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Crossfire
"SaaS is not hype"...
...It has become mainstream despite the fear, uncertainty
and doubt from on-premise vendors
R "Ray" Wang,
Vice-President,
Forrester Research |
The acronym SaaS is generating a lot of buzz these days, again.
R "Ray" Wang, Vice-President at Forrester Research, has been following
the market and analyzing trends in the space for a long time. Rajendra Chaudhary
caught up with the 2008 IIIAR Analyst of the Year and tried to find out the
reasons for a resurgence of sorts for SaaS.
Despite being around for what is now a reasonably long
time, why do you think SaaS has not become the sort of disruptor we'd all hoped
it would?
Actually we are seeing SaaS making big disruptions this year.
A combination of bad economic conditions, lack of vendor innovation, and business
leaders making more decisions has created this shift. The latest Forrester research
highlights this. In a survey of 1009 IT executives and technology decision-makers,
11% have implemented or are expanding their implementation, 5% are piloting,
and 24% are interested. This is a 3X change from just last year.
Do you think that a lot of what people had hoped for SaaS
was just a hype or do you think it's still a little too early to call it so?
SaaS is not hype. It has become mainstream, despite all the
FUD (Fear, Uncertainty and Doubt) from on-premise vendors. The key challenge
today will be how all vendors can deploy on a multitude of deployment options
from on-premise, hosting, managed services, and SaaS. Some early indications
include 420,000 employees at Siemens on SuccessFactors, 240,000 employees at
Flextronics went with WorkDay. More to come in the future!
Then, why do we have only one salesforce.com?
Kudos go to Marc Benioff for evangelizing an idea and executing
it to perfection. Salesforce is now more than just a SaaS vendor, it is not
a major platform for innovation as well as customers who want to innovate, extend,
or expand their deployments. Salesforce is a business model that shows what
happens when you pair up the community aspects of Open Source with the enterprise
requirements for security, scalability, and reliability.
Are the SaaS vendors doing anything wrong? Are they not
pitching it right?
SaaS vendors could do a better job about pitching integration
with on-premise applications. However, in general, I would say they are doing
well in meeting a functionality or business process need that has not been filled
by existing vendors. Strategic HCM, CRM, Incentive Comp, Project Based solutions,
Time and Expense, email, eCommerce, and collaboration have shown great success.
How are we doing on the perception front, barriers such
security, loss of control, availability and uptime? Are these still worthy hindrances
when it comes to intake of SaaS?
Increasingly we are seeing these numbers drop year over year.
(see the figure above)
There have been a lot of talks around SaaS ERP lately.
Do you think that it is a model that can actually work with ERP? While SaaS
is without doubt a success when it comes to something like CRM, HR or Finance,
in case of ERP( which often tends to be extremely company specific) SaaS doesn't
quite work, does it? I mean, the customizations on the ERP alone would dilute
much of SaaS's economic advantage. What are your thoughts?
I think SaaS ERP can succeed. The issue is what type of companies
are best suited. We see success with Siemens subsidiaries standardizing on NetSuite
in APAC. We see subs, new companies, and service-based companies choosing these
ERP options in lieu of on-premise.
How much of SaaS's future success relies on the support
of the likes of SAP, Oracle and Microsoft? Do you think that the biggies of
the enterprise software world are doing enough to support the model?
It is currently not in their interest from a financial model
and public company revenue recognition perspective. However, over time, the
lower costs of development, distribution, and ecosystem adoption will be useful
to them. We see good progress on Azure from Microsoft, IBM and Oracle are looking
at PaaS, and SAP has a large enterprise group with former Siebel and Oracle
executives building SaaS solutions on the Frictionless platform.
Lastly, what are some of the things SaaS vendors will need
to do in the coming months/years to drive adoption?
Keep focused on addressing issues such as configuration,
security, cost and integration. Continue to win key accounts and show how SaaS
plays a role in an overall apps strategy.
Faced with impending IT budget cuts, increasing business
demands, and the encumbrances of legacy packaged apps, applications professionals
are increasingly turning to true multi-tenant SaaS delivery options during
the downturn. SaaS adoption as part of a long-term apps strategy keeps growing
because:
- Subscription pricing reduces capital expenditures (capex). Enterprises
facing credit and liquidity issues must conserve cash when possible.
Pay-as-you-go deployment options reduce the upfront capital expense
of license fees, maintenance, implementation, integration, and hardware
that users face with on-premise deployment. Over 46% of respondents
in Forrester's Enterprise And SMB Software Survey, North America And
Europe, Q3 2007 stated that the SaaS pricing model is a significant
motivator for using SaaS.
- SaaS enables more-rapid deployment. Apps pros can configure, integrate,
and deploy quickly, starting from as little as two weeks. Rich user
experiences and intuitive Web 2.0 approaches reduce the overall cost
of user training compared with fat-client user interfaces that reflect
older user-experience practices. Enterprises can easily deploy across
subsidiaries and geographies.
- Enterprises expect frequent updates with new functionality. Constant
increases in maintenance fees without corresponding increases in delivered
value, the burden of marshaling functionality requests, and the high
ongoing cost of ownership frustrate on-premise users.
Additionally, infrequent and expensive upgrades cause business users
to experience upgrade fatigue. True multitenant SaaS users experience
frequent upgrades with minimal downtime and minimal reduced testing
resources - leaving business users time to get value from the software.
Moreover, changes to business processes can occur via configuration
instead of expensive customizations, bolt-ons, or user exits.
- Business leaders drive more and more software decisions. Cuts in
IT budgets result in business leaders having to fund more and more IT
activities, including software purchases. Furthermore, executives of
divisions and subsidiaries upset with unresponsive IT departments can
take matters into their own hands with SaaS, often to the chagrin of
IT leaders who end up cleaning up the mess.
- Vendor success generates buzz and increased interest. SaaS vendors
continue to grow quarterly revenues year over year. In fact, most vendors
posted over 40% growth rates in the past two quarters during a period
when most on-premise vendors delivered disappointing year-over-year
quarterly reductions in new license revenue. Continued customer successes
drive word-of-mouth adoption and a groundswell of interest. For example,
Flextronics International's decision to go with Workday for 80,000 users
has raised the profile of enterprise resource planning (ERP) SaaS options
for large enterprises. Rapid deployment times for project-based solutions
(PBS) have raised awareness for vendors such as OpenAir, QuickArrow,
and Tenrox.
-Source: Forrester Research, Inc.
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rajendra.c@expressindia.com
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