Is SaaS Right For Your Business?

June 23, 2011 by Craig Vodnik.

Everywhere you look these days, there’s an article about Software-as-a-Service (SaaS). That’s because the market is booming – Forrester Research reports that the market for SaaS will grow from 7 percent of the $354 billion software market in 2010 to 17 percent of the $476 billion software market by 2013. By any measure, this is an impressive increase!

SaaS also implies a change in business model from single-licensed software purchases to subscription software service that likely results in more revenue for companies who succeed in the market. Of course, those who grasp the SaaS opportunity now are in the best position to thrive.

All software categories, however, are not equally set up for SaaS success. Categories such as sales force automation have seen great upheaval in the last 10 years by SaaS-delivered products like Salesforce.com and SugarCRM. Other categories such as banking and operating systems have not seen (nor likely will see) much SaaS penetration at all. In some cases, data security or laws prevent organizations from effectively moving data to the cloud and avert the success of SaaS.

If your products are conducive to SaaS, now is the time to get on the SaaS wagon. Don’t leave time or space for competitors to move in – Establish your SaaS strategy now!

Shift to SaaSSurepayroll, the leading SaaS provider of payroll processing for small and medium sized businesses, was recently acquired by PayChex for $115 million. SurePayroll is a 10-year old company that was eating into the SMB market space of its bigger payroll competitors because of its SaaS nature. Does your business have an extra hundred million to buy up a SaaS rival? Most companies don’t have that kind of money lying around, even more reason to create a proactive SaaS strategy for their organization.

There are many SaaS-appropriate segments within the business-to-consumer (B2C) space. For example, the online backup industry is undergoing major tumult at the moment. The days when customers would buy backup drives for their computers are moving to the rearview mirror due to SaaS backup companies like Carbonite, Mozy, SOSOnlineBackup and iDrive. These SaaS offerings charge regular service fees and take the hassle out of being your own hardware repairman by storing your precious files in the cloud – a perfect fit for a SaaS solution.

However, business-to-business (B2B) companies undergo a more complex experience because they require support for channels, ERP system buying, sales agent tracking and more. Companies that sell B2B products, which are usually higher priced and have more complex sales, have thus far been reluctant to dive en masse into the SaaS arena.

This could be a fatal mistake because when it comes to B2B software, business customers want to lower total cost of ownership (TCO), and SaaS products offer exactly that.

According to “Software Vendors: The Shift to SaaS,” a Forrester Consulting study commissioned by cleverbridge, 55 percent of corporations using SaaS said that TCO reduction was important and 57 percent of corporations using SaaS said that lower overall costs were an important factor in the decision to choose SaaS products. It doesn’t take Nostradamus to see that SaaS is likely to grow tremendously in the B2B space within the next few years.

For these reasons and more, cleverbridge (full disclosure: cleverbridge is the machine behind this blog) decided to investigate the market trends around what buyers and sellers of B2B software were experiencing with respect to SaaS solutions. This investigation led to the commissioned study conducted by Forrester Consulting on behalf of cleverbridge AG, “Software Vendors: The Shift to SaaS.” By evaluating the benefits and opportunities and investigating the issues and threats of SaaS, this in-depth report provides the data needed to decide whether or not SaaS is right for your business.

As part of this effort, Forrester Principal Analyst Brian Walker will participate in a podcast discussing the market opportunity for B2B software companies to offer SaaS-delivered solutions. And on Wednesday, July 13, Brian will lead a one-hour webinar to discuss key findings from the study and answer your questions regarding this report.

We believe that you will find the research and conclusions of this report extremely valuable in devising your market strategy for selling B2B software products in this evolving market. We would love your feedback and insight on this developing topic. Please feel free to post comments below!

Keystone: SaaS isn’t right for every company. But now is the time to gather the data and knowledge needed to make a decision about your SaaS strategy – before it’s too late.

6 Comments

  1. Justin

    Great article Craig, I couldn’t tell you how great it is to see the projected growth of the SaaS market since TemplateZone has moved our focus from desktop applications to SaaS.

    TemplateZone is among the minority of B2B companies shifting to SaaS for all of the reasons you have listed above (long sales period, different support channels, & accurate sales tracking). Though we feel that there are far more benefits to moving to the cloud once all the kinks have been worked out.

    Transitioning from Desktop to SaaS is a tough road, where there were once larger license fees there are now smaller monthly payments. This can be daunting for companies, especially since they need to budget more in advertising and marketing for their new SaaS products. Although the large license fees are now gone, there is a trade off for the residual income that accrues over time. Ideally if you keep your churn rate low, you will be getting a large monthly residual that will top the sales you were once making with your one time license desktop applications. SaaS also saves us money on physical product development and product maintenance, which is a definite plus.

    Other than the initial hit in sales (again moving from higher priced items to smaller monthly fees) I would say the next hardest part about SaaS is customer retention. In order to keep getting these monthly residuals you have to KEEP your customers. SaaS brings a renewed focus on customer service, which can be tough for small to medium sized businesses who are working through this transition. This fear of losing users, in my opinion, is mirrored in the hesitation of B2B (and B2C) companies to actually get on social media. Both SaaS and Social Media require a proactive approach by businesses, that most are not quite ready to allocate time to just yet.

    Overall I am glad we decided to go SaaS and am sure in the near future we will never need to look back at desktop applications.

    You should do a case study blog post about different companies moving to a SaaS model, especially in the B2B space, I think that would be a great supplement to today’s post.

    Reply
    1. Craig Vodnik - Post Author

      Hi Justin,

      Thanks for your thoughtful post. I agree and think that it takes confident people to be willing to transition from a successful business model to one that *could* be more successful. I hope that larger organizations have a strong executive sponsor who is willing to think outside the box.

      I love your idea. Send me an email and let’s discuss a TZ case study.

      cheers,

      craig.

      Reply
  2. Nik

    I currently do some consulting for a company that focuses on SaaS solutions into the Retail space. I focus on the Asia Pacific region (Australia, NZ, SE Asia and India). It’s interesting as I’ve found in India and SE Asia, SaaS is taking off on a big way. The only resistance I have found is that some companies prefer for the Servers to be hosted “locally”. In Australia, the market is a little more cautious. Whist the barriers to entry, costs etc., all weigh on the positive side, the more conservative IT managers still lean towards having the applications behind the firewall.

    Reply
    1. Craig Vodnik - Post Author

      Hi Nik,

      Thanks for the insight about the Asia-Pacific region. Would love to hear more about an interesting success story where a company was initially hesitant, but is now thrilled with the switch to SaaS!

      Also, that “local” hosting that you refer to is one of the points in the paper where some companies and categories (government, health care and military) need to keep the data within their corporate walls. SaaS is not right for all, but it seems that you can confirm that there is great need in many markets!

      cheers,

      craig.

      Reply
  3. Nik

    The launch of Microsoft Office 365 cloud-based Office applications will be interesting – particularly for Google Apps users.

    As direct example to my older post, we just confirmed a SaaS application to one of the largest Pharmaceutical companies in Australia. As you can imagine, security was the focal point and was paramount in getting the deal. Their initial hesitation was primarily around security, access controls and reliability (having servers located on the other side of the world can get a bit daunting to local companies). What swayed them in the end was the ability to demonstrate the security aspects and of course the cost/benefit analysis.

    We are also in discussions with a number of Indian companies who seem to have no initial objections to SaaS. It seems (at this stage anyway) that uptake of SaaS may be easier to position in emerging economies then more mature, established ones. Too early to determine though.

    Reply
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