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Comments on Zoli’s “3 Half-Truth’s about SaaS”

May 29, 2008 Leave a comment

Zoli Erdos is a software industry veteran with a great blog. I recently discovered a post where he talks about 3 common half-truths about SaaS (Software as a Service). Over the past 2.5 years I’ve been working as a Director of Product Marketing for a SaaS company and following the developments and the hype surrounding SaaS. In this post, I’d like to comment on what Zoli post and share what I’ve observed.

 

The 3 half-truths:

“1 – SaaS is simpler, easier to implement than On-premise software (see update at the bottom)

2 – SaaS is for the SMB market

3 – SaaS is bought, not sold, it’s the end of Enterprise Sales”

Let’s take this one at a time:

1. SaaS is simpler, easier to implement than On-Premise software

In general, that is true. Assuming zero or minimal customization SaaS implementations do take less time and are easier to implement as they don’t require the deployment of new infrastructure by the client.

This faster implementation translates into faster ROI for the client. (Ben Kepes who responds to Zoli’s post has a nice diagram here) Sometimes SaaS is coupled with a licensing model that eliminates the upfront licensing fee and instead ties fees to the client’s benefits/usage (i.e. transaction model). Such model further aligns the benefits and costs. This is interesting because costs/benefits are typically heavily misaligned in the traditional on-premise model, where in a typical scenario a client pays six to seven figures upfront for the licensing fee and then waits for months or years before seeing a return.

Note: As Zoli points out in his post – implementation is not just about the technical implementation, but it is also about the business process &  change management training, etc. With SaaS implementations business process/change management aspects are relatively similar to traditional on-premise implementations. Yet, the overall project risk is still lower due to significantly lower technical risk.

2. SaaS is for the SMB market

I think this largely depends on what type of SaaS solution we are talking about. Even within “enterprise software” – there are many different types. Some enterprise software is deployed at departmental or business unit level (accounting) and some is accessed more broadly (i.e., email, intranet). It’s true that SaaS has seen most widespread adoption initially within the SMB market which has fewer resources to available to deploy software. Yet, I constantly run into reports of SaaS being used in the Fortune 500. I also expect that adoption of SaaS will continue to grow among the large enterprises for several reasons:

1. Lower technical implementation risk (discussed above)

2. Attractive economics – lower start up costs are even more attractive given the current economic client

3. Self-fulfilling prophecy – all of this hype around SaaS is getting a lot of attention and resulting in more organizations considering this option (again recall seeing this in recent report, but don’t remember where)

Industry specific SaaS solutions are common among large enterprises. The company where I work serves financial institutions (mortgage lenders, banks, insurance). We serve many of the largest financial firms out there and our solution is delivered via the SaaS model. This has been going on since the late ’90s (before the term SaaS became popular). 

3 – SaaS is bought, not sold, it’s the end of Enterprise Sales

This is not completely accurate. I think whether SaaS is bought or sold depends on a couple of variables:

A. Complexity of the problem and the solution. Complexity includes:

  • the business process impact
  • legal uncertainties/perceptions
  • integration complexity with the client’s existing systems
  • relative novelty of the technology solution itself

B. Vendor’s go to market model.

Some vendors don’t have a sales force and they often struggle penetrating large enterprise accounts. These vendors often do better with smaller accounts that require less face-to-face.

Other vendors build a sales force to bring their solution to market. This becomes more important as complexity of the solution increases.

What I haven’t see much of yet – is the use of channel partners as the predominant sales channel. Although Google has announced a partnership with one of the big systems integrators last year, I don’t think that they currently have a large number of joint implementations in their bag. This will likely change – as we’ll see more software transition to the SaaS model, there will be a greater need for systems integrators to pull all the pieces together. When this happens, we can expect to hear more of the same negative press we have heard with on-premise software: time and budget overruns, failed implementations, etc. Complexity is inevitable and SaaS is not immune.

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