Bad analysis – SaaS and ISVs

ITPro posted this badly titled out article “Software as a service hits a glitch”. In it author Stephen Pritchard confuses SaaS en masse with SaaS delivered by traditional enterprise service vendors. He rightly states that;

The problem for SAP – and for other enterprise software vendors looking for a share of SaaS revenues – is that there are few guarantees that businesses will turn to the established players for on-demand applications. Part of the attractiveness of software as a service, after all, is that it opens up the door for IT directors to buy in applications from new vendors, often offering specialist functional or industry expertise.

But isn’t this entirely the point? Zoli hits the nail on the head in his post discussing the shifting software business model when he says;

Of course it [the reduction of margins on software] isn’t just Office. The obvious business application is CRM, where Salesforce.com pioneered the concept and delivered the first On-demand product.  But now a funny thing is happening: the pioneer is increasingly being replaced by more inexpensive competitors, including … Zoho.  Yes, SaaS disrupts the traditional software market, but there’s another equally important trend happening: the commoditization of software.

Commoditization is beneficial to customers, but a death-spiral to (most) vendors.  Except for the few that drive commoditization.  Zoho makes no secret of doing exactly that.

Back at the ITPro article Stephen points out that the traditional vendors can’t help but come back to that old bug-bear. A move to a SaaS model cannot help but cannibalize sales from their traditional offerings. Bear in mind that most of these players are large publicly listed entities – how many shareholders are understanding enough to fore-go the current super-normal profit model for the uncharted waters of SaaS? And how many of them understand just how threatened the incumbents are by the new models?

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  • The major issue traditional ISVs will have embracing the SaaS model is that the vendors themselves are now responsible for delivery to the end user.

    In the past vendors could rely on producing a product with a set of features and then the value added reseller or systems integrator would be responsible for deploying it in a manner that would align as best as possible with the customer’s business requirements.

    The vendor themselves have a very small exposure to the customer. Now in a SaaS model, the relationship is a direct and ongoing one with the customer. Vendors now need to understand exactly how their products can be utilised – the vendor needs to move from understanding IT and features, to truly understanding the customer’s business.

    Traditional ISVs produced a set of lowest common denominator features that the VAR or SI built processes around, now the ISV must get engaged in the processes themselves.

    SaaS vendors typically understand the domain they operate in to a greater extent that the traditional ISVs exactly because of this focus – for instance here at Mimecast, we’re pretty hot on email lifecycle management.

    Our subscription revenue model means we can continue to focus on our area of expertise rather than having to continually move further-and-further out of our comfort zone to strive for revenues.

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