Market Lead

Software as a service: it’s here at last

Software-as-a-service is still evolving, but the concept has tremendous potential for both SMBs and large enterprises. By Shivani Shinde

Much ink has been expended on the concept of software-as-a-service (SaaS). SaaS has been upheld as the means of ending the era of software licences, freeing organisations from making massive investments upfront.

Gartner predicts that by 2010, around 30 percent of new licence purchases (in APAC excluding Japan) will be in form of SaaS, or delivered through a SaaS model.

Similarly, Springboard Research predicts that, in the Asian region, India and China have the greatest potential in the mid- to long-term. The analyst firm estimates that the Indian market for SaaS was worth $7 million in 2005, representing y-o-y growth of over 53 percent. A Springboard report expects this market segment to grow to $48 million by 2008, the fastest growth in the Asia Pacific region.

"Will packaged software cease to exist? No. We expect both SaaS and on-premise licenced software to co-exist, and packaged software will continue to dominate" - Ravi Shekhar Pandey Senior Analyst Springboard Research

Ravi Shekhar Pandey, Senior Analyst at Springboard, elaborates on Indian trends. “Web conferencing and collaboration currently represent the largest portion (43 percent) of overall SaaS revenues in India. However, many other applications are gearing up for a SaaS push—ERP, Supply Chain Management, and Human Resources applications.”

The Springboard report goes on to predict that verticals such as IT, BPO, professional services, financial services, manufacturing, healthcare, pharmaceuticals, government and education have been early and extensive users of Web conferencing and collaboration tools. Even though small now, it is expected that the government sector will emerge as a big user of conferencing in the coming years. This will be largely on account of the drive towards taking more government functions online and increasing citizen-government interaction.

Picking up the pace

So far the SaaS market has been dominated by the likes of Salesforce.com and RightNow Technologies, companies that have stressed or focussed on SFA (sales force automation) and CRM. However, with the success of this concept, companies hopping on to the SaaS bandwagon are offering everything from ERP to collaboration tools, from SCM to HR.

The acceptance of the success of this model is evident from the fact that even a traditional software company (such as Oracle) that gets most of its revenues from licences is talking about its SaaS model.

SaaS confers a cost advantage, ease of implementation and management, accessibility to the latest technology at no additional cost in the IT infrastructure, and the freedom to focus on core competencies.

Says Sanjay Mathur, Senior Director, India Support and On Demand, Oracle India, “This business model continues to evolve. We believe it’s essential to offer customers choice, and not force them into picking one deployment methodology over another. The primary reason for the increased uptake of SaaS is because companies are realising the importance of focussing on their core competencies and growing their business, rather than building skill-sets in non-core functions. Having said this, we believe that with its fast deployment, ease of use, and low cost, SaaS is here to stay.”

Oracle offers a variation of SaaS called ‘Oracle On Demand.’ Oracle On Demand works with customers to provide services that manage all Oracle products.

"There is not much of a difference between Software on Demand (SOD) and ASP. The latter was popular during the dotcom era, and SOD as a term is being used more nowadays" - Kiran Datar MD, WebEx

What makes SaaS interesting is the pricing model. Most companies are providing services on a subscription basis, and payment can be made as per actual usage of the application. The latest trend in pricing is software on demand (SOD), a variant on the older ASP model. Comments Kiran Datar, MD, WebEx, “There is not much of a difference between SOD and ASP. The latter was popular during the dotcom era, and SOD as a term is being used more now. Much depends on the type of application that an organisation is using.”

To give an instance, Oracle On Demand solutions are focussed on a usage-based model. “This gives them the flexibility to pay for what they use to meet their business needs. Our pricing model includes Oracle Technology On Demand (Database, Fusion Middleware, etc), which is priced per CPU. All Oracle Applications On Demand (E-Business Suite, PeopleSoft, Siebel CRM, JD Edwards, etc) are priced per user, and Oracle Collabsuite On Demand is also priced per user,” informs Mathur.

SaaS does away with a lot of architectural and infrastructural issues, and allows the use of the Web as a delivery mechanism. Its supporters feel that this is what SMBs, in particular, need. For although PC penetration and sales in this segment has increased, a corresponding uptake is not seen in the adoption or sales of software licences.

Is SaaS only for the SMBs? Not necessarily. However, SMBs would be the first adopters of SaaS.

"We have seen globally that SaaS has been adopted largely by the SMB segment. However in India it is appealing to the large enterprise segment" - Asheesh Raina Principal Analyst Software Industry Asia Pacific, Gartner

According to the Springboard report, the benefits of SaaS are more evident in the SMB segment, but almost all analysts and vendors believe that SaaS makes sense for the large enterprise too.

“For SMBs, SaaS makes sense as it allows minimal IT spending and maintenance. What we have seen globally is that SaaS has been adopted largely by the SMB segment, but in India it is appealing to the large enterprise segment,” states Asheesh Raina, Principal Analyst, Software Industry, Asia Pacific, Gartner.

Pandey feels that even though Indian SMBs have the highest level of awareness of SaaS in the Asia Pacific, SaaS has not made much headway among them. This is largely because of low penetration of software application usage in this segment. For instance, only 5 to 8 percent of Indian SMBs have adopted some form of CRM. Even among large enterprises, CRM applications such as SFA and campaign management tools have only recently started to gain traction. The mismatch between high awareness and low penetration is also because most SaaS vendors are not present in India, and large traditional vendors selling on-premise solutions dominate the Indian enterprise application software market.

Raina feels that Indian customers and organisations are still in the pilot phase, but are seriously evaluating the dos and don’ts of this model. As a matter of fact, a few large organisations have already completed their evaluations in India and are going ahead with the implementation. Thus, it would not be fair to say that SaaS is only for SMBs or large enterprises.

Exchanging applications

It wouldn’t be an exaggeration to say that Salesforce.com has been one of the pioneers in the SaaS model. Of course, till a few months back, they were offering only CRM. Then early this year Salesforce launched its AppExchange platform. It is the first on-demand application-sharing service, featuring dozens of pre-built, pre-integrated applications created by Salesforce.com customers, developers and partners.

AppExchange is a step closer to the delivery of SaaS as it allows users to test-drive any application on this platform before they buy it. As of now, the company offers 315 business applications from more than 200 ISVs.

"SaaS completely disrupts the economics associated with traditional software and makes it affordable particularly to the mid-market segment" - Jeremy Cooper VP, Marketing Asia Pacific Salesforce.com

Salesforce.com officials were recently in India to conduct road shows and build awareness of the SaaS model. During his visit, Jeremy Cooper, VP, Marketing, Asia Pacific, Salesforce.com said, “SaaS makes sense in a country like India for a couple of reasons. First, it completely disrupts the economics associated with traditional software and makes it affordable particularly to the mid-markets. Thus, organisations aren’t required to have the pre-requisites of large capital budgets, softwares and IT infrastructure…now they can simply log on, pay a monthly subscription fee, and access business applications.”

The other aspect that Cooper pointed out relates to the Indian developer community. “I know there are rich applications in India, but whenever I log into my PC I am typically accessing software from US companies. I know there is a strong backbone of Indians working on quality assurance and coding, but there isn’t a strong Indian brand. With AppExchange we are looking at unlocking the IT potential of the developer community in India and taking it global.”

Their recent road show at Bangalore saw the participation of 480 people, and was a blend of prospective customers and partners. Cooper insists that Salesforce.com is not trying to muscle out vendors such as Oracle and SAP, but instead wants to tell customers that here is another alternative for their application requirements.

AppExchange, according to Cooper, is a multi-tenant SaaS platform on which developers can develop their applications for free. “Secondly, we give them the directory so they have the opportunity to post and host. Most importantly, we give them access to 25,000 customers who have adopted a SaaS environment. I think that once we start the incubator programme, independent developers as well as large software companies will host their product on our platform.”

Under its AppExchange programme, Salesforce.com has Indian companies offering applications. For example, Theikos provides a variety of CRM-related services and solutions, and is a developer for AppExchange. Theikos has been doing traditional software development as well, but some time back it saw a great opportunity in the services segment and came out with a solution based on the SaaS model. Theikos charges start from $60-65 per month / per user and goes up to $100, depending on features.

On the reason for Theikos moving to a SaaS model, Vikas Arora, its Senior Director for Solution Development says, “We came across certain business alliances that were ready to provide solutions with the IT infrastructure, and a demand from customers for applications or solutions that would be up and running in two weeks.” Theikos has over 250 customers worldwide, and about 95 percent of them use the SaaS model.

Some hiccups

With the adoption of SaaS rising, questions have been asked as to whether this means the end of packaged software as we know it. It is true that SaaS ISVs are growing faster than the traditional ones, and that the adoption of SaaS is on the rise, but does that necessarily translate to the end of packaged software? Not likely, we say.

Analysts and vendors believe that SaaS is one more mechanism to deliver applications to organisations. “Will packaged software cease to exist? The answer is no. We expect both SaaS and on-premise licenced software to co-exist, and packaged software to continue to dominate the market for years to come. However, as SaaS gains acceptance and expands its reach, its presence in the software applications market will flourish,” forecasts Pandey.

For a country like India SaaS is still evolving. There are advantages to this model but there are some concerns as well which are making enterprise think twice before they jump on to this service model.

Vishwas Mahajan, MD & CEO, Compulink Systems explains. “Will the infrastructure provider guarantee high availability? That’s one concern. Another is with regard to the pricing structure of pay-as-you-need.” Compulink provides a collaboration portal through the SaaS model.

Many service providers think that these constraints will pass as awareness of SaaS grows and companies marketing these services make a concerted effort to educate enterprises and SMBs about the advantages of the concept. WebEx has about 1,800 customers in India using their collaboration solution on the SaaS model. Notes Datar, “While building our collaboration suite, we architected it with features such as 128-bit SSL encryption.”

Agrees Arora, “We see a concern among large enterprises to put their data on the Internet as they feel they have no control over it. The kind of security measures we take addresses all their concerns.”

Beyond security and cost, what can make the SaaS model work in India is bandwidth. Says Datar, “Four years back we were pitching for a client and telling them about SaaS. The bandwidth availability at the user’s end was 14 Kbps.”

SaaS might or might not take over packaged software, but what will make it score over the latter is user awareness and high bandwidth availability.