A popular software delivery model

SaaS is emerging as a popular delivery model for meeting the needs of enterprises when it comes to IT services. While it is will cut into the revenues that IT vendors were getting through traditional license sales, it could also end up being a huge volume business for them if they play their cards right. By Nivedan Prakash

Software-as-a-Service (SaaS) adoption is picking up across the globe and India is seen as one of the fastest growing markets for this delivery model. As per Springboard Research's estimates, India is the fastest growing SaaS market in the Asia-Pacific and it had been estimated that it would register a growth of 60% CAGR from 2008 to 2012. Indian SaaS adoption is expected to reach $352 million by 2012, up from the current estimate of $105 million for 2009.

According to Asheesh Raina, Principal Research Analyst at Gartner, the adoption of SaaS in India is slightly lower than what it is worldwide largely because infrastructure remains a bottleneck in our country. However, this concept cannot be ignored as it is a strong alternative delivery mechanism and is also being embraced by organizations, as it offers both agility and flexibility to any business. Organizations in India will evaluate SaaS along with on-premise solutions going in for a hybrid model.

Typical adoption for the SaaS delivery model in India is for e-mail, collaborative applications and CRM workloads.

Praveen Bhadada, Engagement Manager, Zinnov Management Consulting, said, “The SaaS market in India is witnessing growth like never before. The current market in India is growing at over 50%, which is twice as much as compared to the global markets. While many workloads are now maturing in terms of SaaS offerings, Collaboration, CRM, On-demand ERP, e-mail, and BI are some of the workloads that have been able to take a lead in the market.”

Reasons behind this growth

Hype around cloud computing, new entrants, telcos participating as partners, low maintenance and ease of use are some of the factors driving the adoption of SaaS in the Indian market.

“Improvements in network connectivity and bandwidth availability with growing Internet usage, the evolution of telecom service providers into cloud providers, shorter time-to-value and financial advantages such as OPEX versus CAPEX on the customer side, supply side economics regarding cost benefits on the supplier side that are passed on to the customer as well as pricing and support innovations are some of the reasons for this growth,” opined Rajendra Dhavale, Director - Technical Sales, CA Technologies (India).

Added Jeremy Cooper, VP - Marketing, APAC at salesforce.com, “The reason we are seeing the growth of SaaS applications here in India is because it completely disrupts the economics associated with traditional software and makes it affordable, particularly for the mid-market segment. Here, organizations aren’t required to have the prerequisites of large capital budgets, software and IT infrastructure. They can simply log on, pay a monthly subscription fee and access business applications.”

Some other factors that are driving the usage of SaaS applications in India are the presence of a large technology sector with companies that are more open to new business models, such as SaaS; a high rate of satisfaction amongst early adopters; the plug-and-play nature of the delivery model; painless upgrades, wherein the provider manages all updates and upgrades; as well as a short implementation time that lets companies deploy hosted applications within days or weeks when compared to the much longer timeframes that are required for traditional licensed models.

Anand Raman, VP - Marketing at Newgen pointed out that the growing usage of SaaS in India is predominantly a result of the alternative delivery model being OPEX-based rather than CAPEX-based. Most Indian companies are in a growth phase and are gaining a foothold in their respective industries. Therefore, they do not want to commit a large amount of capital on a single service. SaaS gives them the flexibility and opportunity to gain access to state-of-the-art infrastructure sans the capital investment that would otherwise be involved.

“India being a price-conscious market saw good traction for SaaS solutions. Companies are now looking for products and solutions that can reduce their IT CAPEX budgets. Additionally, India has a huge SME base whose greatest concern is to achieve greater efficiency for the least TCO. SaaS is an excellent fit for companies who find that they have outgrown their current software applications or Excel spreadsheets and reached a level of organizational maturity where they require an integrated business management solution to support cross-functional business processes,” said Heiko Mauersberg, Regional Head - Go-to-Market Program for SAP Business ByDesign in APJ.

Opportunities abound

Many companies have been using SaaS applications in their business for over three years and they are reaping the benefits now. Looking at the current buzz and hype around SaaS and the different levels of maturity within the user-base, we see that there will be a lot of service providers providing consultancy across the range of SaaS adoption, implementation and integration services. In fact, many SIs have already started building SaaS consultancy practices as well.

“The opportunity is significant for service providers. They not only have the business opportunity to offer public and private cloud solutions to their customers but can also build a significant consulting business in providing advice with regard to the creation of public or private cloud set-ups for a client, operating this cloud and looking after the governance of this cloud,” asserted Vinitha Ananth, Director - SaaS, HP Software and Solutions, APJ.

According to S. Sridharan, MD of TAKE Solutions, a service provider is poised to earn 10-50 times more revenue per customer by hosting software applications in addition to infrastructure services. SaaS also allows service providers to attract new customers that need software applications but do not have the IT resources or capital budgets to purchase them. Also, with the growing levels of maturity within the user base, there are chances of rising opportunities for service providers along the adoption curve, as organizations seek assistance for initiatives varying from process redesign to implementation to integration services and a lot more.

Aniruddha Banerjee, Head - Technology Service Business, Sonata Software commented that service providers could leverage their SaaS investments by offering their applications as a part of their service portfolio and generate additional revenues. Other areas of opportunity lay in hosting SaaS applications, integration work and expansion of the services market through the development of white label tools and applications. SaaS also allows service providers to attract new customers that need software applications but do not have the IT resources or capital budgets to purchase them.

Varying levels of maturity

Every enterprise company is building or needs to build out a cloud strategy. With this new sourcing model, existing solutions can be refitted to incorporate cloud technologies, new processes can be defined and executed, other existing systems integrated with the new one and the whole set-up governed in a unified manner.

“Increasingly, services providers will have to become integrators or aggregators of cloud-enabled delivery engines. As these services continue to expand, enterprise decision makers are asking service providers to assume the role of orchestrators across a wider set of service delivery providers. We think that there is tremendous value to be unlocked for customers who work with us to leverage these new delivery models,” highlighted Mohan Kalyan, Senior VP - Advanced Solutions Group, Cognizant.

Amitava Roy, COO of Symphony Services, said, “There are service opportunities, wherein an SME may require services support to set up its e-mail server in the cloud along with data storage and virtual desktops. On the other hand, an enterprise with an on-premise ERP system might look to integrate it with salesforce.com or may look to integrate it with a SaaS-based analytics applications. The cloud and SaaS will generate new challenges for data and application security which will have to be solved by the service providers.”

The last decade has seen huge investments into IT but with limited success for many customers. With varied degrees of process maturity, talent availability and a lack of the right IT systems, customers have grappled with getting the required results. SaaS and business transformation solutions are getting attention because of the promise of a result-oriented solutions approach. The IT vendors are building domain capability to not only provide business process improvements, implementation and integration but also in many cases for running operations and providing customers with results.

Scope of functionality

The initial wave of SaaS was about moving away from single-tenancy to reduce costs. Subsequently, users realized that SaaS helped solve problems in a way that was impossible with the traditional software licensing model. Companies are leveraging the benefits of SaaS to offer services with value additions to clients by understanding their usage patterns, gaining insights into industry benchmarks, etc.

The scope of functionality of SaaS applications has broadened significantly in recent years. A recent report by Gartner noted that, e-mail, financial management (accounting), sales force automation & customer service and expense management were the most popular in terms of current use of SaaS, with over 30% of the survey base using these types of applications.

Prashant Gupta, Head of Solutions at Verizon Business India, said that cloud computing was not simply the driving force behind the next wave of technological innovation. Rather it was a sound business strategy that helped organizations practice better financial management and create a more sustainable, cost-efficient model for supporting IT services.

Meanwhile, SaaS adoption is pegged to network penetration, faster acceptance of Web services standards and an effective costing model. All three directly influence the TCO for the service and therefore the decision faced by an IT head is to choose between hosting the service in house versus going for a SaaS model.

With networking bandwidth, penetration and performance on the rise and a serious push by a lot of software organizations to move towards Web services standards and federation-based authentication mechanisms, the stage is set for greater acceptance of the SaaS model, which will bring economies of scale, drive down costs and broaden acceptance.

nivedan.prakash@expressindia.com