Profitability: SaaS Versus On Premise Solutions


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SaaS is being increasingly adopted and is even considered a savior model in this economy due to the zero upfront CAPEX for buyers. Still the question remains if SaaS is a profitable model for solution providers? Regardless of the longer sales cycles, is the on-premise solution providing faster break-even?

This webinar moderated by Aspire Systems, where Amy Wohl of Wohl Associates and Alex Ginger, Director of Active Operations Management International, a SaaS provider discussed the two business models, in light of the current economic situation.

Some of key topics discussed were:

- Cost factors – developmental, operational and marketing costs

- Revenue factors – sales cycle, pricing models, etc.

- Benefits/drawbacks of both the business models

- Will a hybrid pricing/delivery model provide better benefits?

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Profitability: SaaS Versus On Premise Solutions

  1. 1. Profitability: SaaS Versus On-Premise Solutions For Webinar Audio, Dial in: Panelists: Amy Wohl Conference Line President, Wohl Associates US: (866) 581 2411 (Toll free) UK: 80 00 51 8866 (Toll free) Alex Ginger Product Development Director, Active Operations Management Audio Conference ID: 13360965 Webinar ID: 647-934-440 Moderator: Date : Thursday, June 25th , 2009 Janaki Jayachandran Business Manager – SaaS Specialization, Aspire Systems 11:00 AM ET/ 08:00 AM PT
  2. 2. About Aspire Thought leader in Outsourced Product Development 1050+ product releases to date 80+ customers; 475 producteers 63% CAGR over the last six years Offices in Chennai (India), San Jose, CA, and Branchburg, NJ ISO 9001:2000 certified Awards Ranked 7th in Business Ranked in the top 500 fast growing technology companies Today Survey featuring in Asia Pacific for 3 years in a row the Best Companies to work for in India in 2005
  3. 3. Housekeeping Instructions All phones are set to mute. If you have any questions, please type them in the Chat window located beside the presentation panel. We have already received several questions from the registrants, which will be answered by the speakers during the Q & A session. We will continue to collect more questions during the session as we receive and will try to answer them during today’s session. In case if you do not receive answers to your question today, you will certainly receive answers via email shortly. Thanks for your participation and enjoy the session!
  4. 4. Panelist Amy Wohl President, Wohl Associates • Amy Wohl is a computer industry analyst and has over 30 years of experience in the Information Technology Industry. • Her specialties include SaaS, Cloud Computing, SOA, and commercialization of new technologies • Author of “Succeeding at SaaS: Computing in the Cloud”
  5. 5. Agenda The Move to SaaS The difference in development costs The difference in operational costs The difference in marketing costs The need for a different business model SaaS ISVs can be Profitable
  6. 6. The Move to SaaS It’s the new Software Distribution Paradigm Nearly all new SW is being developed as SaaS VC investment in SW is in SaaS Customers of every size are looking at SaaS Yes, some markets are protected Traditional SW in a small niche market Very entrenched mainframe applications for existing customers Applications that don’t make sense on SaaS Everything else is a potential candidate
  7. 7. The Difference in Development Costs Is this a new application or the move of an existing application? Will you migrate the existing application entirely or support both forms? Development for SaaS can be just as efficient (if not more so) with skilled staff -- but it is an additional cost if you are also maintaining an existing application Born to the web developers go the other way – they develop for SaaS but may plan to allow the application to be offered as an appliance or traditional SW
  8. 8. The Difference in Operational Costs ISVs don’t have many operational costs for their SW except for some initial Support Maintenance/Support is a Revenue Stream Implementation is a Revenue Stream Customization is a Revenue Stream SaaS ISVs are entering a permanent relationship with their customers Running a platform or (better) paying for a partner to run a platform Providing maintenance/Support as part of the subscription fee Providing upgrades (and much more frequently)
  9. 9. The Difference in Marketing Costs ISVs of traditional SW have to market their software through Sales Force Telemarketing Partners SaaS ISVs sometimes mistakenly think that they don’t need to market Put it on the Web and customers will come. – They Don’t Internet Marketing – Ads, Email, Blogs Sales Force Telemarketing Partners And maybe, if you’re lucky, Viral Marketing
  10. 10. The Need for a Different Business Model SaaS ISVs can be profitable, but they need a Business Model that takes all these differences into account The extra cost to develop, especially if you will maintain multiple versions of your SW The cost of running the SW and supporting it The cost of marketing – and the length of the marketing cycle Competitors already in the traditional and SaaS markets and their prices
  11. 11. Considering a SaaS Business Model hy-do-saas-companies-lose-money-hand-over- fist/ business-model/ _partn/2008/09/saas-can-pure-p.html _partn/2009/02/a-few-more-thoughts-on-saas- profitability-and-saas-channels.html
  12. 12. SaaS ISVs can be Profitable The trick is not just building a great product but Building a product for an identified customer need Pricing the product to the market Providing superlative service Not leaving any money on the table Much luck to you
  13. 13. Panelist Alex Ginger Director, Active Operations Management • Alex Ginger is the Product Development Director of Active Operations Management International (AOMi) LLP • He is responsible for the complete Product Management of AOMi’s Product - Workware from defining the Product Map to ensuring the development of marketable version of the product. • Prior to the establishment of AOMi, Alex worked in Management Consulting with EDS, Impact Plus and the Lanner Group focusing on process and performance improvement projects in the financial services sector.
  14. 14. About AOMi Suppliers of Operations Management Solutions to the service operations industry. “Active Operations Management” methodology delivered via Training, Consulting and Software. • 25,000 – 30,000 customer employees have their time planned and managed • Back-office planning and control application by Workware™ each day • “Microsoft Project for Operations Managers” • Client base: major banks, insurance • Web-based application with SaaS and companies, Business Process traditional installations Outsourcers
  15. 15. Workware™ SaaS Deployment • Workware™ deployed as SaaS solution since 2005 • Also deployed in a traditional in-house installation model • 70 % SaaS, 30% customer installation • Service hosted in the UK, Australia, United States and South Africa • SaaS application deployed using local hosting providers • Standard product, with extensive configurability
  16. 16. Forrester’s SaaS Maturity Model Workware SaaS Maturity level Source: August 14, 2008 “Forrester’s SaaS Maturity Model” report
  17. 17. SaaS as an Enabler of Profitability • Rapid initiation of projects: – Virtually no lag time from project approval to application live date – Far less governance from in-house IT • Compelling business case: – Avoidance of capital expenditure – Predictable future costs – No charge until benefits proven – Highly competitive cost of hosting versus in-house delivery …results in a positive ROI inside the first 12 months
  18. 18. Managing SaaS Profitability: Revenue • Pricing model is key: – Must differentiate the SaaS offering – Options: SaaS as a revenue stream in itself, or an enabler – Our utility based approach: • Licenses billed monthly based on number of staff managed using Workware • Additional ‘hosting’ charge for SaaS customers • Sales and Marketing: – Consistent approach for SaaS and non-SaaS – Sell the product, in our case the performance improvement outcomes – SaaS offering can accelerate the process • Opportunity for value-added-services: – Availability of customer data presents a range of options for additional services – E.g. cross-company or cross-sector benchmarking
  19. 19. Managing SaaS Profitability: Costs • Development: – Once product is well developed to support SaaS, development cost can reduce: • “Standard product with configurability” • Simplified range of versions to support • Simpler and more cost effective deployment of new versions • Support: – Different relationship with SaaS and traditional customers – Not always less labour intensive to support traditional customers where many variables are outside your control • Infrastructure: – Potential for significant periodic costs – No “upgrade fees” for new versions to offset these costs – Potential to smooth these costs through use of third party providers
  20. 20. Managing Revenue and Cost: New Customer Costs of providing service Pilot Multi-phased roll-out Steady state Using own infrastructure Revenue Outsourced infrastructure Outsourced infrastructure (exploiting virtualisation) Time
  21. 21. Summary • SaaS has clearly been important to our growth • The principle value of SaaS has been as an enabler of sales / delivery • Creative business models can deliver a compelling value proposition • Profitability is influenced by many factors – the management of which may not be core competences • Develop with SaaS in mind – but having a well designed product which meets an acknowledged need is still all important
  22. 22. Questions
  23. 23. For more details Amy Wohl President Wohl Associates E-mail: Website: Ph. No: +1-610-667-4842
  24. 24. For more details Alex Ginger Product Development Director Active Operations Management E-mail: Website: Ph. No: +44 (0)20 7831 9500
  25. 25. For more details Janaki Jayachandran Business Manager – SaaS Specialization Aspire Systems E-mail: Website: Ph. No: +91-44-67404000