Can Traditional ISVs Make the Move to SaaS?

Reading Phil Wainewright's column this morning about the move of Steve Lucas (acquired with Business Objects) from SAP to Salesforce.com reminded me that I've had a post writing itself in the back of my mind.  That's because I've been having an ongoing discussion about the subject of SaaS with some of the big, traditional ISVs.

It's been broad:

• Is SaaS a significant and lasting change in how software will be purchased and supported or a fad?
• Who is SaaS for?  Enterprise ISVs still seem to think it's for the SMB market (which they don't sell to much yet) and that the Enterprise is too complex and customized for SaaS.   (That is, that their existing market is protected from SaaS.)  Apparently they don't know much about SaaS in 2008 or who's buying it.
• What do you have to offer to be a successful SaaS vendor and when do you have to be in the market?

So, you know what side of these arguments I'm on: 

1. Yes, it's significant and enduring.  I don't fall in with the SaaS enthusiasts who believe that all software will be SaaS any minute now.  It doesn't work that way.  But I do believe that within five to seven years more than 30% of new software purchases will go to SaaS -- and maybe more.
2. We've already fought the "who buys SaaS" battle.  Of course, it's wonderful for smaller companies, permitting them access to applications they could otherwise neither afford to buy or manage.  But it's also very appealing to large enterprises, especially for mature applications that have little or no competitive advantage (think email and HR), supporting remote workers, contractors, and customers, and permitting the enterprise to offer applications that are used only occasionally or by a few workers.  That lets the enterprise use scarce, skilled IT resources to focus on developing applications that are core to the organization's mission.
3. What you have to offer and how much time you have to get into the market depends on what you do.  Very large vendors who address big markets are sure to attract additional new SaaS ISVs to their market -- the prize is just too large to be ignored.  If they wait, they risk being too late, competing with a newcomer for customers they could have brought to the SaaS model themselves (think of what Salesforce.com did to Siebel).  ISVs in narrow vertical segments have longer -- perhaps forever.

Note that offering a SaaS version of your application that is less than the real thing will not work, particularly if you are the standard bearer in a big market segment.  The customers will find it less than satisfactory and a new SaaS startup will find your mistake their lynch pin to guarantee their market success.  SaaS customers, thanks to the web, know the alternatives and want the real thing.  We can't count on marketing in little curtained cubicles to less-than-knowledgeable customers any more.

So Steve Lucas left SAP whose Business By Design is late and perhaps less than what a SaaS customer might have wanted.  In a segment as important as ERP there will be (there already is) lots of SaaS competition in the market who won't make the mistake of offering less than a full-blown product and who will understand that customers may prefer the speed, ease, and economy of SaaS to the last jot of customization.

Comments

[Ben Kepes]

Amy

The debate on whether SaaS will gain traction (both generally and within enterprise specifically) is pretty much over. Most players agree that SaaS will ascend (whether it's pure play or Microsoft's S+S offerings).

The real issue you refer to in your title but not much in the post itself - that is whether or not ISV's can move from traditional models to SaaS. It's a huge issue and one which I have posted about many times before.

I'd be interested to chat to you about this - see

http://diversity.net.nz/can-you-innovate-within-an-incumbent-saas-for-isvs/2008/06/18/

http://diversity.net.nz/sap-and-saas-again/2008/05/14/

http://diversity.net.nz/more-on-isvs-moving-to-saas/2007/09/05/

[Suman Chaudhuri]

Amy,

Your discussion around whether or not a major SaaS ISV can afford to release a less than optimal version of their on-premise model as a SaaS solution just to get skin in the game is worth talking about. As part of Patni's ISV group, I discuss SaaS strategies with many different ISVs, and often times, we get in to discussions around SaaS strategies for their on-premise product. The way I see it, ISVs have 4 options - a full product replacement, offer complementary SaaS offerings for their on-premise, offer a "lite" version (what you are discussing in your post), or implement a full blown SaaS version of the existing product.

Whereas the pros of offering a lite version is that it allows an ISV to get in the game quicker and does not cannibalize their existing customer base, the cons are that you are still not a pure SaaS player, and hence in some ways, you are at a competitive disadvantage to their SaaS competitors. And like you said, customers these days are getting demanding and offering a less than optimal SaaS version, especially in the large ERP, CRM segment is not going to fly.

[Landon Hoover]

First of all, I agree with the post above; the transition to SaaS or S+S will be happening. The more pertinent question is how.

How?--The transition to SaaS for an ISV is definitely a daunting task; however, when there are such challenges in the market place, there are always opportunities. There are several companies already taking advantage of this challenge or opportunity by providing services that help ISV’s transition to SaaS (i.e. eVapt). These companies provide a great deal of value and can help ISV’s with pricing strategy, billing mediation, contract management, among many other challenges that confront ISV’s.

I am sure there are many other things that will make SaaS emerge, but keep a look out for companies like eVapt that helping move ISV’s into the SaaS space.

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[James Williams]

Hi Amy,
Glad to see some sensible opinions put forward that see SaaS in a favourable light... you're right, the challenge is how we approach these changes, not whether they're taking place. I'll be discussing on my blog (http://www.thewebservice.com/community/blog/) the direct benefits of the "credit crunch" on SaaS and how it will galvanize businesses and in turn ISVs to change their business practices and embrace SaaS (when I get access to the blog!)... in so many cases it's just a leaner, cheaper, more effective way of using software. Companies can still buy into a fixed contract offering unlimited use of the service if they wish, but I think in a few years even this fudge will start to tail off.

We know these models work - TheWebService (http://www.thewebservice.com/)
might look new but its UK parent brand PCA has been going strong for years, collecting awards and flying under many ISV's radar.

[James Williams]

Hi Amy,
Glad to see some sensible opinions put forward that see SaaS in a favourable light... you're right, the challenge is how we approach these changes, not whether they're taking place. I'll be discussing on my blog http://www.thewebservice.com/community/blog/ the direct benefits of the "credit crunch" on SaaS and how it will galvanize businesses and in turn ISVs to change their business practices and embrace SaaS (when I get access to the blog!)... in so many cases it's just a leaner, cheaper, more effective way of using software. Companies can still buy into a fixed contract offering unlimited use of the service if they wish, but I think in a few years even this fudge will start to tail off.

We know these models work - TheWebService http://www.thewebservice.com/
might look new but its UK parent brand PCA has been going strong for years, collecting awards and flying under many ISV's radar.