Lessons from ISVs Transitioning to SaaS
By shupadhy on Feb 27, 2009
How do we go about this?
Enterprise ISVs adopting SaaS seem to follow two distinct approaches.
1) Some see immediate requirements to provide a hosted version of their software. They are working with Managed Service Providers to host their existing application as is. They want to gain experience in supporting hosted software while investing long term to modernize their application to deliver true benefits of SaaS in terms of Web 2.0 UI, quicker implementation cycle and additional monetization capabilities. They want the MSP to provide capabilities like subscriber management & integration, which they can use when they are ready for it.
2) Others are investing to come up with a standard platform themselves to deliver SaaS. This Platform is similar to Forrester's Reference Architecture - http://www.forrester.com/Research/Document/0,7211,53987,00.html
The Platform consists of a framework for them to -
Develop & deliver a multitenant, metadata driven SaaS Application
Manage Application LifeCycle
Integrate their Application with other SaaS/On premise Application
Manage subscribers in a decentralized manner
Manage Billing & contracts
Monitor and communicate SLAs
Having interacted with several ISVs, there is no right or wrong way. It is important that you have a long term vision of where you want to go but are flexible to adapt. Oracle provides robust technologies and we have partnered with a ecosystem of partners to facilitate your transition.
Is it Profitable
You will find numerous articles debating this. Obviously you need to have your own business model of how you will be profitable, but one approach which seems to be working is targeting enterprise customers. One ISV mentioned that they became profitable very quickly for their On Demand LOB as they decided to target enterprises which buy more seats for the same amount of effort. It seems to be working for NetSuite too http://www.mycustomer.com/cgi-bin/item.cgi?id=134179&d=101&h=817&f=816. If you are targetting SMB then ISVs are trying a whole range of plans to gain profitability - automated provisioning which limits customizability option provided, channel selling, multitenancy.
One major concern which gets raised is how do you prevent cannabalization of your on premise software. I have seen two scenarios emerge here.
1) You do not have a choice as your customers force you to host your own software as they don't want to deal with that anymore. The gross margin for delivering SaaS is good if you do it right - Less handholding of the customer, multitenancy or minimum number of users in single tenancy, streamlined operations with high degree of automation. If you are not spending in sales & marketing and just moving your existing customers to SaaS, you will end up making more money in supporting them from your own hosting site.
2) Find a new market for SaaS. Two examples are serving SMBs if you are serving only enterprises with on premise software or going to new geographies.