SAAS: Friend or Foe? (
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Solution providers are still grappling with the question as they wonder how to make money from it. Call it software as a service, application outsourcing, on-demand software or something else, it is clear the emerging model of remotely hosted applications has many channel players more than a little concerned.
In part, the apprehension has to do with the fact the market is still defining what SAAS is, but most of the concern centers on the question of how solution providers can make money from offering software to customers as a service. The traditional on-premises software model is straightforward enough: Providers charge customers for installing and maintaining applications, and in some cases for development, integration and customization work as well.
But with SAAS sales, which typically do not require as much customization or on-site installation, the trick is to sell enough software and set fees at high-enough levels to generate decent profits without chasing budget-conscious customers away. There is also a question as to what types of customers will embrace the model. Will enterprises agree to give up on-site control of business-critical applications? And with globalization unabated, is adoption global or confined to mature markets?
Mike Connor, founder of SAAS solution provider Ready2goIT, said he is seeing significant customer demand for software delivered as a service among midmarket customers.
"SAAS 'de-risks' the complicated projects for the midmarket and takes out the complexity," Connor said. Calling SAAS a "new and disruptive technology," Connor said the challenge for midmarket customers is that SAAS' cost savings often come from the need for less staff to manage the software. "This means that some IT people within midmarket customers are obviously reluctant to adopt this approach," he said.
Robert May, managing director of VAR Ramsac, which offers a range of managed services in the United Kingdom, said his company is watching the market with caution. Customer demand, which will ultimately drive SAAS, remains nonexistent, May said.
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With such diverse experiences among solution providers, it's no wonder SAAS growth predictions vary considerably among analysts.
Market research company Gartner predicts strong growth for the market, suggesting that 25 percent of all new business software will be delivered as a service by 2011.
IDC, meanwhile, conducted a study of more than 300 solution providers that are members of the International Association of Microsoft Certified Partners, an independent organization. Seventy-six percent of respondents said they believe SAAS will dramatically affect the partnering landscape, and more than 70 percent view it as an opportunity.
Forrester Research, on the other hand, has a more temperate view, saying the sector is at the beginning of a curve, with early adopters just starting to implement SAAS. At the moment, 14 to 15 percent of U.S. enterprises are evaluating or have SAAS scenarios, said Forrester analyst Michael Speyer. "This is something that will grow," Speyer said. "It won't stall at 20 percent, although where it does stop, no one knows right now."
Both Forrester and Gartner say SAAS adoption is market-specific.
SAAS use ranges from a mere 1 percent for some applications to as much as 75 percent for others, according to Gartner. Ben Pring, a Gartner analyst, said CRM (customer relationship management) SAAS revenue is forecast to grow about 26 percent annually through 2011 but, in contrast, SCM (supply chain management) SAAS revenue is expected to grow 9 percent during the same period.
That explains why vendors in these sectors are scrambling to be seen as offering SAAS in some shape or form. Microsoft, Oracle, IBM and SAP—to name but a few—all provide various flavors of SAAS-delivered software. In September, for example, SAP launched its Business ByDesign product for the midmarket.
Stephen Read, vice president of business development for SAP's Europe, Middle East and Africa regions, said Business ByDesign addresses a market that SAP believes is untapped—midmarket companies with 100 to 500 employees that have no IT department and have not traditionally purchased integrated application suites but want to have a complete solution. These companies typically are in multiple locations and know something about on-demand models, Read said.
"[Business ByDesign] wasn't just a product launch; it was the launch of a new business model," Read said. "It allows customers to explore the potential of a solution, then go into a trial process for 30 days where they can fully evaluate it and then move into a productive scenario."
Omega Business Solutions, a VAR that operates in the Pacific Northwest with offices in Oregon and Washington and an SAP Business One partner since 2003, has high hopes for Business ByDesign.
"Our support of the rollout of Business ByDesign will expand our existing portfolio," Omega President Forrest Koch said. Koch said Omega will launch its own type of sales model that encompasses administration and implementation of the software for customers.
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