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Is SaaS Right for You?

Most articles about Software as a Service (SaaS) focus on its many benefits, but only a few talk about its drawbacks. In almost breathless tones, IDC forecasts that SaaS will grow at 21% a year through 2009, reaching $10.7 billion. With last week’s launch of a SaaS offering by SAP and the ongoing launch of Microsoft’s Windows OneCare Live, the 1,000 pound gorillas are taking the field. With SaaS services vendors pitching their services to one and all, there’s little focus on the pragmatic questions of why SaaS is appropriate and when is the right time to make the move. We look at who cannot afford to miss the SaaS boat and who might benefit from a later departure. Our clients are especially interested in understanding SaaS with regards to desktop applications.

Where SaaS Makes Sense

If software vendors want to avoid creating another smoking crater like the one created by the ASP market during the dot-com bust, they need to recognize that SaaS is very well suited for some types of applications or market situations, and less well suited to others. SaaS excels at serving up homogeneous enterprise applications interacting with geographically distributed users. SFA, PLM, HR, and procurement applications are among the SaaS “naturals.” These applications are often called “one customer” applications as they serve homogeneous users such as a company’s sales force. SaaS is also well-suited to high-value, sophisticated online initiatives. These are not as well-known as some well-know horizontal services, but have equal impact within certain niches. Lastly, a variety of net-centric applications are challenging incumbent vendors in a range of markets. Whether a well-honed net-centric business model alone is enough to push these companies into the winner’s column remains to be seen.
To date, SaaS successes are typically horizontal services like Salesforce.com, but services vendors like Jamcracker are betting rich rewards will accrue to vertical service providers that can aggregate solutions from multiple vendors while adding vertical expertise and managed services.
At this point, most desktop vendors will note that the SaaS successes to date don’t reflect their desktop business. Is this an insightful observation or a missed opportunity?
Microsoft’s dive into SaaS with OneCare Live-as well as the PC antivirus and security market in general-shows that there are no inherent obstacles to using SaaS with desktop products. Desktop software fits the “one customer” concept that is important for SaaS implementation, and the variety of licensing modes possible with SaaS-per user, per seat, modular, usage, subscription and trial-are all attractive to desktop application providers.

Drawbacks

Of course, there are also drawbacks, and in the case of desktop software, they are significant for most companies. What is the role of the channel? This is not much of an issue where a lot of services are involved such as with enterprise applications and some types of desktop software. However, for most desktop applications sales and distribution are channel centric, but SaaS does not need the channel for distribution or sales of renewals. Thus, the channel serves up a giant challenge for SaaS. Furthermore, while SaaS gets a lot of attention for reducing start up costs for new customers, it also slashes existing customers’ switching costs as they can stop paying at any time. In this facet at least, SaaS may offer a different appeal to the upstart than to the incumbent.

The Customer

Not to be forgotten in all this is the customer. What do they want? According to Jeffrey Nolan of SAP Ventures, SaaS is about the perception of what software is in the eyes of the typical customer and the nature of the relationship they want to have with their vendors. Customers are looking for business model innovation as they simply don’t like the way they buy much of their software today, and are looking for alternatives that better align with their businesses. In this sense, SaaS’s appeal may be as an alternative to the status quo rather than “the” answer.

Thinking About Your Situation

Take a moment to think about why you are (are not) attracted to the SaaS model. Are you trying to smooth the peaks and valleys that follow a release-based business cycle? Are you trying to reach new customers? Do you feel trapped by the existing software pricing model and need to break it in order to innovate? Do you face competitors that are attacking you with a SaaS model? However you answer these questions, we would welcome the opportunity to discuss SaaS with you and help you to set the appropriate strategy for you business.

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