Introduction To Saa S Tech Ba Apr 2009

What is Software as a Service? Introduction, Trends and Perspectives in Software as a Service April 2009

The Evolution of Man

What is SaaS?  SaaS = Software as a Service  It is a Deployment/Delivery model » Hosted and Managed by vendor » Delivered across the Internet  It is a Business Model: usage-based pricing (vs. perpetual license model of on-premise software). Examples: » Per user per month » Per transaction » Per GB of storage per month 3 Scio Consulting International, LLC. All rights reserved.

History  Born during dot-com era (late 90‟s) » “ASP” (Application Service Provider) • Apps hosted/managed by Vendor • Remote access through VPN • Almost died with dot-com burst  Early SaaS companies born in early 00‟s  2003-2005 High-speed Internet growth = trigger for SaaS  Feb 2009 – Salesforce.com reported annual revenues of $1,000 Million USD 5 Scio Consulting International, LLC. All rights reserved.

What makes a product SaaS?  Network-based access to commercially available software  Multi-tenancy (one-to-many)  Payment Model  Central Application Management » Software » Infrastructure  Control of Upgrade Process 7 Scio Consulting International, LLC. All rights reserved.

Benefits of SaaS – For Clients  Lower entry point » No large up-front investment in • Software licenses • IT infrastructure  Lower operating/maintenance costs » Fast, easy deployment (Web browser) » Vendor maintains/upgrades application » No IT staff necessary to keep running  Consumption-based expenditure » Pay As You Go (OpEx vs CapEx) » Scale up/down as needed 8 Scio Consulting International, LLC. All rights reserved.

Benefits of SaaS – For End-Users  Easy deployment/ramp up » Typically based on Web browser access » No additional hardware/software needed  Any time, Any where access » Outside the corporate firewall  Transparent updates  Support direct from Vendor 9 Scio Consulting International, LLC. All rights reserved.

Benefits of SaaS – For Vendors  Economies of Scale » Derived from Multi-tenant architecture • Better resource utilization • Simplified maintenance » For a well designed app, operating costs per customer drop as customer base grows  Better understanding of usage patterns » To drive innovation and enhancements  Faster release cycles to keep up with market and competition  De-facto access to Global market 12 Scio Consulting International, LLC. All rights reserved.

SaaS vs ASP  ASP: Application Service Provider » Single-tenant architecture (one customer per instance) » Multiple instances running (as many as there are clients), typically hosted by third parties  Disadvantages » Significant management overhead » Difficult maintenance » No economies of scale 13 Scio Consulting International, LLC. All rights reserved.

Business Functionality of SaaS Client/User Registration & Management  Provisioning  Billing & Payment Processing  Performance Monitoring  Usage Metering & Tracking  Reporting  Customer Service & Self-Service  15 Scio Consulting International, LLC. All rights reserved.

SaaS Business Model Implications  New sales & marketing approach » Greater emphasis on web-centric cycle  New sales & marketing compensation  New release cycles and maintenance model  New deployment/delivery approach  New/higher expectations on customer service  Uptime and SLA  Professional Services 16 Scio Consulting International, LLC. All rights reserved.

Building SaaS - Alternatives From the Ground Up Through a PaaS (Platform as a Service) PaaS Platform Examples: PaaS Examples: • LAMP • Force.com • Win, IIS, ASP.NET, SQL Server • Google App Engine • Ruby on Rails • SaaSGrid, Coghead, Bungee Lab Hosting Alternatives: Hosting: • In-house • Included • Co-location • Cloud Computing (EC2, GoGrid) 19 Scio Consulting International, LLC. All rights reserved.

SaaS Growth Forecast  According to Gartner: » 9 out of 10 companies plan to grow their use of software-as-a-service in the next year (2009) and more than 30% plan to replace on-premises software with SaaS to drive down TCO (Gartner) » 2008 market value: $6.3 Billion USD (6% of the 2008 software market) » Growth to $19.6 Billion USD for 2011 (25% of the total software market)  Investors, VC, M&A look for recurring revenue model 20 Scio Consulting International, LLC. All rights reserved.

Primary Drivers of SaaS  Changing competitive forces  Changing workplace requirements  Changing economic & ecological conditions  Changing technologies  Changing priorities & sourcing policies

The Shortcomings of Legacy, On-Premise Apps  Deployment Challenges » 31.1% of SW projects cancelled before completed. » 52.7% of projects cost nearly 190% of original estimates.  Operational Costs » Maintenance & management costs >10x original license fee. » Escalating hardware & staff support costs. » Over provisioning and under-utilization of SW licenses  Economic/Budgetary Pressures » Need to reduce IT costs and increase business benefits. » Need to increase utilization to gain greater ROI.

Changing Customer Expectations New, Old,  Operating Expense  Capital Investment  Simplicity, Utilization  Complexity, Customization  Proactive Management  Reactive Maintenance  Ongoing Monitoring  Response Time  Automated Delivery  Customer Support  Higher Accountability  Limited Responsibility  Out-Tasking Options  Outsourcing Alternatives Enterprises Seeking to Generate Greater ROI at Lower TCO.

An Equation for Greater Market Opportunities Economy Tighter = Greater SaaS + Uncertainty Budgets Opportunities

Rewiring the World, From Edison to Google “A hundred years ago, companies stopped generating their own power with steam engines and dynamos and plugged into the newly built electric grid…Today, a similar revolution is under way.” - Nicholas Carr

And Gartner Says… “The outsourcing market has reached a tipping point with regard to utility delivery models, and that change and innovation will take hold and accelerate in this area through 2008 and beyond. [And] the trend toward software-as-a-service (SaaS) is gaining the most traction…” 1/9/08

The Role of SaaS in SMBs and Enterprises Small = Fill Unmet Needs Mid-Size = Fill Unmet Needs/Replace Enterprise = Augment/Extend Capabilities

Welcome to Gartner’s ‘Slope of Enlightenment’ Gartner’s Hype Cycle You are here.

On-Demand Market Adoption Forecast Laggards Market Penetration Mainstream Buyers Early Adopters Innovators 2004 2006 2008 2010

SaaS Evolution SaaS 1.0 SaaS 2.0 • Standalone point apps • Multidimensional platforms • Focus on ease of use/price • Focus on added functionality • One size fits all, minimal • Multiple configurations, customization greater versatility • Horizontal applications • Vertical/industry solutions • Limited interoperability • Easier integration • Emphasis on lower TCO • Emphasis on higher ROI

Shifting Adoption Patterns Unilateral End-User, Enterprise-Wide SBU Adoption of Acceptance and SaaS Solutions Adoption of SaaS

Size of SaaS Deployments Growing SaaS Vendor Customer # Users Salesforce.com Misys 40,000 SuccessFactor Wachovia 85,000 “A Financial Concur 185,000 Services Company” Workday Flextronics 200,000 “A Leading Food Authoria 340,000 Services Company”

The Meaning of Community in the SaaS Market  Real-time, aggregated data  Meaningful benchmark studies  Practical best practices forums  Continuous updates, new ideas  Dynamic toolkit clearinghouse

Living in a Hybrid World  Most enterprises will seek mix of on- premise & on-demand solutions.  Users prefer choice.  Users seeking on-demand/on-premise integration.  „Applets‟, Appliances, etc. will permit off- line use and synchronization.

Opportunity in Mexico - Context  Limited number of Mexican SW product companies » Most of them focused their sales and applications to the domestic market. • Financial, accounting and operation related applications (ERPs) • Sold using the licensing model (initial fee for each user) • Additional income for the producer is the upgrade o support maintenance fee. • Small set in other areas: CRM, facility planning, construction, point of sales, manufacturing, electronic commerce, and content management systems 38 Scio Consulting International, LLC. All rights reserved.

Opportunity in Mexico – cont‟d.  Level of use of computer applications in México is very low (1) » Vicious circle: low demand yields low Application development  High cost of implementation (SW + HW + Operations + Support) reduces the number of companies that are implementing advanced systems within Mexican enterprises. » Immense barrier to entry » This can be mitigated by SaaS with its pay-by-use model opens which opens new opportunities for software companies. 39 Scio Consulting International, LLC. All rights reserved.

Opportunity in Mexico – cont‟d  With SaaS, Mexican SW providers can » Have customers in any place in the world without an international sales force and installation crews. » Go after a substantially larger market • The opportunity for growth is more realistic ▪ The company becomes more attractive to its investors and shareholders. 40 Scio Consulting International, LLC. All rights reserved.

Most Attractive Possibilities  Get into a niche market to provide a specific Line-of-Business solution » Combine software applications and a set of services (based on best practices) that provide value added 41 Scio Consulting International, LLC. All rights reserved.

Luis Aburto, CEO 408.239.4020 laburto@sciodev.com http://www.sciodev.com

Introduction To Saa S Tech Ba Apr 2009

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