Enterprise demand for SaaS is surging. Providers are building, acquiring and partnering SaaS platforms at a breakneck pace. What happens when they meet?

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A Mismatch Made in Heaven
The Enterprise and SaaS
9 September 2013
Stanton Jones
Paul Schmidt

2. © 2013 Information Services Group, Inc. All Rights Reserved 2
The Enterprise and SaaS: A Mismatch Made in Heaven
Enterprise CIOs estimate that in
5 years, they expect to spend a
majority of their software
budgets on SaaS, including ERP.
- Citi Research

3. © 2013 Information Services Group, Inc. All Rights Reserved 3
The Enterprise and SaaS: A Mismatch Made in Heaven
Enterprise demand for SaaS is surging. Providers are building, acquiring and
partnering SaaS platforms at a breakneck pace. What happens when they meet?
Financial
Contractual
Operational
Buyers Expect
Financial
►Substantial savings
over on-premises
Contractual
►To negotiate all
aspects of contract
Operational
►To dictate “how”
operations should
occur (e.g., security,
support, updates)
Providers are Delivering
Financial
►Premium for up-to-
date technology
Contractual
►Short, standardized
MSAs and exhibits
Operational
►Standardized
operations with
focus on
transparency of
“what” over “how”

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The Enterprise and SaaS: Closer and Closer to the Core
SaaS is generally accepted at the periphery of the enterprise; however, this
mismatch becomes more acute when evaluating it for the core…
Finance HR
IT
Workforce
Administration
Corporate
ERP
Email
Business
Unit ERP
Talent
Management
Spam
Management

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Why the Mismatch?
Multi-tenant
architectures
Single line of
code for all
customers
Creating a
intuitive “black
box” for
business buyers
Creates new
contracting models
with focus on:
Shared, multi-tenant architectures create huge strategic benefits. However, they
are hard to quantify and conflict with traditional enterprise sourcing archetypes.
Cash to fund
customer
acquisition
and R&D
Standardization
in order to scale

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Buyers: Where Does ISG See Most SaaS Demand?
Stand-alone platform comparisons, BPO provider platform changes, systems
integrator selection and SaaS business case/strategy are in most demand:
SaaS Platforms in DemandTypes of Client Demand
Platform-based BPO
• Platform change
• Process harmonization
• Business case
Platform Comparisons
• RFX & feature comparisons
• Negotiations
• Business case
Systems Integrator
• Who can implement?
• Who can configure?
• RFX, financial, negotiations
ISG believes this list
will expand
significantly over the
next five years as
leading outsourcing
suppliers productize
their IP into vertical
SaaS offerings.

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Sellers: A Stampede to SaaS
The enterprise SaaS market is seeing a tremendous amount of acquisitions,
partnerships and IPOs…
Acquisitions
Adoption trends over the next three years support 33% annual growth in SaaS with
significant headroom beyond this as long-term SaaS adoption could be 9x current
levels. -- Citi Research
Partnerships IPOs

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Barriers to Adoption: Financial
Up-front payments that begin before the system is live, combined
with prices that increase over time create sticker shock for
enterprise SaaS buyers.
RealityBuyer Expectation
Cheaper than on-premises
Scale up and scale down easily
Short contract durations
Easy termination
Monthly payments
Pay only for what you use
Price decreases over time
May be more expensive
Baselines make scaling down difficult
Multi-year commitments
Limited to no term for convenience
Up-front / annual payments
Payment begins on signing
Price may increase over time / CPI

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Barriers to Adoption: Contractual
Procurement and internal counsel are often unprepared to negotiate SaaS
agreements. Leading providers are sticking to their guns and holding firm on terms.
RealityBuyer Expectation
Contract will be on buyer’s paper
Unlimited liability for data breach
Termination for convenience
Outsourcing SLAs and reporting
“Try before committing”
Transition assistance
Step-in rights
Contract on supplier paper
Limited liability (breach exceptions)
No termination for convenience
Web 2.0 SLAs; self service reporting
“Commit then try”
Self-service data exports
No ability to step-in

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Barriers to Adoption: Operational
The standardized nature of SaaS operations requires a movement from “how” to
“what”, causing challenges for buyers that want to dictate requirements.
RealityBuyer Expectation
ITIL-based operations
On-site security audit & pen testing
Dictate data location; no changes
Robust BC/DR; participate in testing
E-Discovery / Legal Hold Process
Dictate maintenance/release window
All data is encrypted
Service health and ops portals
Rely on 3rd party audit(s)
Changes; customer can limit to region
Simple BC/DR based on RTO & RPO
E-Discovery / Legal Hold Functionality
Standard windows/continuous update
In-memory DBs vs. persistent stores

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Recommendations: Creating a Match Made in Heaven
Early in the process, be transparent about the SaaS business
model, then focus on specific pain points of executive
decision makers:
CIO
CMO
CHRO
COO
Inherent modernization
Decrease reliance on IT
Embedded analytics
Early transparency
around SaaS
business model
with IT, Finance,
Procurement &
Counsel:
• Cash up front
• Multi-year term
• Supplier’s paper
• Standard SLAs
• 3rd party
security audits
A
B
C
D
Digital platform (prospects,
customers, influencers)

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Let’s Talk…
►Stanton: linkedin.com/in/stantonjones
►Paul: linkedin.com/pub/paul-schmidt/1/5b1/59b
►@stantonmjones
►@phshss
►Blog on Consider the Source focused on how emerging
technology is impacting the broader sourcing market
►stanton.jones@isg-one.com
►paul.schmidt@isg-one.com

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