SaaS Ecosystem: Threats and opportunities

By Karthik Viswanathan

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But in recent times, SaaS and Cloud Computing have emerged as disruptive innovations. The new deal clearly places the day-to-day software operational responsibilities on the vendor than on the IT department of the customer. Software product firms (ISVs) typically focus on developing cutting-edge software that are customized and deployed at the user’s locations. It is not uncommon for mission-critical products (eg: ERP) to go-live even 6-8 months after the contract is signed. But in recent times, SaaS and Cloud Computing have emerged as disruptive innovations. Some pundits even talk about the death of IT as we know it. The most striking historical parallel for this phenomenon is the oft-quoted evolution of electricity as a commodity service rather than users having to install power generators. This tectonic movement towards a service oriented business landscape is driving firms to redefine their core-competencies. To stay competitive and effective, SaaS providers can source their contextual/non-core activities through partnerships. After all, they themselves are in business because their customers have chosen to outsource - emails, office applications, CRM, accounting software etc. In this context, let us examine some implications for SaaS Providers in the evolving ecosystem.

PaaS, Clouds and ‘Passing Clouds’

Given the necessity to shrink go-to-market timeframes, the complexities of building new software are abstracted by using frameworks and reusable plumbing components. For example, Platform as a Service (PaaS) offers a complete platform replete with IDE and visual development methodologies to accelerate development. This phenomenon is a logical progression of how, for example, java-based software is built with frameworks like Struts and Spring. In fact, PaaS is often proclaimed the Cloud Operating System for SaaS applications. Similarly, Infrastructure as a Service (IaaS) is an excellent way to expand/contract the computing power and memory based on user traffic. Pay-per-usage is the norm in such –as-a-Service environments.

These are significant innovations and offer excellent advantages by (i) simplifying development process (ii) transferring responsibilities to other vendors who are best equipped to handle such complexities and (iii) shrinking go-to-market times. But the challenge lies in the ensuing tight coupling with the underlying platform. Your software is not as portable as it will be if you do develop your software from scratch. This leads to the classic build-vs-buy conundrum. While ground-up-development and PaaS are two ends of the spectrum, there is the middle-path too. Some firms provide off-the-shelf SaaS building blocks (eg: tenant provisioning, license management etc) in the technology platform of your choice. Such go-to-market accelerators can be leveraged to avoid lock-ins.

Another key concern is that because of the evolving state of the SaaS/Cloud trend, the market is prone to acquisitions and consolidations that may have an adverse impact on you. The strategy that you can adopt should be based on the market opportunities and your organizational strengths/weaknesses.

‘A La Carte’ Cloud Services

The abstraction of complexities is a constant theme in modern life. Command line OS became graphical point-and-clicks. Application Servers famously urged developers to focus on business logic while they promised to take care of under-the-hood connection pooling, transactions, concurrency etc. Similarly in the SaaS world, there are specific cloud services to perform operations such as Customer Management & Billing (eg: Opsource), payment processing (eg: Authorize.net or Paypal), Integration (eg: jitterbit, boomi) etc. Such “a la carte” services give you the flexibility to ‘assemble’ (not build) SaaS applications better and faster. Apart from the typical threats of this approach such as lock-in and the prospect of vendor closing shop, the additional downside is that such services may be costlier in the long-run if there is significant/constant usage.

SaaS and Business Process Outsourcing

Service Delivery requires building software and providing BPO Services i.e. Business Services = SaaS + BPO. The SaaS model often turns software vendors (who have traditionally partnered with outsourced service providers) and BPO firms into competitors. These markets have seen interesting consolidations in the last 3 years and the acquisition trend will accelerate as business service providers recognize the potential of SaaS solutions to enhance their offerings, extend their market reach, and increase profitability. For example, IT Services and BPO major, Cognizant Technology Solutions, acquired marketRx (a provider of web-based analytics and related software services to global Life Sciences companies) and IT infrastructure Managed Service Provider (MSP) AimNet Solutions. A few months back, Services Provider NorthgateArinso bought out an On-Demand HCM software. In effect, the trend points towards the convergence of SaaS and BPO.

Channel Partners

Just as ISV’s are adapting themselves to the on-demand world, channel partners are also expected to unlearn a few things and pick up new skills. For example, business process consultancy is a core skill set that will play a lot more important role than technical competencies.

In general, lower recurring/implementation fee is expected to replace the traditional revenue model. But the increased number of on-demand engagements is expected to keep the partners happy.

While some may even question the importance of resellers in the SaaS model, the reality is that VAR’s and SI’s have deep penetration in the marketplace. They bring in valuable domain knowledge, implementation experience, data integration/migration skills that are important for customers to begin using on-demand software. It is not surprising that leading SaaS companies have built extensive partnership networks to scale their business.
       
Conclusion

As SaaS traverses the hype-cycle, the industry is increasingly looking at it as “Service as a Software”. This has led to major changes in the product management, marketing and selling functions. The SaaS ecosystem is a complex interplay of software vendors, service providers, integrators, BPOs, PaaS, and IaaS. Strictly speaking, the DNA of a product company varies from that of a services company. But the reality is that several vendors offer On-Premise as well as On-Demand software. The market forces that have brought about this change have mandated multiple players to work together to meet the ever-expanding and personalized needs of the end-users. While the promise of ‘mass customization’ still remains afar, collaboration and multi-sourcing are key in this brave new on-demand world.

About the author:

Karthik Viswanathan heads the marketing team at Aspire Systems. He can be reached at karthik.viswanathan@aspiresys.com.