Forecasting industry trends and what they mean should typically be left to pundits and journalists. Yet, I think there’s a real opportunity on the table for software vendors. It’s a fundamental truth of where the web 2.0 model will impact the software industry as we know it.
For those of you that aren’t already aware of the hype around it, Software as a Service is the new ASP model. Remember that? It died a hard death in the dot-com bust. But this resurrected version is different. There are solid business and technology factors driving adoption: cheaper hardware, open source software, and solid bandwidth. In other words, many of the reasons that ASPs died are now in place and there are true motivators to consider SaaS solutinons. So there’s no question to me and others, the model makes sense and there are many reasons it will be pervasively adopted.
SaaS is often talked about in pricing and licensing terms. Meaning, doing a SaaS offer allows lower initial price and longer-term licensing offers allowing scale. Oracle serves up software to the enterprise, right? A typical deployment of Oracle is large, multi-thousand, customized and integrated solutions. Their competitor, salesforce dot com (SFDC), has a SaaS solution, and a typical deployment has an average of 19 users. So in this example, SaaS is a new pricing and licensing model.
I think something more fundamental is not being yet understood. This is so much more than a pricing or licensing model. It fundamentally means that the buyer just became accessible in new ways.
In other words, this isn’t Kansas anymore. And if you are selling (or trying to) to Enterprise markets, this model poses both opportunity and risk for current software vendors.
Here’s why I especially believe that. At SoftSummit 2005, the McKinsey guys presented:
93% of all IT dollars are already committed to existing work, or maintenance. That leaves little else for them to consider and the IT bottleneck committed before a vendor with a new solution even shows up.
With SaaS, the model is no longer dependent on IT, or centralized buying dependent. This new software model is value-based and viral. With it, each department can become the user and buyer. Enterprises no longer need to get all parts of the organization using the technology. If there’s enough value, small teams or individuals in an organization can start using the technology and that can spread.
For all those software solutions who have not been able to reach the enterprise market thus far, this is good news. Adobe and other companies like it will have a better chance of having its Acrobat platform adopted.
And for those companies very good already selling to the enterprise, know that your vulnerability is in not knowing how to sell via SME or consumer-level communications. The vendor that does this well has an advantage in this new software world.