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Selling Software as a Service [SaaS] Solutions

The rate of adoption of Software as a Service [Saas] is increasing, leading service providers to assess how this new software delivery model will affect their business.

To take advantage of SaaS, service providers will need to adjust their operations and staffing.

SaaS is predicted to not only appeal to small and medium-sized businesses [SMBs] to take advantage of cost and resource requirement benefits, but will likely be adopted by larger enterprises to address non-mission-critical needs such as worker productivity and collaboration.

Companies of all sizes are using or evaluating SaaS solutions across the full range of enterprise applications. A 2007 McKinsey & Co. survey found that 61% of North American CIOs at companies with sales over $1 billion plan to adopt one or more SaaS applications over the next year, compared with 38% in 2005.

Similar adoption rates have been found among SMBs. Just check out the 600+ vendors offering more than 2,500 Web-based software services across 80 application and industry categories on the SaaS Showplace.
One of the leading vendors in the SaaS space, Salesforce.com's software service is currently subscribed to by companies of all sizes.

Workday ERP, started by Dave Duffield, the founder of PeopleSoft, signals the faith key industry players are placing in SaaS.

SaaS or On-Demand business models will need to change both their sales channel model to accomodate SaaS, as well as their sales commission models - a transition that will not come easily. For many resellers, this will require a complete cultural shift to encourage sales teams to adopt a lower value - higher transaction model, based on lifetime value rather than big bust deal making.

Drivers of Adoption of SaaS

Traditional rationale for outsourcing of IT systems include:

Applying economies of scale to the operation of applications - a service provider can offer better, cheaper, more reliable applications than companies can themselves.
Web interfaces have proven a lower learning curve for new, external applications - less hand-holding by internal IT is needed.
IT strategy is moving from corporate mainframes to applications - it’s the business processes and the data itself that matters.
Computing and application licenses are cost centers - suitable for cost reduction and outsourcing.
Insourcing IT systems requires expensive overhead - including salaries, health care, liability and physical building space.
Applications are standardized – with some notable, industry-specific exceptions. This is leading to ubiquitous computing, where most users can switch from one system to another easily.
Parametric applications are usable - in older applications, the only way to change a workflow was to modify the code. Web-based applications can be created from parameters and macros. This allows organizations to create many different kinds of business logic atop a common application platform. Many SaaS providers allow a wide range of customization within a basic set of functions.
A specialized software provider can target global markets - a hosted application can instantly reach the entire market, making specialization within a vertical not only possible, but preferable. This is leading SaaS providers to deliver products that more closely meet their markets’ needs than traditional “shrinkwrap” vendors.
Web systems are reliable - despite infrequent outages and slow-downs, the public Internet, HTTP and the TCP/IP stack are an acceptable channel to deliver business functions to end users.
Security is sufficiently well trusted and transparent - SSL provides a secure way for enterprises to access their applications without the complexity and burden of end-user configurations or VPNs.
Availability of enablement technology – providers of enablement technology that allows vendors to quickly build SaaS applications will be important in driving adoption. The industry will most likely converge to three or four enablers that will act as SaaS Integration Platforms [SIPs]
Wide Area Network's bandwidth - added to network quality of service improvement has deepened the trust in remote access, enhanced by SaaS applications with low latencies and acceptable speeds.

Factors Limiting SaaS Adoption

SaaS was originally considered a potential security and operational risk. However most SaaS applications may have much better security and redundancy tools available to them, providing in many cases, a superior level of service.

SaaS applications pose some difficulty for businesses that need extensive customization. SaaS vendors are making progress with both customization and publication of their programming interfaces. In addition, the availability of open source applications, inexpensive hardware and low cost bandwidth combine to offer compelling economic reasons for businesses to operate their own software applications, particularly as open source solutions have become higher quality and easier to install.

Next: The SaaS Channel Model