Channel for SaaS

ISV’s adopting SaaS are facing challenge in creating a new business line which is different from the traditional license based revenue stream. One of the major challenge for them is to create a channel to sell their services. SMB's are too fragmented and difficult to reach even with a broad based campaigns, so creating channels is becoming a big requirement for SaaS vendors.

Today there are 3 different channels available

1. Direct sales by the ISV

2. Resellers

3. Market places

Today the resellers are primarily telco's or financial service providers or business service providers. They take the service in a bulk contract, rebrand and deliver it to their customers, example for such resellers could be XO Communication, AT&T, AMEX

The Market place provides a different model, where the buyers and sellers meet. Market place can be

• Vertical / Horizontal focussed like AppExchange, which has supplimentary applications for the CRM product from salesforce
• Demographic based like BT's market place for SaaS, which is more tagetted towards UK market
• Market place for Resellers like Jamcracker's JSDN

In future we will see more market places proliferating in the market. ISV's should build proper infrastructure to manage the reseller and market place channel, who knows some large ISV's might have thousands of resellers and participate in 10 - 20 market places in future and with out an infrastructure to manage that, it will be difficult for them .

SaaS and offshore IT Service Providers

Two of the major services provided by an offshore vendor are
1. Application development
2. Application implementation services or Professional Services on Enterprise packages.
For the top 5 Indian IT companies, these service lines makes up a significant amount of revenues (for some of them it contributes more than 50% of their revenue).

Both these service lines will be drastically impacted by SaaS, lets look at them in detail.

1. Custom application development:
This service line targets enterprises who want to build a custom software application instead of buying an out-of-box enterprise suite like SAP, there are multiple reasons why an enterprise go in for a custom application, here are a couple of reasons

a. Specialized requirements or the solutions available do not offer the whole gamut of features required
b. Cost is very high - licensing cost, Maintenance cost, cost of the application license keeps increasing for any new seats added

With SaaS, both these reasons fizzle out. Through services architecture all the services available in the web becomes integrable and a platform ecosystem enables the long tail of ISV's who have specialized expertise to build extensions to the common applications, which will address most of the specialized requirements of enterprises. SAP's move of creating Netweaver platform is a significant move in this direction.
From a cost standpoint SaaS is even more attractive than custom development - which also incurs huge upfront development cost and a substantial amount of maintenance cost.

So the bottom line could be SaaS might impact the amount of new custom apps being developed. Which will impact this particular service line of Offshore IT Service provider.

2. Application Implementation Services:

One of the core value proposition for SaaS is that you need not install the system in house and also that the customizations are easy and straight forward. Now considering these two, there is a general perception that the professional services work will not be relevant in a SaaS world, which is not true. Professional services will become more strategic rather than being associated with package implementation alone. It will be the responsibility of the professional services consultants to align the software with the business and make the usage more efficient. PSO teams should focus more on business problems like process re-engineering / change management rather than focusing on technical issues of the package implementation. This will make PSO's more valuable than they are today.

With the availability of platforms like AppExchange, Netflex, the technical aspect of implementations still exist, though in a different form. The implementation partners are responsible to build extensions to the existing applications using the platform. This would need specialized skill set trained on platforms like Apex or Connect.

So, the professional services wing would still exist but move up the value chain and provide consultancy around business process and better utilization of software assets rather than just implementation and also they would build skill sets in on-demand platforms.

Today Indian service companies like TCS, Wipro, Satyam have alliance with SFDC and companies like Accenture and Deloitte Consulting are also into strategic alliance with SFDC, which shows that the service providers are considering SaaS pretty seriously.

Looking forward, service providers should consider SaaS more seriously and plan to be successful in the software era of SaaS. We need to wait for some more time and find out on how Indian IT service providers react.

SaaS Platforms and Ecosystem

In the past week, i read couple of posts about platforms in SaaSblogs and also in Phil's blog. I just thought i would share my perception to the platform and ecosystem from a consumer angle (consumers of the platform, who are ISV's).I would classify the consumers as three types

1. Long tail of ISV's or Individual developers -- They need better support in building the application, hosting, service delivery, marketing. Its better for these companies to adopt a platform vendor who is either in an all-embracing ecosystem or Application ecosystem, for instance companies like Kieden (acquired by salesforce.com) can adopt this model where they ride on the popularity of the host's application and try to attract customer with some niche extensions.

2. ISV's with good funding and a larger application -- These ISV's would tend to create their own application offering and also try to participate in other marketplace ecosystems like Appstore or Jamcracker's JSDN or Strike Iron and in application ecosystem like Appexchange (CRM). Lot of partner application in Appexchange directory today fall under this category (companies like Xactly). Utility computing vendors would play a major role in supporting these companies. This is where most of the future native SaaS companies would fall under.The service platform ecosystem might play a major role here, i don't see the all-embracing ecosystem playing any role here as these companies have varied requirement and might have a customized or differentiated requirement, which might not be provided by the all-embracing ecosystem or common platforms like Appexchange.

3. There is a third type of companies who are existing enterprise ISV's (around 40 - 100M revenues) in the space of CRM, HRMS, Collaboration, Accounting and so on, who would migrate to SaaS to focus on new markets and increase their existing revenue. These companies need a different type of environment which would be offered by the Utility computing ecosystem vendors (i still don't think Amazon is still a player to be considered for the ISVs of this size, but a huge potential). There could be players like IBM, SUN, Microsoft and even opsource who provide this ability. We might also see an emergence of some strong India based offshore vendor playing significant role in this space in the future as most of the IT services companies have the capability required to provide this type of services today.

As more platforms / ecosystems emerge, all these ISV's will be forced to participate in multiple ecosystems / platforms and might increase complexity in maintaining the software in accordance to a large no of platforms, it will be as bad as certifying the software today (on-premise) in multiple stacks. ISV's would pray to have one or two dominant players offering the platform and others just play a role in creating a distribution ecosystem - like Jamcracker (JSDN) or StrikeIron.

Also, i think that existing SaaS companies who have their own applications and offer such ecosystems would be a huge threat to this model. The ecosystem vendor should be non-competitive to the participants. The ecosystem provider should play a neutral role and help the participating companies to grow, rather than becoming their own competitors, acquisition of Kieden by SFDC is a good example of what should not happen.

SaaS and SOA

A lot of information is available on the relevance of SaaS and SOA. Wikipedia quotes SOA as "In computing, the term service-oriented architecture (SOA [pronounced "sō-uh" or "es-ō-ā"]) expresses a perspective of software architecture that defines the use of loosely coupled software services to support the requirements of the business processes and software users."

The services in SOA are not tied with a single consumer application and is built for a generic usage. This introduces a lot of complexity to the service, the consumption of these services can be in the most un-intended way and the scale of usage is almost un-predictable during the development time. Traditionally enterprise software has been built for a benchmarked number of users and their scale out attributes at a service level are never taken care seriously. When these Service-oriented applications are put in a SOA infrastructure there could be serious performance problem for most of the services and also the infrastructure where these services are deployed could either be over-sized or under-sized.

Consider Saas, the applications are designed for un-predictable load and service orientation is the heart of their architecture. The core SLA for the services on the web is performance and availability. SaaS applications are built from the ground-up to ensure these SLA's. In SaaS, the customers are not going to be concerned about Scalability of the application, as it is primarily the concern of the service provider. This better aligns with the need of an SOA enabled enterprise, where the scale of usage is unpredictable and volatile.

Once enterprises starts adopting SOA extensively, they might find that the services offered in the cloud aligning better with their objectives than the on-premise services.

Benefiting from Customer Association

One of the core benefits for SaaS vendors is the long term association they have with the customer. The value provided by SaaS vendors are same throughout this association, where as in traditional on-premise software the value once software is delivered and implemented gets reduced to mere support.

Now through the continuous association that's possible now, SaaS players should continuously identify ways of delivering enhanced value to their customers. For example consider an offshore services company today - they start their association with their customers say through testing or maintenance of some application, then slowly extend to other parts of customer's IT landscape and try to get as much of applications outsourced and ultimately the value delivered increases over the period of association.

SaaS also is considered to be a form of outsourcing and the vendors have opportunity to serve the customer with more value as they go along.

Consider a HRMS application provider, he can always sell outsourced BPO services related to HR to his existing customers. This not only provides additional revenue opportunity for the service provider, but also enhances relationship with the customer by impacting him across multiple touch-points and could be a positive way to retain your customers.

Open Source applications

People have been writing a lot about the open source of late and there has been a wide spread adoption of some of the opensource tools and operating systems world wide.

The way people consume these open source software suggests that they adopt open source only because the software comes for free. No one actually edits the code and tinkers with it. Now, such software only eliminates the upfront license cost and do not reduce the TCO, there has been many reports available which proves that open source is not completely free. There are still maintenance cost and infrastructure cost that are incurred in open source.

To me, open source will be successful in the platform, tools layer, but not in applications. Even though there are few successes, they are highly fragmented and still not as powerful as a Linux or a JBoss or an Apache wave. SaaS based applications are much more beneficial in reducing the TCO and also removing the headache of managing the applications. We need to wait and watch for companies like SugarCRM, which is an opensource and an on-demand vendor.

SaaS enablement for Business Services companies

There are a lot of SaaS enablement service offerings from various enablers today. which are primarily targeted towards ISV's. One of the major focus area to me could be business services companies. Companies who provide business services on non-core but critical functions of enterprises could well be targeted for SaaS. Lets assume a transportation / logistics company, who provide business services in the area of logistics could be a potential candidate to sell SaaS, some of the examples like ADP acquiring employease is a clear indication towards this trend. Its time enablers think beyond ISV's and target Business services market, and create something interesting for them.

Technorati tags: SaaS, Software as a Service, Business Services

SaaS Pricing - A Web 2.0 Approach

Pricing in the SaaS world still reflects more like an on-premise version. SaaS applications are still sold as Standard, Professional and Enterprise version at different price.

Lets look at what email as a service providers do, take for an instance yahoo, it provides basic email services free of cost to the users, now for most of us who use yahoo for our personal emails , the basic feature set is more than sufficient. Yahoo generates revenue for this basic service through their ad program.

Now, for people who don't want to be disturbed by the ads and who want premium service levels, higher storage, POP access, it charges such customers. Now is there a lesson here for , SaaS providers? of course yes !

SaaS applications can be adopted by individuals to make their work more effective, on other other end of the spectrum it is adopted by enterprise to automate a specific business function, now why should we charge in a similar way to both, the individual might not require the SLA's like an enterprise, they might not access the services through webservices, they don't have any huge integration requirements and of course will not have problem if you serve them ads, so give them the service free and charge the enterprise, differentiate using the service levels and feature.

Technorati tags: SaaS, Software as a Service, Web 2.0, Pricing