babson college cim software-as-a-service presentation

THINKstrategies Strategic Consulting Services

Tracking the Growth of Software-as-a-Service

Presented by,Jeff Kaplan

Managing DirectorTHINKstrategies

jkaplan@thinkstrategies.com781-431-2690

The Evolution of Man

Primary Drivers of SaaS

Changing economic conditions

Changing competitive forces

Changing ecological concerns

Changing workplace requirements

Changing technologies

Changing priorities & sourcing policies

Today’s Perfect Storm

TheEconomy

EnablingTechnologies

ShiftingCustomer Attitudes

Deployment Challenges• 31.1% of SW projects cancelled before completed.• 52.7% of projects cost nearly 190% of original estimates.

Operational Costs• Maintenance & management costs >10x original license

fee.• Escalating hardware & staff support costs.• Over provisioning and under-utilization of SW licenses

Economic/Budgetary Pressures• Need to reduce IT costs and increase business benefits.• Need to increase utilization to gain greater ROI.

The Shortcomings of Legacy, On-Premise Apps

The Nicholas Carr Affect

"...Imagine what future generations will see when they

look back at the current time...won't the way corporate computing is practiced today

appear fundamentally illogical -- and inherently doomed?”

“The End of Corporate Computing” Nicholas Carr, The MIT Sloan

Management Review, Spring 2005.

Changing Customer Expectations

Old, Capital Investment

Complexity, Customization

Reactive Maintenance

Response Time

Customer Support

Limited Responsibility

Outsourcing Alternatives

New, Operating Expense

Simplicity, Utilization

Proactive Management

Ongoing Monitoring

Automated Delivery

Higher Accountability

Out-Tasking Options

Enterprises Seeking to Generate Greater ROI at Lower TCO.

Shift from Outsourcing to Out-Tasking

Businesses seeking functionality, not technology.

IT outsourcing deals have failed.

Selective outsourcing, or ‘out-tasking’ gaining attention.

SaaS & cloud computing is a form of out-tasking.

On-Demand Has Become Mainstream

Enabling Technologies

Broadband networks

Grid computing

Blade technology

Virtualization

Web services & SOA

Service provisioning

Performance management

Networked applications

Enhanced user experience

Subscription pricing

Real-time analytics

Continuous enhancements

Self-provisioned services & toolkits

Aggregated data & benchmarks

Defining SaaS

ASPs Resold legacy applications

Upfront perpetual license

Remained inflexible

Limited availability

Single-instance, inefficient

SaaS Net-native applications

Pay-as-you-go model

New functionality

Universal availability

Multi-tenant, scalable

ASPs vs. SaaS

Interest in SaaS Growing

Source: THINKstrategies/Cutter Consortium

62%% of Respondents Using SaaS

Welcome to Gartner’s ‘Slope of Enlightenment’

Gartner’s Hype Cycle

You are here.

On-Demand Market Adoption Forecast

2010200820062004

Innovators

Early Adopters

Mainstream Buyers

Laggards

SaaS Expands from Front- to Back- to Inter-Office Apps

BUSINESS APPLICATIONS

CRMSFA…

CollaborationSCM

ERPFinance

Front Office Inter OfficeBack Office

SaaS Market ‘Gold Rush’

Top Ten Showplace Application Categories

Customer Relationship Management 103

Collaboration 80

Accounting/Financial 78

Document Management 67

Project Management 62

Enterprise Resource Planning (ERP) 55

Marketing 49

Human Resource Management (HRM) 47

eCommerce 46

Messaging 44

Source:SaaS

Showplace

Top Ten Showplace Industry Categories

SMBs 110

Banking/Financial Services 102

Manufacturing 91

Technology 80

Healthcare 72

Retail 69

Government 63

Professional Services 55

Telecommunications/xSPs 43

Software 42

Source:SaaS

Showplace

SaaS Expands from Business Apps to IT Management

BUSINESS APPLICATIONS

CRMSFA…

CollaborationSCM

ERPFinance

Front Office Inter OfficeBack Office

SecuritySystems Mgmt

Network MgmtRemote Access

Data ProtectionStorage

…IT Management

Why IT Wants SaaS

Most IT organizations spend 75-80% of their time reacting to problems, keeping systems and software up and running. They

would prefer to focus on more strategic business initiatives.

Traditional NSM = ERP of the IT WorldToo complicated

Too expensive

Too time-consuming

Too ineffective

>40 IT/Application Mgmt solutions on the SaaS Showplace.

SaaS Penetrating IT Management Market

Managed Services/SaaS Convergence

Managed Services SaaS

Managed Services vs. SaaS

Managed Services Provider assumes

management responsibility

Sold on an per device basis

Focus on network/system availability & performance

SaaS Provider delivers software

functionality

Sold on a per user basis

Focus on application availability & performance

Quicker Time-to-Value Lower TCO/Higher ROI Shifts Burden to Provider

The Convergence of Managed Services & SaaS

Ad-Supported SaaS

“iTunes of IT” 250K users 50,000 new users in

last 2 months Advertisers has grown

from 4 to 40 Market Opportunity,

• SMB IT pro = $125,000 annual budget.

• 250k users = $32B in annual spend

• Growing at more >$3B per month!

Open Source: The Good, Bad and Ugly

The Good• Proliferation of tools/solutions

• Accelerated Development

• Concepts of Community

The Bad and Ugly• Lower barriers to entry

• Escalating price competition

A New Level of Valuein the SaaS Market

Dynamic toolkit clearinghouse

Continuous updates, new ideas

Real-time, aggregated data

Meaningful benchmark studies

Practical best practices forums

Shifting Adoption Patterns

Unilateral End-User, SBU Adoption of SaaS Solutions

Enterprise-Wide Acceptance and

Adoption of SaaS

The Role of SaaS in SMBs and Enterprises

Small = Fill Unmet Needs

Mid-Size = Fill Unmet Needs/Replace

Enterprise = Augment/Extend Capabilities

Size of SaaSDeployments Growing

SaaS Evolution

SaaS 1.0 SaaS 2.0

• Standalone point apps

• Focus on ease of use/price

• One size fits all, minimal customization

• Horizontal applications

• Limited interoperability

• Emphasis on lower TCO

• Specialized vendors

• Combination of choices

• Focus on added functionality

• Multiple configurations, greater versatility

• Vertical/industry solutions

• Easier integration

• Emphasis on higher ROI

• Strategic sources

Moving from SaaS Apps to Cloud Computing

Cloud Computing Services

SaaS AppsSaaS Apps

Rewiring the World,From Edison to Google

“A hundred years ago, companies stopped generating

their own power with steam engines and dynamos and

plugged into the newly built electric grid…Today, a similar

revolution is under way.”

- Nicholas Carr

Cloud Computing:Today’s New Enablers

New Challenge:Cloud Computing Outages

“Amazon S3 Outage Rains On

Cloud-computing Parade”

“Outages Force Cloud Computing Users To Rethink

Tactics”

Key Customer Concerns & SaaS Industry Responses

Concerns, Reliability Security Customization Compliance Integration Customer Support

Responses, SLAs Certifications User Configurations DR/BC Connectors Online/Pro Services

On-Demand Services &The IT Industry Inversion

Services Technologies

Future

TheIT IndustryInversion

Key Challenges Facing SaaS Vendors

Re-architecting applications

Re-structuring revenue models

Repositioning marketing

Re-orienting sales/support staff

Surviving market shakeout

No One Likesto Sell Services

Raises concerns about the product.

Complicates the sale/extends sales cycle.

Seldom properly incented.

Weak value proposition.

Poor track record.

Hybrid Model Pitfalls

Balancing,

Multiple Offerings

Multiple Codes/Versions

Differing Buyers

Multiple Sales Channels/ Compensation Plans

Differing Revenue Recognition

Channel/Supply Chain Opportunities

Legacy ISVs

New SaaSProviders

EnablingTechnologyVendors

• Offshore SW Developers• 3rd party SW platforms• 3rd party HW systems

• Hosting companies• Carriers

Channel Partners

• Distributors• VARs/Integrators• eCommerce Sites

Corporate Customers

Consumers

New Channelsto Market?

Insurance Companies

Retailers

Web companies

PS Firms

SaaS Ecosystems – The New Channel

Jamcracker

Changing Competitive Landscape

& AimNetSolutions

everdream

A Future View

Software Services

Business Services

Information Services

Market Evolution

Key Questions

Do you have adequate networking capabilities?

Can you deploy SaaS more quickly, with less risk?

Can it give your employees a better user experience?

Can you gain productivity improvements?

Can you distribute information more effectively?

Can you make decisions more intelligently?

Can you measure performance more accurately?

Can you achieve a greater ROI at a lower TCO?

Summary & Conclusions

SaaS spreading

IT supporting & adopting SaaS

Market entering ‘gold rush’ era

Make strategic sourcing decisions

Use classic evaluation criteria

Focus on reliability, flexibility & viability

Expect new levels of value

For More Information…

www.SaaS-Showplace.comwww.thinkstrategies.com

jkaplan@thinkstrategies.com

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