SaaS


Delivering ERP on a SaaS model is great and offers enterprises of all sizes a viable, scalable and flexible model, which provides a lot of benefits to users. Gartner predicts that nearly 30 per cent of new license purchases will be in the form of SaaS or will be delivered using SaaS model. IDC predicts a growth rate of 40% in SaaS model.

Looks very interesting but Is SaaS for everyone? No hardware costs, no software costs, no upfront license costs, less training needed, short implementation cycle, accelerated ROI, vendor managed hardware maintenance, upgrades and software maintenance. The advantage of going the SaaS way is just too many. However, it still may not be for everyone.

How do I figure out if SaaS is for me or not? If your needs for business management software goes anything like this, then it is not for you:

  • I have complex or very specific business processes
  • I have well established business processes that I cannot change
  • My business model keeps changing and is constantly evolving
  • I am a mid-market company or I am a large-sized company
  • I need to integrate my business management software with legacy applications
  • I need absolute control over whatever I do
  • I am very paranoid about security

I was talking to one of the SaaS vendors and he was mentioning that their Sales & Marketing expenses were 75% to 125% of their new sales bookings. He was also mentioning that anything below 75% and anything above 125% is considered to be danger zones. I was relating this to one of my earlier posts on this “To SaaS or not to SaaS – An ISV’s perspective”.  In that post I had dealt in detail as to why ISVs may not be going for SaaS discounting the benefits of moving to SaaS.

This high percentage of Sales & Marketing expense adds another dimension to ISVs possibly not wanting to move the SaaS way. For them to be successful, it becomes extremely important for ISVs to ensure that their sales and marketing is cost-effective, for which they need to have extremely good visibility on their sales funnel and ability to predict and forecast accurately. Additionally, they need to identify metrics that would be able to measure the returns on every program that they do in the mix. Keep what brings revenue and throw what doesn’t in your marketing mix.

This also makes it necessary for the ISVs to have access to quality funding that will allow them to do increased sales and marketing spending towards achieving breakeven and eventually profitability. As more and more customers seek SaaS, this may not result in a level playing field as big platform players would be better positioned to offer them as opposed to non-funded setups. Else, you need to have substantial legacy revenue for you to easily move the SaaS way.

I’ve been following this company dimdim for sometime now and it is getting better and better. I wrote a post earlier where I was suggesting that they should position themselves as a Live eLearning Platform with the features that they have. They have gone a step further by providing integration with Moodle, an Open Source Learning Management System. Moodle and dimdim dancing together will be irresistable. The reviews that I read about dimdim’s integration with moodle are also excellent.

I also see a number of projects displayed in sites like rent-a-coder, getafreelancer etc. where the requirements are integration of Moodle and Dimdim, Moodle+Dimdim+Joomla etc. There definitely seems to be a active community that has been positioning Dimdim pretty well. I would love to hear and write about the initiatives that dimdim has been taking with respect to their positioning.

Essentially, at this rate dimdim would become a necessary backbone of any unified communication strategy of enterprises.

There have been various industry reports that keeps suggesting that most companies will move towards SaaS as the customers want them more than the willingness of ISVs to offer their product as SaaS. But then, not many are offering SaaS and the possible reasons why they aren’t offering is what is covered in this post.

  • Most enterprise software vendors don’t want to move their offering to SaaS as the sales cycle is too long and the buyers aren’t going to get convinced easily on the service levels
  • Entry barriers for the software vendor is quite high, and some statistics that I pulled from the web suggest the same. They are as follows: It takes 1.6x longer to get liquid; it needs 3.65 x more capital, it takes 1.75x more revenue to hit profitability
  • Every time a vendor adds a customer, it costs them more cash that quarter that is a result of the customer acquisition, because of huge infrastructure investments. When you are looking at huge number of customers and the cash requirement multiplies accordingly
  • Sales and marketing expenses are too high for them to acquire customers and service levels also need to be on the dot to retain them. Only then, they would ever achieve profitability
  • SaaS business is an investor’s nightmare for liquidity takes much longer than expected and the risks are multi-fold in comparison to license revenue business models. Additionally, even if you grow at xx% tending towards hundred quarter-on-quarter, it still doesn’t give you the profitability as your infrastructure expenses also grow along with it
  • It is less likely to prove to your investors that your customers will achieve profitability; you will be able to retain close to 100% of the customers that you acquire; and your market isn’t saturated
  • Movement from on-premise model to on-demand model is all the more complicated, for most companies that contemplate that are already profitable and they wouldn’t want to risk the high-cost entry into SaaS
  • If you are looking at going the IPO route, then the revenues that you need to garner will be far higher to support that move and the best possible route that SaaS companies will look at will be the acquisition route. This effectively means that the buyers are going to be even more wary in them opting for a SaaS solution

Considering all of this and the fact that they have to look at the feasibility of offering SaaS, it is going to be really hard for an ISV to move the SaaS way.

Innovation in SaaS is solely dependent on your ability to increase the usage and adoption of your solution by your customers. Unlike traditional software, in SaaS you get to know the performance problems that includes both usability and user experience. This is also known fairly early in the cycle and being proactive here really reduces your infrastructure investments as well.

Additionally, with quarterly functional releases, and quicker feedback from the customers as they automatically get upgraded, SaaS products get evolved quickly.

Any vendor needs to focus their innovation on increasing value to their customers through increased adoption and satisfaction. The ones that are of key importance are improving user experience, providing functionality that will increase usage, providing ability for your solution to be integrated with best-of-breed applications of the customer’s IT ecosystem.

As long as you keep adding value to your offerings and in-turn to your customers, innovation will take care of it by itself.

I recently wrote an article on this topic, which got published in Global Services Media. This is what it talks about…..

Haven’t we all heard about Software-as-a-Service (SaaS), or on-demand as it is popularly known, and the buzz surrounding it? Thankfully, it doesn’t remain a buzz anymore. Independent Software Vendors (ISVs) are taking it seriously as its benefits are considered real…. Read the full article

There is a certain buzz surrounding SaaS and the scope of it keeps increasing as there is definite acceptance of this model. Does this mean that all ISVs can change their traditional software to Services?

The transition from traditional software to SaaS is quite daunting. But, as the saying goes, more the challenges, more will be the opportunities. When it is a new product and you are starting out on SaaS, you can really version your software and get to market quickly; get a feel of how the market reacts and incrementally keep improving in a reactive way. Whereas, when you are talking about moving your existing software to SaaS version, it needs to be as good as the real thing, else it won’t fly.

It either has to be better or as good as the traditional software. This is where the challenge lies for the ISVs to move from on-premise to on-demand. Imagine a situation, where your enterprise product is selling for a million dollars, and you want to move to SaaS and this effectively means that it might take enormous volumes for you to achieve the million through this model. Here, SaaS may not be the right move.

On the other hand, if this million dollar product company identifies a completely different market (or the long tail as we put it!)  for the SaaS offering, then this can definitely be  a reality.

At the same time, you cannot delay the inevitable of offering your SaaS version if there is a market, lest someone lese would offer it and your entry barriers in this business model would become even more steep.

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