Saas Model Here to Stay, Say Vendors

SaaS model here to stay, say vendors

By Victoria Ho, ZDNet Asia Monday, September 15, 2008 07:56 PM

Adopting a software-as-a-service (SaaS) delivery model is as profitable to software providers as the traditional on-premise model, several vendors have assured.

Following remarks made by Lawson CEO Harry Debes in a recent interview with ZDNet Asia, that the SaaS model is unfeasible for vendors in the long run, several software providers have come forth with their responses.

According to HP Asia-Pacific's SaaS director Vinita Ananth, the software component of the SaaS model racks up the same level of margins for HP as software does through the traditional on-premise delivery model. And the service component brings in further profit on top of selling the software, she added. "We find it very profitable."

John Girard, CEO of web content management provider Clickability said in an e-mail to ZDNet Asia: "As long as the business model has been engineered correctly, nothing stops a SaaS business from generating an operating profit from its customers within the first year of doing business with them.

"Anyone who says that it takes longer isn’t being very smart about constructing the model," he said.

Beyond absolute numbers, SaaS provides vendors a way to get a foot in the door with customers, added HP's Ananth.

"People want SaaS because they can deploy software fast over it, without ramping up skill sets and getting the hosting infrastructure first," she said.

Eventually, customers may choose to take over the software themselves, with the provided "mentoring" and "transferring of skills" from the vendor. "A small subset of customers" in the region has opted for this, while most have continued with the SaaS model, she noted.

Girard said time is of the essence for many enterprises.

"Anytime you have a complex problem you’re trying to solve in a rapidly changing environment, models that support faster time to value will win.

"Why would a customer deploy an installed...solution that will take 12 months to deploy, and already be hopelessly out of date when it goes live?" he said. Benefiting from economies of scale Girard also said the question of SaaS' profitability is moot, where both provider and customer enjoy simple economies of scale.

By the SaaS provider employing large scale operations in order to "rent portions of the infrastructure" to customers, the overall cost of the service is lower than if all the customers were to set up what they required in-house, he said.

Customers get cheaper service, while providers see "very predictable annuity-based revenue streams", he added.

"For example, there are substantial costs associated with building the infrastructure required to deliver a magazine to your doorstep, but once that investment has been made, the cost to deliver to each additional customer is tiny."

Furthermore, SaaS players are also in a better position to focus investments on the exact service they provide. "We are in a position to deliver on security, reliability and redundancy at a level that most customers would not be able to deliver on their own," said Girard, on the company's three data centers.

HP's Ananth added: "Operations take up about 60 percent of most IT budgets. And most of that is the software to manage and monitor [the processes]."

Customers going with SaaS providers stand to save about 10 to 20 percent on their total cost of ownership, in general, she noted.

Not limited to "simple" applications One issue Lawson's Debes asserted in the previous interview was the lack of sophisticated SaaS products.

HP Software's head of marketing for Asia-Pacific, Darryl Dickens, said the situation was the reverse. "SaaS is not for the simple, out-of-the-box software. [If it were so,] you wouldn't need SaaS," he said, because customers see SaaS as a way to kickstart a "complex" deployment.

"Just because it is SaaS, it doesn't mean functionality is reduced. Customers get the flexibility to modify what they need, and scale up as the business matures," said Dickens.

Eric Berridge, cofounder and principal of SaaS consultancy service, Bluewolf sees SaaS as a way to demolish the hegemony of traditional "big" software players, through providing services that customers can combine for their own needs.

"There is no longer such a strong need for a host of niche players, cranking out industry- specific applications," he said in an e-mail to ZDNet Asia. Customers can deploy their own "unique" processes and applications over SaaS platforms, he said.

On the Lawson interview, he said: "It is curious that an executive from Lawson felt compelled to openly criticize a burgeoning industry.

"Lawson, with all due respect, has never been regarded as a soothsayer of enterprise software, instead assuming the role of small, niche follower, as competitors such as Oracle and SAP built huge, industrial strength franchises."

Clickability's Girard offered two predictions countering Debes' prediction of SaaS' demise. He said: "In two years, every enterprise software vertical will have least one viable SaaS competitor taking business, and in five to seven years, I believe that most business software will be delivered as a service."