Babson College CIM Software-as-a-Service Presentation

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

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

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.

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.

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

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

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.

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

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

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!

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

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

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

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

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

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

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

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.

Hybrid Model Pitfalls
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

New Channels to Market?
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?

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

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

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Babson College CIM Software-as-a-Service Presentation

by Jeff Kaplan on Nov 26, 2008

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