SaaS, SaaP or Hybrid?
The hybrid model is being touted as a short-term bridging strategy for SaaP (software-as-a-product) vendors attempting to switch to a SaaS (software-as-a-service) model. Also, some SaaS vendors have found themselves embracing a hybrid model in order to land big deals, though they often do so while holding their noses and swearing that it is only opportunistic and they will kick the habit. I believe that in the future we will see many business software vendors adopt long-term hybrid strategies, focusing on how to best serve customer segments instead of on the delivery model.
A number of business model differences between SaaS and SaaP business software vendors have emerged as the SaaS delivery model has been increasingly successful. Many of these differences are not, however, inherent to SaaS. They are instead consequences of the customers who have been attracted to SaaS offerings and may not be enduring differences.
Before SaaS, SaaP vendors presented customers with a take-it-or-leave-it choice. This was not because SaaP vendors were bad guys. It was because the SaaP model worked for so many customers. SaaP vendors sought the most lucrative of these customers, often meaning big organizations with enterprise deals. The rise of enterprise software as the dominant SaaP category left smaller organizations out in the cold. These were the unserved or poorly served customers that the emerging SaaS model served well.
The One Core Difference
Everyone in the SaaS business software ecosystem has something to gain from SaaS success. It is therefore not surprising that SaaS hype promotes many SaaS virtues that are not unique to SaaS. There is nothing wrong with this, it is marketing as usual, but let us not forget what is at the core of the SaaS advantage to a business customer: it gets the application out of its IT infrastructure.
Let's take a quick look at the other commonly touted SaaS advantages: ease and speed of implementation, ease of updating, customer service, subscription pricing and ease of exit. None of these are unique to SaaS. If you can design software that makes implementation fast and easy, you can install it behind the firewall. If you can design software that updates seamlessly and transparently, you can install it behind the firewall and update it from outside the firewall. If you can serve customers well, you can serve customers well, SaaS or not. Pricing structure has nothing to do with delivery model, and SaaS is at its core a delivery model. Finally, unless you are using a really lightweight application and abandon it pretty quickly, the true total cost of exiting is not much different for SaaS, never mind trying to get your data to migrate to your new solution of choice.
In fact, you could argue that most of these advantages are actually things SaaS vendors must do to get customers to turn their data and its security over to the care of others.
This single inherent SaaS difference, vendor hosting, has huge implications. To a small business, IT infrastructure is often an oxymoron. The cost of having much more than a decent broadband connection is often prohibitive. SaaS applications are a godsend to these companies and provide them access to applications they would usually have to sub-optimize or forego entirely. Concerns about security and reliability are easily overcome, because the hosting vendor's capabilities far exceed those the customer could afford in-house. CRM is the poster child application, but it is the tip of the iceberg.
For big companies, simplifying IT infrastructure has been an unachieved goal for over 40 years. Yes, there have been waves of change, but not simplification. The core SaaS advantage to these companies is that it provides for the first time the hope of actually moving major applications outside. Concerns about security and reliability are, however, major impediments to SaaS adoption, because these big organizations often have capabilities that exceed the vendor's and major liability if there are problems. Big companies also have more complex integration and customization expectations than do small ones.
The SaaS Blue Ocean
SaaS pioneers like Salesforce.com found that their blue ocean consisted of those customers traditional SaaP vendors served poorly, the smaller ones. It turned out that these small organizations are attracted to short-term subscription pricing and need a lot of hand-holding. This dictated parts of the emerging SaaS company business models. The SaaS pioneers also found that running data centers and designing software to cost-effectively serve many tenants on different releases in a data center drove other aspects of the business model. Price sensitivity of small customers drove the sales and marketing model, as well as the need to emphasize technical support instead of professional services.
Also attracted to these early SaaS offerings were larger customers who, for various reasons, behaved more like smaller ones. These included small units of a big company (the so-called departmental customers) and big companies willing, often eager, to forego in-house control and customization.
A Hybrid Future
As SaaS vendors saturate the low-end of the market, some will attempt to move up-market. They will run into the very forces that drove the SaaP vendors to their current business models. Many SaaS vendors will choose to stay in their sweet spot, serving the low-end customer and those that behave like them. Others will adopt a hybrid model, focusing on customer segments rather than the delivery model. Others will be acquired by SaaP vendors.
As SaaP vendors saturate the high-end of the market, some will attempt to move down-market. They will run into the very forces that drove the SaaS vendors to their current business models. Many SaaP vendors will choose to stay in their sweet spot, serving the high-end customer. Others will adopt a hybrid model, focusing on customer segments rather than the delivery model. Some will do this by acquiring SaaS vendors. In fact, the SaaP vendors need the SaaS vendors, they are their R&D labs.
I know first hand that managing a hybrid model company is a significant challenge. So what else is new? The future belongs to those who best serve customers within profitable business models, not to delivery model bigots. So get ready, there may be a hybrid in your future.
Copyright © 2006 Philip Bookman
Technorati: SaaS business software software strategy enterprise software
A number of business model differences between SaaS and SaaP business software vendors have emerged as the SaaS delivery model has been increasingly successful. Many of these differences are not, however, inherent to SaaS. They are instead consequences of the customers who have been attracted to SaaS offerings and may not be enduring differences.
Before SaaS, SaaP vendors presented customers with a take-it-or-leave-it choice. This was not because SaaP vendors were bad guys. It was because the SaaP model worked for so many customers. SaaP vendors sought the most lucrative of these customers, often meaning big organizations with enterprise deals. The rise of enterprise software as the dominant SaaP category left smaller organizations out in the cold. These were the unserved or poorly served customers that the emerging SaaS model served well.
The One Core Difference
Everyone in the SaaS business software ecosystem has something to gain from SaaS success. It is therefore not surprising that SaaS hype promotes many SaaS virtues that are not unique to SaaS. There is nothing wrong with this, it is marketing as usual, but let us not forget what is at the core of the SaaS advantage to a business customer: it gets the application out of its IT infrastructure.
Let's take a quick look at the other commonly touted SaaS advantages: ease and speed of implementation, ease of updating, customer service, subscription pricing and ease of exit. None of these are unique to SaaS. If you can design software that makes implementation fast and easy, you can install it behind the firewall. If you can design software that updates seamlessly and transparently, you can install it behind the firewall and update it from outside the firewall. If you can serve customers well, you can serve customers well, SaaS or not. Pricing structure has nothing to do with delivery model, and SaaS is at its core a delivery model. Finally, unless you are using a really lightweight application and abandon it pretty quickly, the true total cost of exiting is not much different for SaaS, never mind trying to get your data to migrate to your new solution of choice.
In fact, you could argue that most of these advantages are actually things SaaS vendors must do to get customers to turn their data and its security over to the care of others.
This single inherent SaaS difference, vendor hosting, has huge implications. To a small business, IT infrastructure is often an oxymoron. The cost of having much more than a decent broadband connection is often prohibitive. SaaS applications are a godsend to these companies and provide them access to applications they would usually have to sub-optimize or forego entirely. Concerns about security and reliability are easily overcome, because the hosting vendor's capabilities far exceed those the customer could afford in-house. CRM is the poster child application, but it is the tip of the iceberg.
For big companies, simplifying IT infrastructure has been an unachieved goal for over 40 years. Yes, there have been waves of change, but not simplification. The core SaaS advantage to these companies is that it provides for the first time the hope of actually moving major applications outside. Concerns about security and reliability are, however, major impediments to SaaS adoption, because these big organizations often have capabilities that exceed the vendor's and major liability if there are problems. Big companies also have more complex integration and customization expectations than do small ones.
The SaaS Blue Ocean
SaaS pioneers like Salesforce.com found that their blue ocean consisted of those customers traditional SaaP vendors served poorly, the smaller ones. It turned out that these small organizations are attracted to short-term subscription pricing and need a lot of hand-holding. This dictated parts of the emerging SaaS company business models. The SaaS pioneers also found that running data centers and designing software to cost-effectively serve many tenants on different releases in a data center drove other aspects of the business model. Price sensitivity of small customers drove the sales and marketing model, as well as the need to emphasize technical support instead of professional services.
Also attracted to these early SaaS offerings were larger customers who, for various reasons, behaved more like smaller ones. These included small units of a big company (the so-called departmental customers) and big companies willing, often eager, to forego in-house control and customization.
A Hybrid Future
As SaaS vendors saturate the low-end of the market, some will attempt to move up-market. They will run into the very forces that drove the SaaP vendors to their current business models. Many SaaS vendors will choose to stay in their sweet spot, serving the low-end customer and those that behave like them. Others will adopt a hybrid model, focusing on customer segments rather than the delivery model. Others will be acquired by SaaP vendors.
As SaaP vendors saturate the high-end of the market, some will attempt to move down-market. They will run into the very forces that drove the SaaS vendors to their current business models. Many SaaP vendors will choose to stay in their sweet spot, serving the high-end customer. Others will adopt a hybrid model, focusing on customer segments rather than the delivery model. Some will do this by acquiring SaaS vendors. In fact, the SaaP vendors need the SaaS vendors, they are their R&D labs.
I know first hand that managing a hybrid model company is a significant challenge. So what else is new? The future belongs to those who best serve customers within profitable business models, not to delivery model bigots. So get ready, there may be a hybrid in your future.
Copyright © 2006 Philip Bookman
Technorati: SaaS business software software strategy enterprise software
Labels: software strategy
posted by Phil Bookman at 9:25 AM
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