The Software as a Service Opportunity for Independent Software Vendors
Predictions of the death of software are over-stated and the reality is that all businesses are becoming ever more reliant on it. What is changing are the number of options available for how the software applications that businesses rely on are managed, delivered and paid for. Many independent software vendors (ISVs) are recognising the benefits of offering software as a service (SaaS) as an alternative for their customers and once the teething problems have been overcome there are a number of long term benefits for both parties.
• There are a number of reasons for businesses to consider SaaS, but they all come down to three things; managing business costs, reducing business risk and creating business value Most SaaS installations are co-located in secure data centres with levels of security and management that even enterprise IT departments find hard to achieve. The SaaS delivery model allows business application and infrastructure costs to be spread over a period of time rather than paid for upfront. It also eases remote access to business applications and interaction between different organisations, both of which are increasingly required for many business processes.
• Most ISVs are not starting from scratch and need to develop a SaaS business model along side their existing one of on-premise delivery Almost any business application has the potential to be adapted for SaaS, but it needs to be introduced carefully alongside existing business models. It is the financial and cultural issues that need to be addressed as much as, if not more than, the technical ones.
• SaaS can be implemented in a number of ways, but to achieve the full benefits and the economies of scale that can be realised it is likely to require a considerable software re-write Early SaaS implementations were based on the 1-to-1 hosting of servers for each customer. But the real benefits come from managing many customers on the same base infrastructure. Here, the challenge is not just that the software needs to be adapted for multi-tenancy deployments, but for many ISVs it will involve a move from supporting numerous small implementations to a single enterprise SaaS deployment.
• The SaaS model can, and should, be adaptable to suit the way the end user organisation conducts its business Many SaaS applications are paid for on a per-user per-month subscription basis, but this is not the only way. For some application types and customer needs other models suit, such as transaction or volume based pricing. The managed service providers that many ISVs turn to for infrastructure provision are themselves coming up with new and innovative ways to support and finance ISVs in order to reflect these different business models. Many software platform vendors also provide special pricing models for ISVs moving to SaaS.
• The businesses challenges for the ISV moving to SaaS include pricing, service level agreements, cash flow and managing the expectation of sales staff and resellers Funding SaaS is different, because unlike the on-premise model where the bulk of fees are paid upfront, customer value is now realised over a number of years. On top of this the ISV, rather than the customer, now has to cover infrastructure costs. There are long term benefits to making the move but there will be short term issues with cash flow, sales staff compensation and ensuring existing on-premise customers do not feel disenfranchised.
Conclusions ISVs that have adopted the SaaS model are not looking back. Their customers like it, their suppliers are supporting them and there are long term business gains on all sides. But making the initial moves can be disruptive and there is an upfront cost for the ISV. However the IT industry, including both hardware and software vendors and service providers, are embracing the opportunity and providing plenty of assistance for the willing ISV. Now is the time for ISVs to review their business and consider making the move.
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