SaaS
Comes Of Age
I’ve been writing about the SaaS
(Software as a Service) market for a very long time. Of
course, it wasn’t always called SaaS.
I’ll spare you the long version of this
discussion, thinking about comparing SaaS to time sharing.
But we did try it in the late nineties as the ASP market.
We quickly tried to loose that name, talking about SPs, and
other kinds of service providers, as we walked through the many
failures in the ASP market.
The ASP idea didn’t fail because it was a
bad idea, but rather because of execution. No one had
figured out the rules of the game for successfully executing in
this new market (except for a few smart guys like Salesforce.com)
and they paid the price.
This time around, most firms who are
following the SaaS model understand the execution rules.
-
Applications must be written to run
successfully as multi-tenant clients on servers and should
be written to exploit the Internet environment.
Interestingly, this gives new firms (who are writing new
software) an advantage over existing software companies,
even very successful ones, who often want to repurpose their
existing software and may be limited by its quirks, the
loyalty of existing customers to particular features, or the
cost of making extensive changes.
-
Most software ISVs shouldn’t be in
the hosting business. It’s not their core competence
and it wastes their capital in inefficient ways.
There’s lots of good hosting available out there and the
hosters will frequently provide mentoring and access to
customers as well as servers and Internet access.
-
Marketing is a cost. In the ASP
round, many ISVs with very nice software made the mistake of
thinking they needed only to place it up on a website and
wait for customers to appear. They didn’t. But
good marketing in the Age of the Internet is easy to achieve
(see the Long Tail article above). It’s a matter of having
the cost in your business plan and executing tha part of the
plan with discipline.
-
Focus. You can’t be everything
to everybody, so don’t try. Focus on a particular
market where your expertise will give you an advantage. Then use the great reputation you get in that market to grow.
The Ramp Rises
Now the ramp for the SaaS market seems to
be rising. There are a number of reasons that lead me to
believe this is happening right now.
-
Almost every new software product
I see is based on the SaaS model.
-
VC’s have gone wild over making their
software investments in the SaaS side of the market.
-
We are seeing a number of SaaS success
stories – even companies with not just cash flow and
revenue but profits!!!
-
Big software and infrastructure vendors
have jumped on the SaaS bandwagon, giving it credibility.
That includes IBM for infrastructure and hosting and
Microsoft for starting to offer hosted services. Of
course, popular consumer offerings from Google and Yahoo
have already started to change the nature of the SaaS
market.
I could go on (and on), but I think the
right thing to say is that soon we will turn the corner and more
customer application dollars will be spent on SaaS than on
traditional software. Of course, we will have to figure
out how to count in all the software being offered against web
business models where the customers doesn’t pay directly for
the use of the service, but we’ll figure it out.
Keep track of your own usage. And remember Google searches count.
