South Korea and Taiwan, with a few deployments in India as well. Manufacturing companies, especially in high-tech industries that provide semiconductors, flat panel displays and similar products in China, Korea, Taiwan, Malaysia and Thailand have found the on-demand ERP model appealing. Many companies have reported significant savings, ranging from 10% to 50%, as a result of SaaS application deployment. Springboard Research estimates that the market for these applications will grow at a healthy CAGR of 50% to reach US$70 million in 2010, up from US$14 million in 2006 (Figure 16). Figure 16: On-Demand Back-Office Revenue (US$M) and Annual Growth, 2006-2010 80 70% 60% 60 50% 40% 40 30% 20% 20 10% 0 0% 2006 2007 2008 2009 2010 Revenue (US$M) 14 22 35 50 70 Growth 57% 59% 43% 40% Source: Springboard Research, 7/2007 Despite the healthy estimated growth, these applications will account for a relatively small portion of the SaaS market. In fact, Springboard expects ERP and SCM application market share to decline from the current 9%, to 6% in 2010. This will happen as other SaaS applications like CRM and web collaboration grow at a quicker rate. We believe that the market lacks a choice of applications in the ERP/SCM area. Also, 27
  32. 32. unlike the on-demand CRM or collaboration space where vendors like Salesforce.com and WebEx have been able to develop and expand the market based on their pioneering status and innovation, existing on- demand ERP and SCM companies currently lack the stature and appeal that can help them develop the market on their own. Ce2open, GSX, Mitrix and Wesupply, Platte River Systems are some of the on-demand SCM companies present in APAC. Prominent on- demand ERP vendors include Intacct and NetSuite. Local ISVs such as Cosmoshakthi Software Solutions, iWeb Technology Solutions, Octopus eInternational, Spendvision, Villagemall Pty., HRMantra Software, Aldea Infotech and Ramco Systems also provide with on-demand ERP applications. On-Demand HR Applications Applications like HR/workforce management/performance management, payroll management, content management, web analytics, billing, word processing, spreadsheets, security and collaboration-based IT infrastructure management are also gaining acceptance in the Asia Pacific SaaS market. Among these, web-based HR applications are currently the most popular, especially among companies in high-tech industries, consumer goods, real estate and BPO. Springboard Research estimates that the market for on-demand HR applications will grow at a CAGR of 65% to reach US$75 million in 2010, from US$10 million in 2006. Figure 17: On-Demand HR Applications Revenue (US$M) and Annual Growth, 2006-2010 80 100% 80% 60 60% 40 40% 20 20% 0 0% 2006 2007 2008 2009 2010 Revenue (US$M) 10 14 25 40 75 Growth 40% 79% 60% 88% Source: Springboard Research, 7/2007 We believe that the growing number of HR applications developed for the SaaS market and the wide choice this availability affords for organizations will be a key factor in driving the adoption of these applications. Moreover, as the current economic boom in many Asian countries, especially China and India, leads companies to expand their workforce, they will increasingly rely on SaaS-based applications to manage employees. 28
  33. 33. In addition, we expect the on-demand model to continue to spread to other applications as the use of Internet as a business tool increases and as organizations are able to access a wide variety of applications. (Figure 18) Figure 18: Other* On-Demand Applications Revenue (US$M) and Annual Growth, 2006-2010 200 240% 200% 150 160% 100 120% 80% 50 40% 0 0% 2006 2007 2008 2009 2010 Revenue (US$M) 11 33 79 110 160 Growth 200% 139% 39% 45% *Includes messaging and email management, security (anti-virus, anti-spam, IDS), and compliance management, web analytics, content management, billing, word processing, spreadsheets, security and collaboration-based IT infrastructure management Source: Springboard Research, 7/2007 Among other applications, security is likely to emerge as the most dynamic segment in SaaS. Recent product announcements by leading security solutions vendors Symantec and Trend Micro are also likely to add to market momentum. While Symantec is launching Symantec Protection Network, a software-as-a-service platform designed to deliver easy-to-use security offerings to small and mid-sized businesses, Trend Micro has announced its usage-based licensing program available in North America through leading IT products distributor, Tech Data. 29
  34. 34. C OUNTRY P ROFILES Australia Australia remains the biggest Asia Pacific market for SaaS applications. A high level of awareness combined with superior broadband infrastructure has driven SaaS adoption in the country. The flurry of SaaS vendor activity has also contributed to market growth. Australia is the first important battleground for leading vendors like Salesforce.com, WebEx, NetSuite, Citrix Online and RightNow Technologies. SaaS is also finding growing acceptance among companies, especially SMBs, in neighboring New Zealand. Australia has a thriving community of local ISVs that offer a range of SaaS applications. Moreover, the high-profile involvement of the country’s leading telecom operator, Telstra, and systems integrator, Melbourne IT (which acquired WebCentral), in SaaS has aided market growth. Springboard Research estimates that the Australian SaaS market will grow at a CAGR of 65% to reach US$405 million in 2010, from US$55 million in 2006 (Figure 19). A large part of this growth will come from on- demand CRM applications, followed by web conferencing and collaboration. Figure 19: Australian SaaS Market Revenue (US$M) and Annual Growth, 2006-2010 500 120% 400 80% 300 200 40% 100 0 0% 2006 2007 2008 2009 2010 Revenue (US$M) 55 96 175 290 405 Growth 75% 82% 66% 40% Source: Springboard Research, 7/2007 High-tech industries, healthcare and business services (HR, recruiting firms, legal services, and travel services), retail, education, government organizations and the non-profit sector have been among the significant adopters of SaaS in Australia. The relatively low cost involved in buying and using SaaS applications, the ability to deploy them quickly, clear business benefits and scalability have been among the top reasons for SaaS adoption in these verticals (Figure 20). 30
  35. 35. Figure 20: Primary Reason for Adopting SaaS, Australia Zero / Low maintenance 31% Easy and quick to deploy 12% Business Benefits 12% Scalability 12% Lower cost of ownership 10% Ease of use and management 10% Others 15% 0% 5% 10% 15% 20% 25% 30% 35% Q: What is the primary reason your company subscribed to SaaS? N=50 (SaaS Adopters/Australia-New Zealand) Source: Springboard Research, 7/2007 Despite high awareness levels, many Australian companies are still not interested in SaaS. According to Springboard Research data, this reluctance to adopt is largely because companies feel that SaaS applications do not meet their business requirements, are costlier then licensed on-premise applications and are less secure (Figure 21). This again underlines the importance to SaaS vendors of providing more market education to improve awareness and understanding of SaaS. Figure 21: Primary Factor Preventing SaaS Adoption, Australia No business requirement 41% Licensed software is cheaper than SaaS 20% Security is an issue with SaaS 18% Technology is not mature 10% Reliability is an issue with SaaS 8% Vendor support is an issue with SaaS 2% Finding a SaaS vendor is difficult 2% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Q: What is the primary reason your company does not subscribe to SaaS? N=51(Non-Adopters/Australia/New Zealand) Source: Springboard Research, 7/2007 31
  36. 36. China/Hong Kong Despite a host of challenges that include high software piracy levels and significant user discomfort associated with deploying third-party hosted business applications (due to security and privacy-related concerns), SaaS is finding increased acceptance among Chinese companies. Springboard Research data shows that the Chinese SaaS market will grow at a CAGR of 72% (2006-2010) to US$175 million in 2010. In 2006, the market amounted to US$20 million or 13% of the total SaaS applications market in the region (Figure 22). Figure 22: China/Hong Kong SaaS Market Revenue (US$M) and Annual Growth, 2006-2010 200 160% 150 120% 100 80% 50 40% 0 0% 2006 2007 2008 2009 2010 Revenue (US$M) 20 43 80 110 175 Growth 115% 86% 38% 59% Source: Springboard Research, 7/2007 Ease of use and management, business benefits, and lower cost of ownership are among the prime drivers of SaaS adoption in China (Figure 23). Figure 23: Primary Reason for Adopting SaaS, China Ease of use and management 28% Business benefits 24% Lower cost of ownership 18% Easy and quick to deploy 14% Zero/Low maintenance 8% Scalability 2% Other 6% 0% 5% 10% 15% 20% 25% 30% Q: What is the primary reason your company subscribed to SaaS? N=50 (SaaS Adopters) Source: Springboard Research, 7/2007 32
  37. 37. Increased vendor activity in recent months has helped drive momentum in the Chinese market. One key development in 2007 was the launch of the Chinese edition of Salesforce.com’s on-demand CRM application targeted at small companies. Apart from providing business analytics, Salesforce.com’s CRM model includes features from its flagship Salesforce CRM product, such as “Salesforce Marketing,” which enables companies to capture website leads and to distribute those leads to sales teams; and “Salesforce Automation,” which helps businesses manage sales data and processes. Many Chinese ISVs, large and small, are working to derive gains from the emerging opportunities in SaaS. For instance, one of China’s leading software application vendors, Kingdee, has tied up with IBM to offer SaaS applications. In another example, XToolsCRM, a small vendor, is trying to push on-demand CRM as the perfect option for Chinese SMBs. On the other hand, MNC vendors like Microsoft are also trying to develop the market and are encouraging local ISVs to enter the SaaS business. The software giant has in fact signed a memorandum of understanding with Suzhou Software Park for a software-as-a-service incubator program designed to persuade more Chinese software companies to build SaaS applications. Lack of a perceived business requirement, data security concerns (not many Chinese companies are comfortable with the idea of letting their data reside in an external data center), lack of awareness and understanding of SaaS and the perception that on-premise software is cheaper, are among the reasons that prevent Chinese companies from SaaS adoption (Figure 24). Figure 24: Primary Factor Preventing SaaS Adoption, China No business requirement 36% Security is an issue with SaaS 16% Low awareness about the concept 10% Licensed software is cheaper than SaaS 10% Centralized decision 8% Technology not mature 8% Finding a SaaS vendor is difficult 6% Vendor support is an issue with SaaS 4% Reliability is an issue with SaaS 2% 0% 5% 10% 15% 20% 25% 30% 35% 40% Q: What is the primary reason your company does not subscribe to SaaS? N=51(Non-Adopters) Source: Springboard Research, 7/2007 The highly localized nature of the Chinese software applications market is dominated by local ISVs and is proving to be a market inhibiting factor. Chinese companies appear to be more comfortable with local 33
  38. 38. vendors – and not many have the ability to deliver software-as-a- service via a multi-tenancy architecture model. Local ISVs offering SaaS in China face the challenge of realizing subscription payments, and the lack of well-established and accepted on-line payment systems has meant that ISV vendors are not always able to collect payments in time. India India is one of the fastest growing SaaS markets in the region. Springboard Research estimates that the Indian market will grow at a CAGR of 77% from 2006 to 2010 to reach US$165 million in 2010, from US$17 million in 2006 (Figure 25). While web conferencing and other collaboration tools dominate the SaaS market, on-demand CRM and HR applications are also gaining traction. Figure 25: India SaaS Market Revenue (US$M) and Annual Growth, 2006-2010 200 120% 150 80% 100 40% 50 0 0% 2006 2007 2008 2009 2010 Revenue (US$M) 17 27 54 105 165 Growth 59% 100% 94% 57% Source: Springboard Research, 7/2007 Ease of use and management and lower cost of ownership are among the prime drivers of SaaS adoption by Indian companies (Figure 26). Figure 26: Primary Reason for Adopting SaaS, India Ease of use and management 44% Lower cost of ownership 23% Easy and quick to deploy 19% Scalability 4% Business benefits 2% Zero/Low maintenance 2% Other 6% 0% 10% 20% 30% 40% 50% Q: What is the primary reason your company subscribed to SaaS? N=50 (SaaS Adopters) Source: Springboard Research, 7/2007 34
  39. 39. Springboard Research is of the view that after Australia, India represents the most significant opportunity for on-demand CRM vendors. Already, vendors like Salesforce.com are finding a growing number of customers in India. The growing use of the Internet as a business tool and improving telecom infrastructure, presence of a large IT community and the increasing focus of Indian companies on global markets are among the factors driving growth in the country’s SaaS market. Springboard Research expects that further availability of affordable and quality broadband access will provide further impetus to the market. SaaS is providing a new business opportunity for local ISVs, with many of them targeting the overseas market by emulating the offshore service delivery model. Large Indian IT services companies have also shown growing interest in delivering software-as-a-service, adding to market momentum. For instance, Infosys is planning to launch its universal banking solution, Finacle, as a service offering along with its other products to expand its market reach. At another level, the largest Indian IT service provider, TCS, has formed a strategic alliance with Salesforce.com to tap the system integration opportunities offered by SaaS deployments. Furthermore, leading SaaS vendors like Salesforce.com and WebEx are increasingly focusing on bringing their SaaS platforms to Indian ISVs. In spite of the opportunities, the Indian SaaS market also has a number of challenges. Despite growing awareness of the SaaS concept, it is not very well understood and that is one of the key reasons that prevents many companies from deploying it (Figure 27). Figure 27: Primary Factor Preventing SaaS Adoption, India Low awareness about the concept 26% Technology not mature 22% No business requirement 16% Finding a SaaS vendor is difficult 12% Licensed software is cheaper than SaaS 10% Security is an issue with SaaS 6% Centralized decision 4% Reliability is an issue with SaaS 4% 0% 5% 10% 15% 20% 25% 30% Q: What is the primary reason your company does not subscribe to SaaS? N=50(Non-Adopters) Source: Springboard Research, 7/2007 Singapore The Singapore SaaS market is expected to grow at a CAGR of 64% from 2006 to 2010 to reach US$80 million by 2010 (Figure 28). Financial services, telecommunications and high-tech companies are early adopters of SaaS in Singapore. The government and non-profit sector 35
  40. 40. have also been among the early adopters of SaaS in the country. As mentioned earlier, Singapore’s government has been a significant driver of SaaS adoption. Singapore's highly developed telecom infrastructure, high level of broadband penetration, government efforts to drive technology adoption in enterprises and the city-state's dominance as a regional business hub have played key roles in building the SaaS market. Figure 28: Singapore SaaS Market Revenue (US$M) and Annual Growth, 2006-2010 100 120% 80 80% 60 40 40% 20 0 0% 2006 2007 2008 2009 2010 Revenue (US$M) 11 17 31 50 80 Growth 54% 85% 60% 60% Source: Springboard Research, 7/2007 Lower cost of ownership, ease of use and management, and quick deployment time has led many companies in Singapore to adopt SaaS (Figure 29). Figure 29: Primary Reason for Adopting SaaS, Singapore Zero/Low maintenance 21% Ease of use and management 21% Easy and quick to deploy 21% Lower cost of ownership 21% Scalability 7% Other 10% 0% 5% 10% 15% 20% 25% Q: What is the primary reason your company subscribed to SaaS? N=29 (SaaS Adopters) Source: Springboard Research, 7/2007 36
  41. 41. Lack of a perceived business requirement and a perception that SaaS as a technology is not mature, and also that licensed software is cheaper are the primary factors preventing non-adopters from going for SaaS (Figure 30). Figure 30: Primary Factor Preventing SaaS Adoption, Singapore No business requirement 37% Technology not mature 17% Licensed software is cheaper than SaaS 17% Centralized decision 11% Security is an issue with SaaS 9% Less awareness about the concept 4% Reliability is an issue with SaaS 4% Vendor support is an issue with SaaS 2% 0% 5% 10% 15% 20% 25% 30% 35% 40% Q: What is the primary reason your company does not subscribe to SaaS? N=50 (Non-Adopters) Source: Springboard Research, 7/2007 37
  42. 42. S AA S C HANNEL IN A SIA P ACIFIC The SaaS channel in Asia Pacific is in its very early stages of evolution, and direct sales remain central to most vendors’ go-to-market strategies. Some vendors have begun building partnerships with local resellers and distributors primarily for demand generation, while others have started tapping partners for providing value-added SaaS implementation, integration and support services. However, at this point, Springboard Research believes that most SaaS vendors do not have a well-established SaaS channel in the region, as most of them appear more comfortable dealing directly with their customers. Moreover, lack of experience and knowledge of application business processes, and low margins on SaaS applications is keeping channels away from SaaS. Given this reality, most users in Asia Pacific are buying SaaS applications directly from the vendors. Over 70% of SaaS applications are being sold directly by vendors either through face-to-face interactions with customers or via their websites or the phone (Figure 31). Figure 31: Share of Direct Sales in SaaS Business by Application ERP 84% CRM 80% Desktop Office Apps 78% Web Conferencing/ Collaboration 74% Email 71% HR 69% Security/Compliance 59% SCM 55% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Q: From which channel did you buy your software-as-a-service application? (% Direct) N=179 (SaaS Adopters) Source: Springboard Research, 7/2007 Of significance is that the need for channel partners (local resellers or agents) is being strongly felt by SaaS users; so although most SaaS users are buying directly from the vendors, the majority of them think the involvement of a local reseller or agent is necessary when buying SaaS applications (Figure 32). 38
  43. 43. Figure 32: Local Resellers: Necessary or Not When Buying SaaS No, 29% Yes, 71% Q: Do you believe the involvement of a local reseller or agent is necessary when buying software-as-a-service applications? N=179 (SaaS Adopters) Source: Springboard Research, 7/2007 A higher percentage of SaaS-using respondents feel channel involvement is helpful even if not necessary (Figure 35). This again indicates that users believe local resellers or agents can help them overcome associated with choosing and deploying SaaS applications. Figure 33: Local Resellers: Helpful or Not When Buying SaaS No, 21% Yes, 79% Q: Do you believe the involvement of a local reseller or agent is helpful when buying software-as-a-service applications? N=179 (SaaS Adopters) Source: Springboard Research, 7/2007 39

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