Tracking the Growth of Software-as-a-Service Presented by, Jeff Kaplan Managing Director THINKstrategies [email_address] 781-431-2690

The Evolution of Man

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

Changing economic conditions

Changing competitive forces

Changing ecological concerns

Changing workplace requirements

Changing technologies

Changing priorities & sourcing policies

Today’s Perfect Storm The Economy Enabling Technologies Shifting Customer Attitudes

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. 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.

The Nicholas Carr Affect "...Imagine what future generations will see when they look back at the current time...won't the way corporate computing is practiced today appear fundamentally illogical -- and inherently doomed?” “ The End of Corporate Computing” Nicholas Carr, The MIT Sloan Management Review, Spring 2005.

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

Old,

Capital Investment

Complexity, Customization

Reactive Maintenance

Response Time

Customer Support

Limited Responsibility

Outsourcing Alternatives

New,

Operating Expense

Simplicity, Utilization

Proactive Management

Ongoing Monitoring

Automated Delivery

Higher Accountability

Out-Tasking Options

Shift from Outsourcing to Out-Tasking Businesses seeking functionality, not technology. IT outsourcing deals have failed. Selective outsourcing, or ‘out-tasking’ gaining attention. SaaS & cloud computing is a form of out-tasking.

Businesses seeking functionality, not technology.

IT outsourcing deals have failed.

Selective outsourcing, or ‘out-tasking’ gaining attention.

SaaS & cloud computing is a form of out-tasking.

On-Demand Has Become Mainstream

Enabling Technologies Broadband networks Grid computing Blade technology Virtualization Web services & SOA Service provisioning Performance management

Networked applications Enhanced user experience Subscription pricing Real-time analytics Continuous enhancements Self-provisioned services & toolkits Aggregated data & benchmarks Defining SaaS

Networked applications

Enhanced user experience

Subscription pricing

Real-time analytics

Continuous enhancements

Self-provisioned services & toolkits

Aggregated data & benchmarks

ASPs Resold legacy applications Upfront perpetual license Remained inflexible Limited availability Single-instance, inefficient ASPs vs. SaaS SaaS Net-native applications Pay-as-you-go model New functionality Universal availability Multi-tenant, scalable

ASPs

Resold legacy applications

Upfront perpetual license

Remained inflexible

Limited availability

Single-instance, inefficient

SaaS

Net-native applications

Pay-as-you-go model

New functionality

Universal availability

Multi-tenant, scalable

Interest in SaaS Growing Source: THINKstrategies/Cutter Consortium % of Respondents Using SaaS 2007 32% 2008 62%

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

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

SaaS Expands from Front- to Back- to Inter-Office Apps BUSINESS APPLICATIONS CRM SFA … Collaboration SCM … ERP Finance … Front Office Inter Office Back Office SaaS Market ‘Gold Rush’

Top Ten Showplace Application Categories Source: SaaS Showplace 44 Messaging 46 eCommerce 47 Human Resource Management (HRM) 49 Marketing 55 Enterprise Resource Planning (ERP) 62 Project Management 67 Document Management 78 Accounting/Financial 80 Collaboration 103 Customer Relationship Management

Top Ten Showplace Industry Categories Source: SaaS Showplace 42 Software 43 Telecommunications/xSPs 55 Professional Services 63 Government 69 Retail 72 Healthcare 80 Technology 91 Manufacturing 102 Banking/Financial Services 110 SMBs

SaaS Expands from Business Apps to IT Management BUSINESS APPLICATIONS CRM SFA … Collaboration SCM … ERP Finance … Front Office Inter Office Back Office Security Systems Mgmt … Network Mgmt Remote Access … Data Protection Storage … IT Management

Why IT Wants SaaS Most IT organizations spend 75-80% of their time reacting to problems, keeping systems and software up and running. They would prefer to focus on more strategic business initiatives.

Most IT organizations spend 75-80% of their time reacting to problems, keeping systems and software up and running. They would prefer to focus on more strategic business initiatives.

Traditional NSM = ERP of the IT World Too complicated Too expensive Too time-consuming Too ineffective >40 IT/Application Mgmt solutions on the SaaS Showplace. SaaS Penetrating IT Management Market

Traditional NSM = ERP of the IT World

Too complicated

Too expensive

Too time-consuming

Too ineffective

>40 IT/Application Mgmt solutions on the SaaS Showplace.

Managed Services/SaaS Convergence Managed Services SaaS

Managed Services vs. SaaS Managed Services Provider assumes management responsibility Sold on an per device basis Focus on network/system availability & performance SaaS Provider delivers software functionality Sold on a per user basis Focus on application availability & performance Quicker Time-to-Value Lower TCO/Higher ROI Shifts Burden to Provider

Managed Services

Provider assumes management responsibility

Sold on an per device basis

Focus on network/system availability & performance

SaaS

Provider delivers software functionality

Sold on a per user basis

Focus on application availability & performance

Quicker Time-to-Value

Lower TCO/Higher ROI

Shifts Burden to Provider

The Convergence of Managed Services & SaaS

Ad-Supported SaaS “ iTunes of IT” 250K users 50,000 new users in last 2 months Advertisers has grown from 4 to 40 Market Opportunity, SMB IT pro = $125,000 annual budget. 250k users = $32B in annual spend Growing at more >$3B per month!

“ iTunes of IT”

250K users

50,000 new users in last 2 months

Advertisers has grown from 4 to 40

Market Opportunity,

SMB IT pro = $125,000 annual budget.

250k users = $32B in annual spend

Growing at more >$3B per month!

Open Source: The Good, Bad and Ugly The Good Proliferation of tools/solutions Accelerated Development Concepts of Community The Bad and Ugly Lower barriers to entry Escalating price competition

The Good

Proliferation of tools/solutions

Accelerated Development

Concepts of Community

The Bad and Ugly

Lower barriers to entry

Escalating price competition

A New Level of Value in the SaaS Market Dynamic toolkit clearinghouse Continuous updates, new ideas Real-time, aggregated data Meaningful benchmark studies Practical best practices forums

Dynamic toolkit clearinghouse

Continuous updates, new ideas

Real-time, aggregated data

Meaningful benchmark studies

Practical best practices forums

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

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

Small = Fill Unmet Needs

Mid-Size = Fill Unmet Needs/Replace

Enterprise = Augment/Extend Capabilities

Size of SaaS Deployments Growing

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

Standalone point apps

Focus on ease of use/price

One size fits all, minimal customization

Horizontal applications

Limited interoperability

Emphasis on lower TCO

Specialized vendors

Combination of choices

Focus on added functionality

Multiple configurations, greater versatility

Vertical/industry solutions

Easier integration

Emphasis on higher ROI

Strategic sources

Moving from SaaS Apps to Cloud Computing Cloud Computing Services SaaS Apps

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

“ 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

Cloud Computing: Today’s New Enablers

New Challenge: Cloud Computing Outages “ Amazon S3 Outage Rains On Cloud-computing Parade” “ Outages Force Cloud Computing Users To Rethink Tactics”

Key Customer Concerns & SaaS Industry Responses Concerns , Reliability Security Customization Compliance Integration Customer Support Responses , SLAs Certifications User Configurations DR/BC Connectors Online/Pro Services

Concerns ,

Reliability

Security

Customization

Compliance

Integration

Customer Support

Responses ,

SLAs

Certifications

User Configurations

DR/BC

Connectors

Online/Pro Services

On-Demand Services & The IT Industry Inversion Services Technologies Past Future The IT Industry Inversion

Key Challenges Facing SaaS Vendors Re-architecting applications Re-structuring revenue models Repositioning marketing Re-orienting sales/support staff Surviving market shakeout

Re-architecting applications

Re-structuring revenue models

Repositioning marketing

Re-orienting sales/support staff

Surviving market shakeout

No One Likes to Sell Services Raises concerns about the product. Complicates the sale/extends sales cycle. Seldom properly incented. Weak value proposition. Poor track record.

Raises concerns about the product.

Complicates the sale/extends sales cycle.

Seldom properly incented.

Weak value proposition.

Poor track record.

Hybrid Model Pitfalls Balancing, Multiple Offerings Multiple Codes/Versions Differing Buyers Multiple Sales Channels/ Compensation Plans Differing Revenue Recognition

Balancing,

Multiple Offerings

Multiple Codes/Versions

Differing Buyers

Multiple Sales Channels/ Compensation Plans

Differing Revenue Recognition

Channel/Supply Chain Opportunities Legacy ISVs New SaaS Providers Enabling Technology Vendors Offshore SW Developers 3 rd party SW platforms 3 rd party HW systems xSPs Hosting companies Carriers Channel Partners Distributors VARs/Integrators eCommerce Sites Corporate Customers Consumers

Offshore SW Developers

3 rd party SW platforms

3 rd party HW systems

Hosting companies

Carriers

Distributors

VARs/Integrators

eCommerce Sites

New Channels to Market? Banks Insurance Companies Retailers Web companies PS Firms

Banks

Insurance Companies

Retailers

Web companies

PS Firms

SaaS Ecosystems – The New Channel Jamcracker

Changing Competitive Landscape & & & AimNet Solutions ever dream

A Future View Software Services Business Services Information Services Market Evolution

Key Questions Do you have adequate networking capabilities? Can you deploy SaaS more quickly, with less risk? Can it give your employees a better user experience? Can you gain productivity improvements? Can you distribute information more effectively? Can you make decisions more intelligently? Can you measure performance more accurately? Can you achieve a greater ROI at a lower TCO?

Do you have adequate networking capabilities?

Can you deploy SaaS more quickly, with less risk?

Can it give your employees a better user experience?

Can you gain productivity improvements?

Can you distribute information more effectively?

Can you make decisions more intelligently?

Can you measure performance more accurately?

Can you achieve a greater ROI at a lower TCO?

Summary & Conclusions SaaS spreading IT supporting & adopting SaaS Market entering ‘gold rush’ era Make strategic sourcing decisions Use classic evaluation criteria Focus on reliability, flexibility & viability Expect new levels of value

SaaS spreading

IT supporting & adopting SaaS

Market entering ‘gold rush’ era

Make strategic sourcing decisions

Use classic evaluation criteria

Focus on reliability, flexibility & viability

Expect new levels of value

For More Information… www.SaaS-Showplace.com www.thinkstrategies.com [email_address]

www.SaaS-Showplace.com

www.thinkstrategies.com

[email_address]