V E N D O R P R O F I L E
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V E N D O R P R O F I L E V E N D O R P R O F I L E Document Transcript

  • VENDOR PROFILE Enabling Software-as-a-Service Delivery: A Profile on OpSource Erin TenWolde IDC OPINION For an independent software vendor (ISV), moving to a software-as-a-service (SaaS) delivery model requires more than simply putting boxes in a datacenter. Instead, www.idc.com SaaS providers must consistently demonstrate the value of their offerings in order to retain existing customers and attract net-new customers while delivering a reliable and secure service 24 x 7. IDC believes this is a big adjustment to the mindset and operational model of the traditional ISV. In recognition of this increase in F.508.935.4015 accountability, some companies are aiming to help ISVs take advantage of the SaaS opportunity, thereby alleviating some of the pressure and uncertainty of entering unknown territory when it comes to providing SaaS. The following is a profile of OpSource, a SaaS enabler that helps start-up SaaS firms, existing SaaS companies, and traditional ISVs launch and deliver SaaS applications. Highlights from this study P.508.872.8200 include the following: ! To date, OpSource has raised $44 million in funding from investors such as ComVentures, Artiman Ventures, Key Venture Partners, Intel Capital, and Crosslink Ventures. Global Headquarters: 5 Speen Street Framingham, MA 01701 USA ! Of the company's 175 clients, one-third are traditional ISVs and existing SaaS companies that already have an established revenue stream. These customers generate two-thirds of OpSource's revenue. The remaining two-thirds of the company's customers are start-up SaaS firms that contribute one-third of OpSource's revenue. ! By partnering with OpSource, traditional ISVs and existing SaaS companies can utilize OpSource's Web application delivery platform and 24 x 7 end-customer support as well as its integrated analytics and onboarding/billing capabilities. For start-up SaaS customers, OpSource can help offer a low cost of entry into SaaS and accelerated time to market by providing the required infrastructure and operational staff. The company also offers accelerated salesforce.com AppExchange and WebEx Connect certifications. IN THIS VENDOR PROFILE This IDC Vendor Profile highlights OpSource's market presence, including its delivery platform and go-to-market, pricing, operational, service, and partnering strategies. Software-as-a-service (SaaS) enablers have emerged to play an important role in the SaaS ecosystem. These firms supply the infrastructure, operational support, and Filing Information: December 2007, IDC #209744, Volume: 1 Software as a Service: Vendor Profile
  • transformational assistance to help build and deliver SaaS offerings. One such company, OpSource, has had particular success within the SaaS enablement business. SITUATION OVERVIEW Company Overview Founded in 2002, OpSource (www.opsource.net) began primarily as a managed hosting provider to Web, telecommunications, and enterprise companies. Recognizing the growing need for SaaS enablement services and leveraging its operational experience, OpSource refocused its business model toward the end of 2004 on exclusively delivering SaaS applications for start-up SaaS companies, traditional ISVs, and existing SaaS companies. Since then, the company has grown to 155 employees and 175 clients, including 12 international firms in Europe, Israel, Japan, and Ireland. The majority of OpSource's revenue comes from North America; the company recently launched OpSource Europe in May 2007. To date, OpSource has raised $44 million in funding from investors such as ComVentures, Artiman Ventures, Key Venture Partners, Intel Capital, and Crosslink Ventures. Company Strategy OpSource helps enable the launch and delivery of a wide variety of SaaS applications. The company's goal is to provide everything necessary to deliver secure, reliable, and highly available on-demand applications. As a result, customers are able to focus their resources on building strategic intellectual capital and selling their solutions. Of the company's 175 clients, one-third are traditional ISVs and existing SaaS companies that already have an established revenue stream and that generate two-thirds of OpSource's revenue. These clients include Oracle (Agile Software), Business Objects, BMC Software, Serena, and KANA. The remaining one- third of revenue is attributed to start-up SaaS companies such as Boomi, Coghead, Etology, AdMob, and Firepond. Delivery Platform OpSource On-Demand (OOD), the company's Web application delivery platform, is intended to provide the required components for successful SaaS delivery. It comprises two integrated sets of services: ! Core services. Core services includes hardware, software, and datacenter and networking infrastructure, including security, multipoint end-customer monitoring, and disaster recovery capabilities. In addition, OpSource offers a database as well as full application management and performance tuning, rollout/rollback (the process of rolling out a new release to all end customers and/or restoring end customers to a previous release in case there is an issue), change management, database administrator (DBA) support, and 24 x 7, client-branded end-customer call center and support. 2 #209744 ©2007 IDC
  • ! Application services. Application services includes Web services developed by OpSource, its clients, and/or third-party vendors that are made available to OOD clients through the OpSource Services Bus (OSB), which is the company's application programming interface (API). Clients can integrate these Web services offerings into their respective SaaS solutions. OpSource believes that its customers can save as much as 75% of their application development time by utilizing Web services through the OSB. The two application services that are available today are as follows: # OpSource Analytics. OpSource Analytics offers the ability to track key performance indicators (KPIs) such as sign-on rates, application adoption, feature usage, and customer churn as well as operational indicators including application availability, bandwidth consumption, ticketing, monitoring, and intrusion detection. # OpSource Billing. OpSource Billing is a customer onboarding and payment card industry (PCI)–compliant payment processing solution that includes capabilities such as account activation, establishing pricing and rates, capturing usage, generating and sending invoices, processing payments, collections, and service suspensions. Go-to-Market Strategy Given OpSource's diverse client base, the company has to meet the distinct SaaS needs of start-up SaaS firms, traditional ISVs, and established SaaS providers. Start-Up SaaS Firms According to OpSource, smaller start-up companies entering SaaS are looking to conserve their resources while trying to get to market as quickly as possible. These companies can benefit from a low cost of entry into SaaS because OpSource provides all of the required infrastructure and operations staff. This approach is designed to help reduce risk and accelerate time to market. For these new SaaS companies, OpSource is focused on not only getting their SaaS solutions up and running quickly but also helping them scale their cost structure with their revenue growth. To reach these start-up companies, OpSource employs various Web-based marketing initiatives and a free online trial. An online ordering system walks a potential client through a series of questions regarding its SaaS application and then recommends an OpSource On-Demand environment tailored to those application requirements. Typically, online clients can have their application available in 72 hours. At the conclusion of the free trial customers can continue on a month-to-month basis or move to a discounted annual or multiyear agreement. Traditional ISVs OpSource helps traditional ISVs, especially public companies, understand the business implications surrounding a SaaS strategy and then assists them in the transition. Treb Ryan, CEO of OpSource, observes, "Public companies tend to make bigger bets since they already have a significant revenue stream. They are typically ©2007 IDC #209744 3
  • much more focused on issues like making sure that they are SAS 70 [Statement on Auditing Standards No. 70] compliant as well as PCI compliant. These companies tend to put in larger infrastructures from the start." For traditional ISVs considering a move to SaaS, OpSource has developed the SaaS Enablement Program, which consists of a consulting toolkit to educate firms on how to deliver a SaaS solution. It is typically a three-month engagement where OpSource evaluates a company's business model, price plan, code base, and operations to help it move into SaaS. After the three-month modeling exercise, the traditional software company is usually ready to launch the product; OpSource provides the Web application delivery solution. Traditional ISVs moving to SaaS, as well as existing SaaS firms, can also leverage OpSource's economies of scale, delivery platform, 24 x 7 end-customer support, and integrated onboarding/billing solution. OpSource notes that it is already seeing less need for its SaaS Enablement Program because traditional ISVs are quickly becoming more knowledgeable about what has to be done to enter the SaaS business. According to Ryan, "Now companies have a better, firmer grasp on how to make that transition. They understand what they need to do, which allows us to focus on moving them directly onto the OpSource On- Demand delivery platform." Established SaaS Providers Finally, for established SaaS providers, OpSource utilizes its economies of scale to provide multisite reliability and disaster recovery, international presence, and scalable infrastructure. According to the company, these services can be provided at less cost than established SaaS companies could achieve on their own because of OpSource's scalability. Pricing Strategy OpSource On-Demand, including core services and application services, is offered on what the company calls a "success based" pricing model. According to OpSource, clients are charged a fixed per-unit price based on the volume of business the client conducts with end customers and not on the absorption of resources such as servers, bandwidth, or disk space. OpSource does not have a revenue share model in place with its clients. Rather, the company charges its clients according to the licensing model clients decide to charge end customers. This is typically on a per-user, per- customer, or per-transaction basis. The company believes this pricing model is unique because it ensures that its customers' application delivery expenses increase only as their revenue increases. This model is designed to more closely align OpSource with its customers' objectives. OpSource also helps its clients determine the end-customer pricing strategy for their SaaS solutions. The company uses its experience with different types of applications to help establish a client's cost basis, which is then factored into the product's price. With the recent addition of OpSource Billing into the company's portfolio, OpSource notes it is getting increasingly more involved with client pricing strategies. 4 #209744 ©2007 IDC
  • Operational Strategy In terms of the company's operational strategy, OpSource currently partners with Equinix and Internap for its datacenter facilities and has plans to diversify further in the United States as well as internationally. OpSource's four major network partners are Level 3, Qwest Communications, Limelight, and Hurricane Electric. OpSource has standardized on Red Hat Linux and Microsoft Windows for clients' hardware operating systems. About 98% of OpSource's client base is on these environments, while one or two are on other forms of Linux. All clients are on dedicated operating systems and run in multiple process environments. OpSource utilizes virtualization technologies for management capabilities. OpSource supports a range of database software, including MySQL, SQL Server, and Oracle. The company occasionally sees open source databases being utilized by clients. OpSource states there is an even split between clients using open source environments and .NET environments. Service Strategy Contracts The majority of clients sign a two-year contract with OpSource, with multiyear discounts available. According to OpSource, multiyear discounts are negotiated at the beginning of the contract and are based on the contract value and contract term. Because marginal delivery costs are expected to go down over time as a result of efficiency and stability, OpSource customers can anticipate their delivery costs as a percentage of revenue to decline over time. For example, the delivery cost for a start- up SaaS firm with little revenue may run 25% or more of revenue. For a larger, established SaaS company, delivery costs are estimated to be 12–15% of revenue. OpSource's largest clients can pay over $1 million a year for the company's application delivery services. Clients that sign up online for the free OpSource On-Demand trial do not sign a term contract, but at the end of their free trial the clients begin to pay a monthly recurring fee to OpSource. OpSource indicates that on average, online clients spend approximately $30,000 per year and usually pay by credit card or automated clearinghouse (ACH). For prospects requiring more complex infrastructures, often in excess of $60,000 per year, OpSource employs a direct sales approach. Service-Level Agreements OpSource provides a service-level agreement (SLA) that guarantees 100% availability of its clients' SaaS applications except for scheduled maintenance windows. These maintenance windows are application specific and typically involve the client upgrading code, adding new functionality, and so on. The SLA does not include infrastructure performance, but is designed to assure OpSource's clients that the application will always be available for end-customer access based on agreed- upon performance requirements. Ryan states, "The fact of the matter is, if the application is not available, we are in the same boat as the customer. Our success- based model insures that we have the same incentive as our customers to have any ©2007 IDC #209744 5
  • issues resolved as quickly as possible." Should the application not be available 100% of the time, OpSource will offer service credits back to clients. OpSource's clients have a choice as to whether or not to offer an SLA to their end customers. OpSource has indicated that a number of its clients provide SLAs; however, this varies. According to Ryan, "We're seeing our clients facing increasing demand for end-customer SLAs from large enterprise customers with strict compliance requirements. At least for now, smaller companies and individual end users don't tend to be as interested in SLAs." Customer Support OpSource offers 24 x 7 tier 1, tier 2, and tier 3 client-branded end-customer support, although not all clients select these support services. If clients do not choose to use OpSource as a customer support resource, then OpSource reduces their application delivery cost. Customer support is generally script based; those questions requiring deep domain expertise are transferred to the client's support organization or programming team. Clients that sign up for OpSource On-Demand using the online ordering system automatically receive base-level end-customer support. However, in order to keep start-up application delivery costs aligned with early-stage revenue, OpSource does not automatically provide online ordering customers with an end-customer 800 number. Performance and Monitoring Technologies OpSource utilizes a number of performance and multisite end-customer monitoring technologies both internally developed and from third parties such as BMC and Red Hat. OpSource extracts the data from a client's code base, aggregates the information, and provides the data back to clients through OpSource Analytics, which is accessed via OpSource.net (the company's online application). Clients can then correlate an application's adoption and usage with the application's performance, including network, latency, and availability. Partnering Strategy OpSource views partnering as key to its success. The company's partnering strategy involves strategic, business, and technology partners: ! Strategic partners offer complementary products and services that enable OpSource to realize global strategic business objectives. There are commitments between partners and OpSource in terms of business plans, dedicated partner management, marketing coordination and funding, sales force coordination, and, where appropriate, joint product engineering. ! Business partners provide complementary on-demand products and services to other OpSource partners in a mutually beneficial fashion. Business partners have access to the OpSource Partner Portal, cobranded marketing materials, and available marketing development funds. 6 #209744 ©2007 IDC
  • ! Technology partners provide complementary technology and products for the OpSource On-Demand solution. OpSource's strategic partners include Equinix, Limelight, Microsoft, Progress Software, salesforce.com, and Cisco (WebEx). OpSource has been working with Microsoft and salesforce.com for approximately three years. Microsoft refers business to OpSource at no fee, sponsors joint partner programs, and has donated technology to OpSource's SaaS Incubation Program. In addition, OpSource believes that Microsoft has been a great public press partner. Richard Dym, OpSource chief marketing officer, says, "Among a group of valued partners, Microsoft has been, and continues to be, one of the most important." The partnership with salesforce.com, according to Ryan, is a "symbiotic relationship." For example, some of the companies that would like to join salesforce.com's AppExchange marketplace may choose not to build their application within the salesforce.com environment. In these instances, salesforce.com refers companies to OpSource. According to OpSource, clients using OpSource On-Demand can reduce their AppExchange certification time by as much as 33% because OpSource On- Demand is already AppExchange certified. OpSource currently delivers 18 companies' applications on the AppExchange. There is no contractual agreement between OpSource and salesforce.com; it is a mutually beneficial arrangement from OpSource's perspective. FUTURE OUTLOOK IDC believes enabling ISVs to deliver SaaS solutions will help drive overall customer adoption by accelerating the development, availability, and viability of SaaS offerings. Potential benefits of having ISVs work with an enablement provider include lowered risk related to executing an on-demand model, more predictable ongoing costs, shared support responsibility for the infrastructure, and improved service levels and customer support. IDC believes the number of companies offering business, technical, and marketing support to start-up SaaS firms and established players will continue to grow. Investments in SaaS enablement programs that are designed to help ISVs capture the opportunity associated with SaaS have helped to validate the delivery model and will continue to be an important factor in the proliferation of SaaS offerings available to the marketplace. A key factor in the growth of the developing SaaS ecosystem will be the partnerships that form to enable more SaaS offerings to reach end customers. Partnering is an important area for OpSource and one the company is planning to continue to innovate. Some of this innovation is beginning to develop where there are a number of mutually beneficial and/or formal referral agreements in place with companies such as Boomi, Global Logic, Microsoft, Progress Software, salesforce.com, and Wipro. OpSource envisions that it will expand its relationships to form an ecosystem of value-added technologies and Web services to further help firms deliver enhanced SaaS solutions. ©2007 IDC #209744 7
  • ESSENTIAL GUIDANCE Advice for OpSource As more companies offer SaaS enablement programs to the developing SaaS ecosystem, it will be important for players to diversify and expand offerings to fit the needs of both start-up SaaS companies and traditional ISVs entering SaaS. SaaS has progressed to a point where the benefits and challenges of the delivery model are increasingly well known, which may affect OpSource's business over time, especially as the company's client base evolves in SaaS delivery. For instance, OpSource has recognized that many traditional ISVs are becoming increasingly familiar with the SaaS delivery and business model. Also, funding for start-up SaaS companies may eventually become less available. It will be important for OpSource to evolve its portfolio with value-added Web services similar to OpSource Analytics and OpSource Billing. The challenge for OpSource will be deciding which offerings will be absorbed into its core services (e.g., OpSource Analytics) and which will be offered for an additional fee (e.g., OpSource Billing) in order to keep adding revenue. Other opportunities for OpSource include geographic expansion into Asia/Pacific, which a number of SaaS providers have indicated is an investment area for growth. In this capacity, OpSource could help enable established SaaS players and localized firms interested in SaaS in the same way OpSource has done in North America, and now starting in Europe. Adoption of SaaS in Asia/Pacific is still in its very early stages; however, IDC believes there will be growing demand and opportunity in this region over the next three to five years. OpSource has indicated that partnering will continue to be a key focus of the company in order to develop its own ecosystem of SaaS products and services. Although partnering relationships among players in the broader SaaS ecosystem have been limited to date, many companies continue to evaluate their role, which will mean new relationships and business ventures. OpSource needs to continue to focus on its core competency — delivering SaaS applications — and partner for other value-added services that its customers need. Whether working with partners or customers, the company has to continue openly communicating and working transparently with these firms. LE ARN MORE Related Research ! Two Key Messages from Salesforce.com's Dreamforce Event 2007: Innovation and Reinforcement (IDC #208956, October 2007) ! The Road to Volume: SAP Premiers Its Midmarket On-Demand Suite, Business ByDesign (IDC #208893, September 2007) 8 #209744 ©2007 IDC
  • ! Adoption of Software as a Service in U.S. Small Businesses: Crafting Effective Strategies to Capitalize on the Emerging Opportunity (IDC #208875, September 2007) ! The Emerging SaaS Channel (IDC #208547, September 2007) ! Salesforce.com Continues to Increase Its Ecosystem Reliance (IDC #lcUS20886107, September 2007) ! Capgemini Announces Google Partnership: The SaaS Ecosystem Continues to Build (IDC #lcUS20867807, September 2007) ! Worldwide Software on Demand 2007–2011 Forecast Update and 2006 Vendor Shares: Sky's the Limit for On-Demand Providers (IDC #207491, July 2007) ! Salesforce.com and Google: The Marketing Power of Two (IDC #207228, June 2007) ! Google and Ingram Micro: Outsourcing the Partner Program (IDC #lcUS20763107, June 2007) ! Reaching Critical Mass in the SaaS Ecosystem: Are We There Yet? (IDC #206699, May 2007) ! IDC's Worldwide Software as a Service Taxonomy, 2007 (IDC #205662, March 2007) ! Worldwide Software Business Strategies 2007 Top 10 Predictions (IDC #205135, January 2007) Copyright Notice This IDC research document was published as part of an IDC continuous intelligence service, providing written research, analyst interactions, telebriefings, and conferences. Visit www.idc.com to learn more about IDC subscription and consulting services. To view a list of IDC offices worldwide, visit www.idc.com/offices. Please contact the IDC Hotline at 800.343.4952, ext. 7988 (or +1.508.988.7988) or sales@idc.com for information on applying the price of this document toward the purchase of an IDC service or for information on additional copies or Web rights. Copyright 2007 IDC. Reproduction is forbidden unless authorized. All rights reserved. ©2007 IDC #209744 9