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TECH TALK: The Coming Age of ASPs: Whats Different (Part 2)

May 17th, 2005 · No Comments

KB Chandrasekhar of Jamcracker writes what is different this time around:

When Software as a service (SaaS) was introduced in earnest in the late ’90s the SaaS providers were working on such thin margins that there were no significant cost savings compared to traditional software implementations.

On the demand side, the companies consuming the software were flush with money.

Today, with improved on-demand delivery and management solutions, software providers have gained significant efficiencies-of-scale in delivering SaaS, which in turn helps make for some very attractive price points.

On the demand side, companies have faced severe economic challenges over the last five years, forcing CIOs to do more with less, and to focus on bringing more discernable value to their companies.

SaaS pricing coupled with the experience of CIOs burned by massive implementations that didn’t deliver promised value, means the SaaS supply and demand sides have both moved 180 degrees to where they are now in sync.

Today, while CRM dominates the on-demand market, there isn’t a segment of the software spectrum from ERP to supply chain that isn’t represented by a SaaS provider.

Generic functionality of the offerings is sufficient to meet the needs of most organizations, and specialized vertical offerings go even further. If customization is needed, on-demand technology has progressed to the point that it can be done much easier and more cost effectively than before.

SaaS providers are also using technology such as Web services to make it easier for their offerings to integrate with their customers’ infrastructure.

All of these factors combine to make the on-demand model more attractive for the larger enterprise, and as a result, we are seeing increasing adoption in this market segment.

But the real driving force for acceptance of SaaS today is the increased focus of CIOs to deliver value. This means expending resources on projects that are mission-critical to the company.

CIOs do not want to spend time and resources installing and maintaining transactional applications that fail to differentiate the business or provide a competitive edge for the company. They want to provide the functionality required to run the company with the least amount of resources expended.

Improved technology, converging economic models, greater security (real and perceived), offerings that meet the functional needs of the enterprise, and CIOs working with leaner resources and a greater need to deliver real value have all impacted the attitude of companies considering SaaS and have breathed new life into a once left-for-dead industry.

Phil Wainewright adds:

The problem I have with talking about ‘software-as-a-service’ and ‘on-demand software’ is that these phrases continue to give the impression that the model is all about delivering software, with the underlying implication that all that’s changed is the delivery mechanism. In truth, the transformation is far more fundamental than that. The most important point to bear in mind about these net-native, on-demand independent software vendors (ISVs) is that they own and operate the software themselves. They take responsibility for making sure it’s up and running before the customer starts using it. What the customer pays for is not the software itself, but the working functionality the software provides.

This is a distinction that the conventional software industry has a lot of difficulty understanding. They’re so used to customers paying them simply for shipping out software that they think ‘software-as-a-service’ means signing a service contract for the same thing spread over three years. Think Microsoft Software Assurance (I know it’s not a service in the same sense but it’s symptomatic of the problem), in which the only thing assured is that you’ll keep on paying Microsoft for the term of the contract, however much or little turns up on your doorstep, and irrespective of whether it works. The conventional ISV’s view of ‘software-as-a-service’ cannot help but be tainted by all the defects and limitations of their current software-as-a-product model.

Tomorrow: Softwares Long Tail


TECH TALK The Coming Age of ASPs+T

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