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SaaS: more effort required

SaaS presents a great opportunity, but awareness, particularly amongst SMBs needs to rise for full-scale adoption. By Neeraj Gandhi

‘On demand software’ or ‘Software as a Service’ (SaaS), as it is popularly known, managed to create a considerable amount of interest in the Indian IT fraternity last year. The interest was equally supported by enterprises—large, medium and small—for this model could help them circumvent issues like expensive maintenance, large IT budgets, long implementation cycles and the cost of upgradation, a characteristic of the way software has been traditionally deployed and used.

The excitement generated made SaaS a catchphrase, and vendors were optimistic about its adoption. The optimism prevailed to a certain extent and 2007 witnessed quick adoption of SaaS by product and service companies in the banking, finance and healthcare verticals. Other verticals like IT, BPO, manufacturing, pharmaceuticals, government and education also leveraged Web conferencing and collaboration tools.

It should also be noted here that although adoption took place, it did not manage to live up to the hype. Many believe that 2007 was spent in creating awareness about SaaS, and now that the required awareness has been created, 2008 could emerge as a big year for SaaS in India.

According to Frost & Sullivan, India is the fastest growing market for SaaS in the Asia- Pacific region, growing with a CAGR of approximately 71%, and is expected to reach $267 million by 2011. Presently, Web conferencing and collaboration accounts for the largest portion (43%) of the SaaS revenue in India.

The vendor perspective

The SaaS market in India is a mixed bag of opportunities and challenges for the vendors. In terms of opportunities, the up-and-coming SMB segment presents a promising option. Their sheer number and their search for effective and easy ways of leveraging of technology, to meet business needs, are certain to drive the adoption of SaaS in the country.

“The market is evolving well and we are seeing a large number of prospects signing for trial accounts. In our experience it has been mostly SMB customers who find this appealing as their requirements are fairly standard and they do not seek much customization,” said Thomas Abraham, Managing Director, Sage Software India (P) Ltd.

Arvind Mehrotra, Sr. Vice President & Head - APAC & India, NIIT Technologies Ltd said, “Companies in India, especially large corporate houses, which want to extend their enterprises to other regions or even to their extended ecosystems (supplier networks, etc) find it extremely cumbersome to enable process adherence and compliance to protocols. SaaS enables this business objective with ease and at a faster pace.”

“Customers are consistently innovating their IT model framework to remain ahead of the competition. In turn, their customers demand more value and choice. Today’s enterprises are increasing their focus on automating the supply chain, on offering better experiences to their customers, and overall on reducing response time, increasing productivity and reducing costs. SaaS opens up a whole new world of opportunity that will bring all this within reach, not just to the enterprise but to the end user,” opined Tarun Gulati, GM, Microsoft India’s Developer and Platform Evangelism.

That said, it would however take some time before adoption happens in a big way, because low levels of awareness still remain an issue. “We are extremely encouraged by the opportunity for SaaS in India. India has emerged as one of our top three growth markets in Asia Pacific. Awareness continues to be the major barrier. Too few people are aware of what SaaS is. It often gets confused with earlier iterations of the ASP (Application Service Provider) model,” said Jeremy Cooper, Vice President Marketing Asia Pacific & Japan, Salesforce.com.

“SaaS has been gaining momentum in India but the market is still behind many of its western counterparts in terms of awareness and adoption of this new model. Another hurdle is the Internet infrastructure as SaaS is primarily Web-based and the speed of access and response plays a key role,” said Munindra Kumar Bharatee, MD, Serena Software.

Some vendors also believe that limitations exist in modifying and customizing the application keeping in mind the present needs and upgrades that need to be done in the future. Another issue that is to be tackled, believe the vendors, is the inherent psychology in some IT departments wherein people want to be able to see their IT infrastructure.

SMBs going slow

With close to 8 million SMBs in the country, the segment presents a huge opportunity for all SaaS vendors. Since this model of delivering software offers key benefits like reduced upfront investments, shortened time for implementation and lesser maintenance costs etc., it presents a tremendous opportunity for SMBs. Even taking this into consideration, SMBs did not react to SaaS in the manner that they were expected to do.

The fact that SMBs have traditionally been slow on leveraging IT also reflected on the SaaS front. Reservations towards a new technology are hindering adoption. What is required is a considerable effort to generate the required level of awareness, which in turn would help shed inhibitions like security of data etc., and eventually lead to greater acceptance of SaaS.

“The adoption of SaaS among SMBs is happening, but at a slow pace. This could be attributed to factors like low levels of awareness, low penetration of software application usage in this market segment, and their mindset that small businesses do not require software support for their operations. Additionally, SMBs are not ready to part with the operational and business data to a third party. They are apprehensive about the privacy of their data,” said Kaustubh Dhavse, Program Manager, ICT Practice, Frost & Sullivan, South Asia & Middle East.

“The action in SaaS is happening amongst SMBs. However, they take a cautious approach to any new concept. Though we believe that it is only a matter of time, and with some solid examples and success stories even SMBs would take to SaaS,” said Abraham.

As for the applications (top three) that are being deployed on the SaaS platform by small businesses, Frost & Sullivan says that these include banking/finance, instant messaging (IM) and payroll processing. Among medium businesses, payroll processing, banking/finance and human resources management occupy the top three positions. And it is expected that the small and medium businesses would also look at collaborative and business intelligence solutions on the SaaS platform in the next 12 months.

SaaS diversified

Offerings through SaaS have been largely restricted to applications like CRM, accounting, and HR applications, etc. Being a relatively new concept, it has leveraged on applications with wide acceptance including the above mentioned ones, and others like payroll, distribution etc. That said, the scenario is expected to change soon.

“Voice over Internet Protocol (VoIP), travel and tourism, e-shops, online shopping engines and e-commerce are also likely target areas to be delivered as SaaS. One of the innovative trends is the use of software as a service in publishing,” said Dhavse.

Serena Software has offerings such as application lifecycle management, project and portfolio management solutions, and business mashups on the SaaS platform. NIIT Technologies offers solutions on procurement, sales and distribution, financials, HR management and payroll. Sage Software on the other hand offers the SageCRM.com with offerings for sales force automation as well as sales, marketing and customer service.

“We are starting to see SaaS bifurcate into applications and platforms (becoming known as Platform-as-a-Service or PaaS). Going ahead, everything would be available via SaaS. We already have AppExchange Applications, which is an online directory of more than 850+ multi-category SaaS applications from more than 350+ ISVs, and Force.com—the world’s first Platform as a Service (PaaS), enabling developers to create and deliver any kind of business application, entirely on-demand and without software,” added Cooper.

“The segments in particular that appear poised for strong SaaS advances over the next several years are ERP, supply chain management, and HR applications,” said Bharatee.

“It is also expected that processes like revenue accounting, dealer management, wealth management, eLearning could be delivered via SaaS,” added Mehrotra.

What to expect?

According to Frost & Sullivan, increasing penetration of broadband (growing at 20%) would lead to an increase in the adoption of SaaS amongst SMBs, and would make India a significant market for SaaS applications. Besides SMBs, even the government sector will emerge as a big user of Web conferencing, on account of more government functions becoming online and increasing citizen government interaction.

“SaaS in India will not be limited to just enterprise applications. It would also be extended to mobile phones; everything will be on the server and integrated with the mobile phone. 2008 will see the first steps in this direction,” said Dhavse.

He added, “Open source products will discover SaaS as an ideal environment for growth and profit, and the resulting competition will benefit consumers. Traditional software will adapt a subscription payment model even for on premises software, and provide remote management services of leased software.”

Vendors too are optimistic, and have laid down elaborate plans for 2008 to capture a portion of this growing market. Sage Software is looking at acquiring over 100 new customers in the next 12 months. NIIT on the other hand intends to increase its focus on verticals, and would also be looking at extending its reach in other markets in the Asia Pacific region. Serena Software plans to introduce its business mashups in India and would focus on large and mid-sized companies. Salesforce.com would build on its current presence with increased investment in facilities, marketing, local headcount and its partner ecology.

“The future of SaaS will primarily be driven by Service Level Agreements (SLAs) and the support provided for the application usage. This is true for large organizations and government customers who will be interested to leverage SaaS for extending applications and their functionality across the enterprises,” concluded Mehrotra.

neeraj.gandhi@expressindia.com