Is SaaS the only way to provide excellent IT software solution in 2015?
The market is saying yes!
As always, the truth is slightly different. Let’s rewind a few years before the beginning of software. Whilst the first evidence of “software” was written in the 19th century by one Ada Lovelace, software as we now understand it – as programs stored in the memory of computers – did not exist prior to 1946.
According to Gartner’s prediction, the software industry in 2015 will be more than $400 billion. The growth of the software market is better than the IT market – in 2013, it grew at more than 4.8% versus 3% or less for the IT Market.
During the first 60 years, software was part of an IT traditional business model consisting hardware, software, integration services for setup and management services (run inside or outside of a company). This business model was efficient enough because the pace of IT innovation was fast, with very high added-value for both end users and clients. These were the years of the mainframe, then mini computer and, finally the PC. Over the last 5 to 10 years, a new business model has appeared: Cloud Computing, proposing a pay-per-use consumption of software.
Let’s talk about the primary benefits of Cloud Computing:
- High adoption with an ‘anywhere’ usage: cloud can be deployed to every device linked to the Internet,
- Lower initial costs: there is no Capex, so cloud is affordable with fast set up and deployment,
- Painless upgrades: gone is the large IT spend you had to make every two or three years, often with no real benefits,
- Seamless integration: cloud is easier to integrate with your existing Information System,
- Standardized software: cloud can see the end to endless customization,
- SLA: you will enjoy peace of mind with guaranteed Solution Service Levels,
- Zero infrastructure: because you are buying a service, cloud lets you focus on the solution, not on the infrastructure.
With this new business model, you find new players like Salesforce who describe themselves as a “no software company”. Why? In marketing terms, the focus is on the benefits that cloud delivers and not what it does and how it does it. For software companies, this is a significant shift, for three main reasons:
- Client relationship is no longer a one-off sale (i.e., purchase of a licence): it’s a long term relationship, and your sales structure should evolve to match this,
- The software company is not only a software company: with SaaS, you become an operator – delivering an end to end service, all day every day, for many years,
- Pay-per-use is fine for clients: Capex is now for the SaaS provider, which may have a significant impact on your P&L structure and your cash flow.
All this helps us to understand what, for an existing software vendor, could be the path to cloud and SaaS. The first instinct is to start with infrastructure; the second is to look at the software itself but the benefits and differentiated features are often forgotten until last.
See how a key software player is moving to the Cloud by reading the SAP case study. “How SAP HANA sustains SAP SaaS and Cloud Transformation.” bellow: SAP acquired technology in 2005 that advanced their databases by years. The central objective was to bring more added value to the client and then add new features to their core ERP. In 2012, SAP HANA was launched on Amazon Cloud with a lighter version. Was it a first step to the Cloud? Not quite. It was a way to learn how to maximize the client’s expectations and also to learn about how this new business model might work.In February 2015, SAP placed their innovative HANA at the heart of their business by linking HANA in the SAP/4 – their biggest advancement for 20 years!
The result was the linking together of core software and cloud-based solutions to support SAP transformation in the cloud space.
In conclusion then, don’t forget to keep in mind the business opportunities for a software to SaaSs transformation. What are your clients’ needs? What are their expectations today? Where do they want their business be, but are limited by scale, capacity, geography or Capex?
Cloud transformation for software companies is definitely a technical challenge. Nevertheless, the focus should start by looking at the company’s strengths and leadership, combined with the cloud model and all its benefits. The challenge is to build a bridge between yesterday and tomorrow using cloud-based, added-value features to support your client’s expectations.
Are you ready for your software to SaaS transformation?