Drivers for SaaS adoption

The traditional rationale for outsourcing of IT systems is that by applying economies of scale to the operation of applications, a service provider can offer better, cheaper, more reliable applications than companies can themselves. The use of SaaS-based applications has grown dramatically, as reported by many of the analyst firms that cover the sector. But it’s only in recent years that SaaS has truly flourished. Several important changes to the way we work have made this rapid acceptance possible.

• Everyone has a computer: Most information workers have access to a computer and are familiar with conventions from mouse usage to web interfaces. As a result, the learning curve for new, external applications is lower and less hand-holding by internal IT is needed.
• Computing itself is a commodity: In the past, corporate mainframes were jealously guarded as strategic advantages. More recently, the applications were viewed as strategic. Today, people know it’s the business processes and the data itself—customer records, workflows, and pricing information—that matters. Computing and application licenses are cost centers, and as such, they’re suitable for cost reduction and outsourcing. The adoption of SaaS could also drive Internet-scale to become a commodity.
• Insourcing IT systems requires expensive overhead including salaries, health care, liability and physical building space.
• Applications are standardized: With some notable, industry-specific exceptions, most people spend most of their time using standardized applications. An expense reporting page, an applicant screening tool, a spreadsheet, or an e-mail system are all sufficiently ubiquitous and well understood that most users can switch from one system to another easily. This is evident from the number of web-based calendaring, spreadsheet, and e-mail systems that have emerged in recent years.
• Parametric applications are usable: In older applications, the only way to change a workflow was to modify the code. But in more recent applications—particularly web-based ones—significantly new applications can be created from parameters and macros. This allows organizations to create many different kinds of business logic atop a common application platform. Many SaaS providers allow a wide range of customization within a basic set of functions.
• A specialized software provider can target global markets: A company that made software for human resource management at boutique hotels might once have had a hard time finding enough of a market to sell its applications. But a hosted application can instantly reach the entire market, making specialization within a vertical not only possible, but preferable. This in turn means that SaaS providers can often deliver products that meet their markets’ needs more closely than traditional “shrinkwrap” vendors could.
• Web systems are reliable enough: Despite sporadic outages and slow-downs, most people are willing to use the public Internet, the Hypertext Transfer Protocol and the TCP/IP stack to deliver business functions to end users.
• Security is sufficiently well trusted and transparent: With the broad adoption of SSL organizations have a way of reaching their applications without the complexity and burden of end-user configurations or VPNs.
• Availability of enablement technology: According to IDC,[3] organizations developing enablement technology that allow other vendors to quickly build SaaS applications will be important in driving adoption. Because of SaaS' relative infancy, many companies have either built enablement tools or platforms or are in the process of engineering enablement tools or platforms. A Saugatuck study shows that the industry will most likely converge to three or four enablers that will act as SaaS Integration Platforms (SIPs).[9]
• Wide Area Network's bandwidth has grown drastically following Moore's Law (more than 100% increase each 24 months) and is about to reach slow local networks bandwidths. Added to network quality of service improvement this has driven people and companies to trustfully access remote locations and applications with low latencies and acceptable speeds.

Factors Limiting SaaS adoption

SaaS was originally considered a potential security and operational risk. Many businesses wish to keep their information technology operations under internal control. However, there is a counter-argument that the professionals operating SaaS applications may have much better security and redundancy tools available to them, and therefore the level of service may be superior in many cases. SaaS applications pose some difficulty for businesses that need extensive customization. SaaS vendors have made progress however, with both customization and publication of their programming interfaces. In addition, the availability of open source applications, inexpensive hardware and low cost bandwidth combine to offer compelling economic reasons for businesses to operate their own software applications, particularly as open source solutions have become higher quality and easier to install.

SaaS Sales Channels

With products below the $100 range and its focus on the mid market, direct selling can become an expensive undertaking. SaaS companies are seeking alternatives by selling through value-added resellers (VARs), Managed Service Providers (MSPs), Master Managed Service Providers (MMSPs) and similar alliance partners. But since SaaS is not only a different delivery mechanism but a different business model and different technology as well, selling through channels has its own challenges. A recent white paper published by the SIIA (Software & Information Industry Association) explains such differences to traditional software in more details

SaaS Monetization

The Anatomy of a Good SaaS Monetization Platform

The monetization platform should be built on a set of innovative software modules which meter usage of on-demand applications without the need for custom coding.

SaaS providers benefit because the monetization platform will:

• Ensure revenue stream by developing a deeper understanding of customers' needs and expectations. Hence, have a better customer focus
• Recognize efficiencies and reduce costs by focusing on their core competency.
• By outsourcing the development of an operational platform they'll improve operational efficiencies and enjoy cost savings
• Expand market presence and increase revenue by creating service bundles for a variety of budgets

A good product will directly address the SaaS providers' pain points such as:

• insufficient service usage data
• distraction of R&D focus from core service development initiatives
• inability to support flexible pricing and billing models
• difficulty servicing customers
• higher costs for manual contract management
• inability to attract new customers to grow market share

The foundation of a good product offering is an Operations Service Manager (OSM) delivered as SaaS. The foundation provides the underlying security, scalability, data storage and visual rendering capabilities. The OSM aggregates customer, business service and service usage data for business processes. The Price Catalog, Usage Tracking, Contract Management and Billing Mediation are the business modules which run on the OSM to provide the necessary functionality.