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Thursday, November 24, 2005

SaaS, SMB & Enterprise Adoption

Amy Wohl sees most traditional software vendors have positioned SaaS mainly for the SMB market, primarily for two very good reasons:
(1) For easy penetration.
(2) To avoid cannibalisation.

She argues that SaaS appeals to large enterprises as well & points out that the ASP market (the precursor to the SaaS market) at its initial days did not excite SMBs - particularly the idea of buying software on line and they weren't ready to act on it. Lots of enterprise buyers who readily understood the benefit of on-line software and they were often the first buyers, especially using it for short-term projects, projects that included non-employees (contractors, suppliers, customers), or remote offices (and individual users) that did not themselves have substantial IT support. As more and more of the SaaS offerings were new, net-native applications, architected to exploit the on-line environment (rather than repackaged traditional software), more SMBs found the offerings interesting too. The applications themselves are specified and scaled with enterprise buyers in mind. Some of the enterprise applications we see are very niche oriented & others have more horizontal applications and more customers.

I think that the enterprise buyers are a little cautious in making more investments in traditional enterprise software and also a little wary of SaaS as well.The enterprise software industry is plagued by low innovation, high cost structure and exorbitantly high maintenance and rollout fees. Occasionally we see some vendors looking at initiatives like time based pricing, a significant move.As I wrote earlier this would certainly others are bound to imitate –particularly in the SME segment. It needs to be seen how the pricing is structured including collection mechanism and how Tibco’s traditional partners react to this. Also to observe is the fact what happens to defaulters and enterprises that jump in and out of the schemes. The locking cost, jump out & switching costs need to be understood in greater detail. In traditional economics, leasing may be cheaper than rental pay structures. The pressures of competition & pricing makes companies try out new models – these sometimes force companies to think for the customers as well – no more proof is needed to be convinced about massive changes that are bound to happen in the enterprise landscape. the maintenance revenue led party may not last long.The straightforward calculations about existing customers continuing to pay very high maintenance revenue year after year may prove to be wrong moving forward and in fact may choose to converge into one homogeneous platform and look at saving lot more costs. The real test of one's ability to hang onto customers will not come when maintenance contracts expire but when the major software companies, transition to so-called "service oriented architectures," a fundamental change in the way applications are deployed, integrated and accessed. In the transition to the industry makeover, we are seeing some thrust towards hosted model solutions. In the era of consolidation, the industry needs to get rid of this problem of huge upfront money and twenty percent plus maintenance tariffs, buyers will not be open to some of the most innovative solutions out in the market today - I wrote along similar lines on licensing -Clearly the structure, style and measures of performance of software industry - particularly enterprise software industry is set to change dramatically.

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"All views expressed are my personal views are not related in any way to my employer"