Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Software As A Service Tiendq Cmc


Published on

Published in: Business, Technology
  • Be the first to comment

Software As A Service Tiendq Cmc

  1. 1. Overview of Software as a Service Author: Tien Do ( 28-Aug-2008
  2. 2. The Buzzword  Software as a Service. The words are on everyone's lips. The pages of software industry publications are full of articles about software as a service (SaaS)—articles that use words like quot;revolutionquot; and quot;horizonquot; (as in, quot;on the…quot;). Everyone knows (or thinks they know) what it is, roughly, and everyone knows it's going to be big. Yet few people would say they can really define it, and even fewer know how to build it.
  3. 3. What is SaaS?  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).  Two major categories of SaaS  Enterprise LOB services  ―Web 2.0‖ consumer services
  4. 4. The Promise of SaaS (1/3)  SaaS has the potential to change the way business is done
  5. 5. The Promise of SaaS (2/3)  IDC’s SaaS Capabilities and Opportunities (12/2007)  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  SAP, Microsoft, IBM, Cisco Systems and others are increasing their participation  McKinsey finds that SaaS is a growing priority for CIOs and VCs (Delivering Software as a Service 06/2007)  Goldman Sachs’s Making SaaS Savvy Investments (11/2007)  23% projected annual growth  $21.4 billion industry by 2011  Representing 14% of addressable market
  6. 6. The Promise of SaaS (3/3)  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 ISVs will offer some of their applications optionally or exclusively as SaaS Predicts 2008: SaaS Gathers Momentum (01/2008)
  7. 7. SaaS New Release Trends SaaS New Release Trends Less than once a year Three or more 17% times a year 25% Twice a year Once a year 22% 36%
  8. 8. Why Customers Buy SaaS Why Customers Buy SaaS Operating, not Other capital expense 14% 16% Replace client/server 11% New capabilities access 59%
  9. 9. How SaaS is Sold (1/2) Primary Means of Selling Product Resellers Other 10% 5% Indirect Marketing Direct Sales 18% Force 57% Telesales 10%
  10. 10. How SaaS is Sold (2/2)  93.9% to businesses  ―Sell and grow‖ vs. ―sell and go‖ (until upgrade time)  Committed to ongoing customer contact 24/7/52
  11. 11. Time to Close Sales Rates SaaS Sales Close Rates Less Than 3 3 to 6 6 to 9 9 to 12 12 to 18 Months Months Months Months Months 16.6% 41.6% 33.3% 4.1% 4.1% Enterprise Client/Server Sales Close Rates Less Than 3 to 6 6 to 9 9 to 12 12 to 18 3 Months Months Months Months Months 3.5% 32.1% 28.5% 23.8% 11.9%
  12. 12. Selling Rates Medians of Percentage of Sales Personnel Achieving Quota By Software Type Enterprise/Client SaaS Desktop/Retail OEM Server 50% 58% 50% 33% Medians of Percentage of Sales Personnel Exceeding Quota By Software Type Enterprise/Client SaaS Desktop/Retail OEM Server 15% 5% 10% 10%
  13. 13. Why is SaaS Succeeding?  VCs love recurring revenue model  Customers love SaaS  Frustration with traditional software buying cycle (license + maintenance contract + upgrades)  They hate their IT people  Finance people like shifting software to operating budget lines  Reduce the number of IT people  Offer companies access to new capabilities  24/7/52 customer services  Anytime, anywhere access  Automatic, offsite backups  Vendors love SaaS  Faster to sell, deploy, and innovate  Larger customer base  Easy to maintain  Consistent and predictable revenue flow  Early SaaS success stories, WebEx, etc.
  14. 14. Big Deal 1: Leveraging Economy of Scale Hardware Cost People Cost at Provider at Provider
  15. 15. Big Deal 2: Selling to the Long Tail $ / Customer Dozens of markets of millions or millions of markets of dozens? Your Large Customers What if you lower your cost of sale (i.e. lower barrier to entry) and you also lower cost of operations Your Typical Customers New addressable market >> current market (Currently) “non addressable” Customers # of Customers
  16. 16. Big Deal 3: Monetization Options  Subscription (monthly fee per seat)  Transaction based pricing (profit sharing)  Ad-based revenue (e.g. pay per click)
  17. 17. Big Deal 4: Human are Costly  Reduce human intervention  No Direct Sales (but referrals and breadth marketing)  Self Provisioning  Self Customization  Delegate Administration  Automatic billing
  18. 18. Challenges of SaaS Software as a Service will change the way people build, sell, buy, and use software
  19. 19. The Delivery Model is Just the Beginning 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 Installation, maintenance, Additional Costs 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
  20. 20. Design and Development  Upfront design and development requirements are greater  Infrastructure  Hosting  Billing  Other systems  This can require  Greater upfront resources  Increased initial investment  New and different skill sets  Consider available third party SaaS platform providers  Challenges of covering all users (covering ―the long tail‖)
  21. 21. Revenue Model  Subscription model: Pricing and packaging options  Subscription pricing means:  Lower short term revenue  Slower revenue growth  Slower cash inflow  Complex quote-to-cash processes  In return for the prospect of:  Predictable, compounding revenue stream (less volatility, better ability to plan)  No end-of-quarter frenzied pricing discounts (better margin potential)  Higher long term revenue  Shorter ROI time scale  Different metrics: MRR (CMRR), ACV, churn, others  When does it start to pay off?
  22. 22. Sales and Compensation  Different sales model  Different compensation structures  Commissions based on ongoing customer usage and revenue  Not on sale of large up-front licenses  Dealing with renewals and churn is key
  23. 23. Partners and Distributors  Require adjustments to existing partnerships  Competitors  Partners and resellers  Systems integrators  Also creates opportunities for new partnerships for  Application integration  Data integration  Data mining  Upstream providers (e.g., Business Process Outsourcers) looking to embed SaaS offerings as part of their solutions
  24. 24. Customer Service  Perhaps the biggest challenge?  SaaS presents different issues  Hosting (rather than shrink-wrapping)  Data center operations  Systems and network monitoring  Billing  Requires a different model  Managing customer expectations  Customer education  Leveraging increased ability to collect customer feedback and data  Additional issues presented when transitioning legacy customers to SaaS (or maintaining them after others have transitioned)
  25. 25. Product Support and Maintenance  SaaS model shifts the burden of support to the vendor  Focus on the risks of reliability  Must ensure that customers can access their apps  One outage or crash can affects all customers  Service levels (SLAs)  Trend toward SLAs (although most SaaS vendors do not provide them at present)  Adoption will depend on criticality of the application, size of deal, etc.
  26. 26. Research and Development  Traditional ―plan-driven‖ development approaches do not work  Agility is key  Rapid releases and upgrades  Focus on  Absorbing rapid and immediate feedback  Leveraging usage data to development  Meeting customer needs  Ever tighter deadlines  Early and frequent testing  R&D must deal with the entire SaaS platform  Platform and tools for hosting and serving the software  Software itself  Billing  Customer service  Service aggregation
  27. 27. Legal  Contracting model is different with SaaS  Driving contracts online  Dealing with mixed contracting model  Identity validation  Contract duration strategy – trials, 1 yr, 3yr, etc.  Preparing for service levels agreements (SLAs)  Termination and migration  Security  Data privacy (and data usage)  Transition of legacy customers (for those customers that have purchased long-term contracts for updates and maintenance)  Making SaaS subscription model work within traditional procurement cycles
  28. 28. Valuation and Funding  VCs love SaaS  Estimated that as many as 90% of new software companies funded by VCs have SaaS models  More cash required to fund company to breakeven  3 - 4x more  Large upfront infrastructure investment  Slower revenue growth and cash inflow  Valuation can take an initial hit, but appear to attain a premium (as subscription revenue grows and compounds)  How soon does SaaS catch up with the traditional perpetual model?  Another important factor is renewal rates / expected life of subscriber; without longevity, model doesn’t work  Calculation ultimately dependant on the company’s particular business model
  29. 29. Pure-play vs. Dual Environment  Difficult to move to SaaS incrementally  Many ISVs opt for dual environment  This can create issues  Customer retention and service (during and after a transition to SaaS)  Continuing to operate in a dual operations during transition (customer support, R&D, etc.)
  30. 30. Mythical Concerns  Myth #1: Still relatively new and untested  Myth #2: Just another version of failed ASP in the past  Myth #3: What about security of data?
  31. 31. Worldwide Success Stories   The leader in Web-based CRM business applications   Elegant and Simple CRM   A fresh, novel approach to project collaboration  Flickr  Almost certainly the best online photo management application in the world
  32. 32. Local Case Studies  Vietnamworks  The leader in Vietnam online recruitment market  Chợ Điện Tử  Online store, auction marketplace    ???  The biggest online retail market for individuals and small businesses  VinaGame  Online game, online store (123mua)
  33. 33. The 2008 Softletter SaaS Report  The best source of SaaS information and statistics for technology providers. Over 204 pages, only $249.  The Softletter Software as a Service Handbook is another must purchase.
  34. 34. References  Business of Software: SaaS  The Challenges of SaaS  Understanding SaaS Architecture  SaaS: Architecture Strategies for Catching the Long Tail  Google’s search results ;)
  35. 35. Questions & Answers