I think SaaS (Software as a Service) is potentially the biggest issue facing software firms today. This formerly “ASP” (application service provider) model blipped back in ’97-’00. And it seemed to fail. But, in fact, I think the issue was simply that the hype of the dot-com era exceeded reality, not that the idea was a dud.
Buyers both in larger enterprise and smaller businesses are thinking about it again. If they’re not, I think they should be. I can see two reasons why.
Money. Now we can predict companies expect to save money on things like servers and networking equipment…but likely they will spend more on services than they currently spend on software. They will really benefit because they will not need to buy the related boatload of hardware, data center space, maintenance, and yada-yada.
The other reason? Globally, businesses don’t work the same way anymore. With the ability to take R&D abroad through global outsourcing, or change the speed and flow of product lifecycle management, or use the varied workforce by engaging older and part-time workers, the work world has changed. As a result, no company wants to hooked into a pre-defined and possibility obsolete model of buying software and taking 1 year to deploy it. Companies want and need flexibility. And companies also want (and, I would argue, need) to focus on their core assets: customer engagement, product design, and/or services delivery. But they don’t want to focus on the software that enables the background exchange of ideas, exchange of information. That is best done by someone else innovating on what they do best. It’s this fundamental optimization of businesses doing what they do best that will cause SaaS to take off and light a fire in the software industry.
For some companies, SaaS won’t make a big indent at the beginning, but I do think that this emerging business model will impact 90% of most software companies. For those that aren’t paying attention to it today, I hope they change their mind.
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September 19, 2014 in Market Power