Warning: Don’t adopt the software services model in increments

Like an oyster, software as a service business models are best consumed in one gulp rather than nibbled over time.
We’re seeing more and more clients struggling to integrate online services with their existing software businesses. Most are trying to integrate part of the services model with their current operations. For example, they’ll try to create an on-demand product using traditional engineering practices; or they’ll try to sell services through the same channels as shrink-wrapped software. The companies that do this are experiencing agonizing internal conflicts as they try to mesh the improvisational rhythms and needs of a flexible services business with traditional tops-down marketing and engineering practices. The result is usually frustrated people, blown deadlines, and big distractions for senior management as they are forced to referee employee conflicts.
Whether you call it software as a service or web applications, the new business model for software is an integrated whole. On-demand software is developed in small iterative chunks, marketed through rapidly-evolving messages online, and often sold direct or through significantly different channels. Marketing, sales, and engineering processes must all be adapted at the same time, or you can get the worst of all possible worlds — software that is neither shrink-wrapped nor a service. Making all of these changes at once is very disruptive to a company that has developed deep expertise in making the old software business model work. But the alternative is like trying to run a car on vodka: bad for the car, frustrating for the driver, and you waste a lot of perfectly good liquor in the process.
In many cases, it’s better to jump into services through an acquisition (many web app companies are relatively cheap to buy) or by spinning up a separate business unit that shares nothing with the parent company other than its brand.