SaaS : The Future of Flexible Software Model

Software As A Service – SaaS The Future of Flexible Software Model Rami Al-Sahhar

Overview
What is SaaS? What does it promise?
The SaaS Market Opportunity
SaaS for Microsoft and Oracle
SaaS Model vs ASP Model
Why SaaS is important?
SaaS Market Challenges
SaaS Business Benefits
SaaS Technology Readiness Approach
The Impact of SaaS
The Challenges of SaaS
SaaS Requirements
Transition to SaaS
Conclusion

What is SaaS? - Wikipedia
Software as a service (SaaS) is a software application delivery model in which customers pay to access and use software functionality over a network through a hosted, web-native platform operated by the software vendor (either independently or through a third-party).
Not just a change in delivery model
Requires significant shift in thinking
Forces fundamental changes in thinking across the business
Changes many assumptions about being a successful software vendor

Software as a service (SaaS) Traditional Software Build Your Own On-Demand Utility Plug In, Subscribe Pay-per-Use

Product vs. Service Software as a Product Software as a Service Delivery Installed Hosted Development Longer cycle, “big bang” Short, continuous cycle Pricing Perpetual license + maintenance Subscription (all inclusive) Allocation Capitalized Expensed Additional Costs Installation, maintenance, customization, & upgrades Configuration Platform Multi-version Single Platform Updates Larger, less-frequent Shorter, frequent Sales Focus Close the deal Prove value in first 90 days Feedback Cycle Long Short Profits Initial sale Ongoing Success New license revenue Lack of churn

SaaS Key Characteristics
Network-based access to, and management of, commercially available (i.e., not custom) software
Activities that are managed from central locations rather than at each customer's site, enabling customers to access applications remotely via the Web
Application delivery that typically is closer to a one-to-many model (single instance, multi-tenant architecture) than to a one-to-one model, including architecture, pricing, partnering, and management characteristics.

What does SaaS promise?

The Promise of SaaS
Surveyed over 300 members of the IAMCP (International Association of Microsoft Certified Partners) and also partners at an unnamed major IT distributor
76% said that SaaS will “dramatically impact” the partnering landscape
70% view SaaS as a “big” opportunity (not a threat)
Many firms already engaged in SaaS-related activities
SaaS has the potential to change the way business is done
2008 brings increased vendor participation in the SAAS space from SAP, Microsoft, Cisco Systems, IBM and others
SAAS Capabilities and Opportunities (December 2007)

The Promise of SaaS
McKinsey finds that SaaS is a growing priority for CIOs and VCs
Multiple factors are spurring the growth
Decreasing cost of bandwidth
Customer frustration with traditional software buying cycle (license + maintenance contract + upgrades)
Perceived increase in control over the vendor relationship
Early SaaS success stories -- Salesforce.com, WebEx, etc. demonstrate broader value proposition
Delivering Software as a Service (June 2007)

The Promise of SaaS
The most “impactful” trend in software
The “SaaS shift” is in full swing
Over the next several years it will become pervasive in almost all areas of the software market
Making SaaS Savvy Investments (November 2007)

The Promise of SaaS
23% projected annual growth
$21.4 billion industry by 2011
Representing 14% of addressable market
Making SaaS Savvy Investments (November 2007)

The Promise of SaaS
By 2009
40% of new business software vendors will offer a SaaS model
100% of Tier 1 consulting firms will have a SaaS practice
By 2010
15% of large companies will begin projects to replace their ERP backbone (financials, HR, and procurement) with SaaS solutions.
85% of SaaS vendors will offer performance SLAs in standard contracts
By 2012
More than 66% of independent software vendors (ISVs) will offer some of their applications optionally or exclusively as SaaS
Predicts 2008: SaaS Gathers Momentum (January 3, 2008)

The Promise of SaaS
We expect more customers to opt for term or subscription based licensing versus the traditional perpetual model and move toward outsourced solutions.
Very simply put, software in an On Demand world will change the way customers buy, vendors sell, and investors invest.
It is clear that the traditional software business model is unwinding. ‘ On demand’ is becoming the preferred method for licensing and deploying software. The impact on valuations and creating sustainable shareholder wealth are enormous.

The SaaS Market Opportunity WW Software On Demand Revenue 2005-2011: Comparison Of May 2006 And March 2007 Forecasts Worldwide Software On Demand Revenue, 2006 and 2011 Source: IDC Worldwide Software on Demand 2007-2011 Forecast Update and 2006 Vendor Shares: Sky's the Limit for On- Demand Providers," Doc # 207491, July 2007

But here is the question should be really asking
While the SaaS Market grows by $11.2B in the next 5 years
The overall Software Applications market will be growing by $51B
Your target customer is much bigger than their Web Browser
What if you could SaaS model to deliver what your customers want both inside and outside the browser?

IDC: US Hosting 2007-2011 Source: IDC, ”Web Hosting Services 2007 – 2011 forecast”

Important Customer Factors

SaaS Inhibitors

Primary reasons companies are not considering SaaS

SaaS is Disrupting the Channel
SaaS ISVs want to own the customer relationship
VARs and SIs must move from integration and support to business consulting and service bundling
New Reseller / Aggregator models emerging
Online SaaS Catalogs are coming
Combine selection + provisioning
Some will include unified billing / presentment

The SaaS ‘Value-Add’ Network

Key Trends for Hosters
70% of all growth comes from complex hosting scenarios
By 2011 the market for SaaS will be almost as large as the entire hosting market
As fast as the hosting business is growing, SaaS is growing over twice that fast
SaaS growth is across all broad classes of enterprise software
SaaS is not limited to simple apps – SaaS ERP adoption is brisk
Hosters and Platform Providers must partner to deliver better solutions for complex application hosting

SaaS Value Proposition
SaaS promises to shift operational expense (OpEx) and capital expense (CapEx) from the end-customers to the SaaS provider while reducing time to deployment and improving accessibility.

SaaS According to Microsoft
Software PLUS services -- not so much software as a service. This is not software in a cloud. It is a model in which the platform and delivery model are optimized around the solution.
Work on an application online, go offline, then back online.
Necessary to coexist and ‘work with’ on-premise applications
“ If SaaS is the right model, we have the tools to help you migrate. If you would like to stay on premise or go hybrid, we’ll support you in that.”
Key benefit to the ISV being a pure play (hosted only) is the opportunity to be environment-agnostic
To support SaaS as well as on premise requires additional costs to support multiple platforms

SaaS Maturity Levels

Oracle and SaaS
Statements made by Charles Phillips:
Interview Aug 8 2007, with Stuart Lauchlan of mycustomer.
On-demand has been around at Oracle for 9 years, 2 Million users
Offering a choice: on premise or on-demand
On demand customers need to replicate their data
Multi-tenancy is a liability
Customers often need to own software
SaaS is more or less a hosting option

Oracle SaaS Platform

SaaS Model vs ASP Model What’s Driving SaaS Viability? • Increasing broadband penetration • Improvements in remote access technologies • General increases in computing capacity and corresponding cost reductions • Virtualization technologies • Improvements in technologies for development of web-based applications

Comparison of business model Traditional packaged software Software as a service
Designed for customers to install, manage and maintain
Designed from the outset up for delivery as Internet-based services
Architect solutions to be run by an individual company in a dedicated instantiation of the software
Designed to run thousands of different customers on a single code

Comparison of business model Company name Traditional packaged software Software as a service
Version control
Upgrade fee
Fixing a problem for one customer fixes it for everyone
Streamlined, repeatable functionality via Web services, open APIs and standard connectors
Infrequent, major upgrades every 18-24 months, sold individually to each installed base customer
Frequent, "digestible" upgrades every 3-6 months to minimize customer disruption and enhance satisfaction
May use open APIs and Web services to facilitate integration, but each customer must typically pay for one-off integration work.

Why is SaaS Important
30% of all software sales by 2010
78% of businesses either have SaaS or are considering SaaS
$

SaaS Market Challenges
Lack of quality distribution channels for ISVs
Finding the right SaaS applications challenging for customers
No certification process
Lack of integration between applications
Lack of providers with enterprise application and integration experience
Repository of selected applications
Application Directory
Thorough certification process
Suite of integrated applications
Distribution channel that works , with buyers looking to find highly relevant solutions
Leverage relationships of other providers and ISVs in enterprise and midmarket
Customer Trust Customer Confusion

Hidden Cost

SaaS Business Benefits
INCREASE REVENUE
Effective Packaging, Positioning and Pricing Strategies
Improve Demand
Generation
Increase Sales
Direct
Indirect
Online
DRIVE DOWN COSTS
Reduce Customer Acquisition Costs
Lower Customer Support Costs
Accurate Financial Projects

SaaS Technology Readiness Approach
8 Technology Key success factors
INFRASTUCTURE ORGANIZATIONAL EFFECTIVENESS CUSTOMER EXPERIENCE
Identification & Authorization
Organizational Effectiveness
Ordering, Provisioning & Configuration
Service Customization & Integration
Reliability, Manageability & Serviceability
Scalability & Resource Management
Environment Model
Tenancy Model

SaaS Technical Readiness Benefits
QUICKEN
TIME TO MARKET
IMPROVE INFRASTRUCTURE REDUCE COSTS

SaaS Purchasing Trends by Market

Successful SaaS Offerings:
Are full function products, customizable to address customers’ specific business needs;
Target specific customer subsets rather than broad markets;
Achieve economies by sharing server and storage resources and operations management;
Deliver to browsers or web-aware clients and;
Use specialized partners for hosting and service delivery management.

The SaaS GTM Framework
The SaaS GTM Framework has been developed as a result of dozens of engagements with Service Providers and Independent Software Vendors of all shapes and sizes
The factors were developed by analyzing what was working and not working at these companies

SaaS GTM Framework

Impact of SaaS
SaaS will result in significant changes in three key areas:
Business Model
Technical Model
Marketing and Sales

Impact of SaaS Business Model Changes
SaaS will impact the core business models for Software-Vendors:
Annuity-based revenue
All-in-one offering
24 x 7 service delivery
Sales force profile
Partner ecosystem

Impact of SaaS Technical Model Changes
SaaS Drives Important Changes from a Technology perspective:
New vs. Existing Code-base
Multi-Tenancy
Operational Expertise
Scalability and Resource Management
Reliability, Manageability, Supportability
Ordering, Provisioning, Billing
Customization, Configuration, & Integration
Continuous Release Cycle

Impact of SaaS Marketing and Sales Changes
SaaS drives changes in the end-to-end go-to market strategy/tactics as well:
Messaging & Positioning
Packaging & Pricing
Web-Driven Business Model
Demand Generation
Online Customer Experience
Direct/Indirect Sales Processes
Organizational Effectiveness

Benefits of SaaS to ISVs
New Market Opportunities
New Distribution Channels
New Revenue Streams
Predictable Recurring Revenue and Cash Flows
Lower Total Cost of Ownership (TCO)
Positive Customer Experience

Benefits of SaaS to End-Customers
Faster Time To Value
Ease of Use of SaaS Applications
Cost Savings
Accelerated Payback and Higher Return on Investment (ROI)
Reduced Risk
More Efficient Utilization of Human and Capital Resources
Increased Flexibility in Responding to Changes in Demand
Seamless Product Enhancements and Upgrades
Reduced System/Network Downtime
Reduced Complexity
Increased Focus on Core Business
Accountability of SaaS Vendor

Advantages
No large upfront costs - usually free trials
High levels of security – physical, power, pipes
No install costs – low one-time costs
Minimal training
Anywhere, anytime, anyone - mobility
Operating costs only; can be terminated; re-sized – No capex hoops.

Disadvantages
Core functionality out-sourced
Broadband risk
Limited personalisation/tailoring
No competitive uniqueness advantage
Not suited to high volume data entry

New Business Models
Mobile models – any PDA
Deliver to screen format in use
Working out-of-office – Real Estate Agents
Salespeople who visit the client
Build the plan and place the order there
Hot-desking
Virtual Organisations
Franchise models.

Enhancements
Introduced silently
Only when multiple clients clearly want them
In a way which does not impact other users
No “roll-out”
Simple conversational interface
Irrelevant if all users not on same OS
Minimum development costs – test on single O/S.

Ease of Maintenance
Because there is only one copy of the software maintenance is substantially eased
The software only runs in one environment – an environment totally controlled by the supplier
IE and Mozilla
Reduced operating costs.

Reduced Hardware Costs
A single server handing multiple customers can be optimised – no extra peripherals – no CRT
Mass storage optimised
No need for virtualisation
Rack mounts
Minimum cabling - at both ends.

The Challenges of SaaS CHALENGES SOLUTIONS
Minimize financial risk
Organizational changes to support SaaS
Effective sales channels for SaaS
Pricing approaches
Ideal target segments
Business Readiness
• Technical Readiness

SaaS architecture options
• Cost effective re-architecture approach
• Minimize additional head count
• Don’t have SaaS technical expertise
Technical Readiness
• Outsourced Application Development
• Application Security

Generate demand
• Increase awareness
• Keep costs low
• Prove SaaS model
Incubation Hosting
• Sales Acceleration
• Vulnerability Assessment

Generate demand
Increase awareness
Keep costs low
Maintain high level of reliability and support w/ limited staff
Application & data security
Reliable Hosting
• Sales Acceleration

Scale
• Quality Customer Service
• High Availability
• Focus my resources
• Application & data security
HA - Scalable Hosting
• Application Acceleration
• Outsourced Tier 1 Support

Stay ahead of competition
• Focus my resources
• High Availability
• Quality Customer Service
• Scale
• Application & data security
HA - Scalable Hosting
• Application Acceleration
• Outsourced Tier 1 Support

Whose doing SaaS?
Google – complete Java library
Writely and spreadsheet
Salesforce.com and CRM are hot
Oracle and SAP have web interfaces
BI to have web interfaces
Web shopping sites are SaaS now
Most mobile apps are actually SaaS now

SaaS Requirements ITS satisfies this requirement Customer Application Requirements Vendor Platform Requirements Rich Functionality Comprehensive, Web 2.0 Support, Analytics Hosted Provisioning & Support Subscription Metering and Billing Integration Service Oriented Architecture (SOA) Security Identity Management & Data Security Low Cost Multi tenancy, Grid Support, Virtualization SLA RASP, Integrated Management Customizability Meta Data Driven Development No Lock in Open, Standards

Transition to SaaS - Steps
Decide the business model – Target Market, Pricing, GTM Strategy
Decide the delivery model – Virtualization, Multitenancy, Hybrid
Make Application changes according to the delivery model
Host the Application – Identify Hosting Partner
Enable Billing, Provisioning, SLA Management, Integration
Go To Market

Conclusions
SaaS is a very different model than the traditional software license and maintenance and client server model
SaaS will be the way most apps will be delivered
Technology innovations are the primary driver for SaaS adoption.
All but high-volume data entry for large corporates and specialized apps
Much higher proportion of staff will have only PDAs or small footprint notebooks
SaaS is an attractive delivery model for high-volume and commoditized business processes in back-office banking
SaaS does not have to be an all or nothing value proposition , you can operate in a hybrid model

Conclusions
Primary reasons for deploying SaaS vary by region. While Europe, the Middle East and Africa (EMEA) respondents cited total cost of ownership (TCO) as the main motivator, North America and Asia/Pacific participants focused on ease and speed of deployment
Most SaaS deployments for large companies begin without CIO knowledge or involvement
SaaS value propositions will vary greatly based on application market maturity
SaaS is not guaranteed to be less expensive than on-premises software
Low risk – try before you buy

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SaaS : The Future of Flexible Software Model

by Rami AlSahhar on Jun 17, 2009

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