SaaS Succeeding Where ASPs Failed

There is an entire universe of suppliers and vendors that support the delivery of applications as on-demand services. Indeed, the Software as a Service (SaaS) model is attracting more than end users who acquire their information technology via user-per-month service subscriptions. Also attracted to the SaaS market are those vendors creating the means to produce and deliver such services well and efficiently.

That’s because the timing is now right for small businesses and independent software vendors (ISVs) to reach each other through SaaS, with the Web as a platform, and with compelling economics. We’re also seeing more Services Oriented Architecture (SOA) support vendors focus their sales on SaaS providers and hosts, with the understanding that SOA may well emerge in the SaaS universe first, and then extend to enterprises more generally.

To help understand the SaaS market, what SaaS providers want and what those seeking to support those providers can deliver, I recently spoke with Colleen Smith, managing director of Software as a Service for Progress Software.

The resulting podcast offers some great insights and better appreciation of the swelling ecology of vendors and providers devoted to SaaS delivery.

Listen to the discussion (35:02 minutes).

Serving Up Technology

Colleen Smith: Progress Software had started to look at the application service provider (ASP) model back in the early 2000-2001 time frame to figure out whether there was an opportunity for some of the small ISVs who were using the Progress technology to become more of an application service provider. … I was basically asked to figure out how to build more of a SaaS partner program and look at ways in which we could work with our partners.

[We looked at] the technology enablement and how to build applications to go to market with SaaS. We also added a couple of other things, because we felt that one of the biggest challenges traditional software vendors had was around the business model, the go-to-market strategy, sales enablement, and figuring out ways in which we could actually help them to be more successful in this new business model. We were thinking of it more as a business model and not just as a technology.

Sure, there are the technical components of multi-tenancy, being able to have a Web-based access, and being able to drive policy configuration and personalization. … On the software side of it, there is much more of a focus on business-process automation, and the people who are building, deploying and running those applications have a good, solid knowledge of the business itself. The second thing is that the applications are now architected specifically to be able to run for multiple customers, and it’s not a separate implementation for each customer.

Same Application, Different Implementation

The economy of scale is what killed a lot of hosting providers back in the ASP days and ran them out of business. They were just doing an implementation for every customer, as opposed to a single implementation that can now be used by multiple customers — personalized and managed. The people who use the application run and use it differently, but the implementation is pretty much the same for all customers.

More importantly, we work with a lot with our partners or these ISVs to make sure they realize that this requires different marketing. It requires a different sales and business model, because clearly there are financial implications in terms of cash flows. There are also a lot of things they need to think about in terms of who is the target market.

We’ve helped them focus on looking at new markets and going down-market. Our partners have always focused very much on the mid-market, but SaaS has enabled them to target some very niche verticals and go down into the “S” of SMB (small and medium business).

Times Have Changed

I think the timing is right. There are a bunch of reasons why. Number one, the Web is finally viewed as a business platform. Seven or 10 years ago, the Web wasn’t viewed as the way in which business applications were going to be run and managed. … [Before, SMBs] couldn’t afford the dedicated IT staff to manage and maintain the applications. They didn’t necessarily have the infrastructure and the technology to run these business applications. A lot of business applications are much too complex and require too much manpower to manage and maintain the apps.

ISVs [now] realize there’s a whole new market. There’s that long tail, if you will, of the software market that allows them to be able to go after new people. In the past, software just wasn’t accessible to them, and now there’s a whole new market opportunity.

We stress to our ISVs, “You can continue to be in the traditional software business for your core market and the market that you’ve been going after, but there’s a whole new opportunity for you to look at new markets, whether they be the low-end of your current market, adjacent markets or even new geographic territories.”

Throughout South America, Africa, and Asia-Pacific, what we’re finding is tremendous growth opportunity for ISVs to look at these as new markets and to go into those new markets with a new business model. That new business model is SaaS.

Dana Gardner: On the supply side of how these ISVs can deliver, there’s a new support ecology available to them. They don’t have to create their own data centers themselves. They can find partners. We’ve heard a lot about Amazon, for example, and there are others, of course. These ISVs can focus on what they do well, which is their software, their logic, and then also take advantage of some hosting.

Smith: Back in the ASP days, it was all about hosting. I’m not saying that in the SaaS world hosting isn’t important, because it absolutely is. What has changed over the last 7 to 10 years is that now you look at it in terms more of an ecosystem.

You’ve got your infrastructure providers, your application providers, and your hosting and managed-service providers. The biggest change that I have seen now is that each realizes they have a role to play, they have a core expertise, and that through building of this ecosystem and through partnerships you can be much more successful in being able to lower your deployment cost, but still being able to target and go after these new markets.

Shifting the Model

The SaaS market, in general, is really still in its nascency, and there are a lot of things that have yet to happen. But the good news is this isn’t just a fad. We see a fundamental change in terms of the business model. … The only way that the end customer is going to win in this is if we get into a business model where there is that shared risk and shared reward, but the customer pays for only what they need to use.

It’s going to come down to pricing models. It still has to come down to some building of ecosystems out there, where everybody knows their role and plays that role, but doesn’t necessarily try to do the other person’s role. There are still a lot of things happening.

I believe it’s going to be vertically focused. I don’t think this is going to be a horizontal play. We’ve seen a lot of success in vertical business expertise. There’s going to be content, business applications, data, and services. If all of those can be offered in a single environment through a single service provider, the customer will end up winning.

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