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Wednesday, April 19, 2006

SaaS : TimeTo Dispel Myths

While hollow sounding reports abound on the increasing importance of SaaS, Jeff Kaplan thinks that SaaS may have
staying power. In tyring to debunk myths about SaaS he writes how SaaS applications differ from the te ASP framework.

Myth #2: SaaS is just another version of the failed application service provider, or ASP, and hosting models of the past, and will suffer the same fate as its predecessors.While SaaS isn't a new idea, the economic climate and rapid advancements in application development tools have combined to make today's SaaS providers more successful than their predecessors. The ASPs and hosting companies of the dot-com era failed for two reasons.
- First, they did not fundamentally change the architecture of their software applications, but simply resold legacy applications to organizations that didn't want to house them on their own systems. The up-front and ongoing costs of hosting legacy applications proved to be too much for the ASPs to withstand.
- The second reason the ASPs and hosting companies failed: Only a small segment of the market was willing to outsource their application needs to relatively untested outfits because most companies during the dot-com era felt that their IT operations and business applications were a strategic asset

Today's economic and competitive pressures make nearly any form of outsourcing fair game. Dennis looks at business value of SaaS while Jason Wood thinks that the greatest myth that needs to be busted is the is the opposite notion, that somehow SaaS is going to be the death knell of traditional enterprise software the world over. (I fully agree with Jason on this point). Erik Keller pointed out that SaaS can't change the borken model of enterprise software and pointed out that Salesforce.com and RightNow Technologies, two of the most well-received companies with a SaaS delivery and revenue model, both spend nearly 50 percent of their total revenue on software sales and marketing. Most importantly Erik brought out that it is also far from clear how far and deep SaaS can be extended into buyer organizations. I wrote earlier, the trend to offer software as a service with payments over time and based on usage is emerging. The big spenders like Telco’s, Banking and Financial Services, Healthcare, Transportation players may not find hosted solution a natural fit. The business drivers force them to get cutting edge solutions that would improve competitiveness and not necessarily something that looks to have good architecture and seems logical or fashionable. It will take more time to see what percentage of customers will find the software as service offerings attractive, change their buying habits and move to annuity contracts.The application architecture, schema, the business model including dealing with channel partners and switching costs for existing customers are major impediments. Overwhelming organizational changes would have to be managed in the transition to on demand model-It is highly unlikely that existing software vendors could manage the transition smoothly. It is also too early to make a conclusive call on whether the software vendors are going be more comfortable with annuity revenue stream not to speak about the hit professional service firms may be forced to take – In all, not a very easy path lay to embrace Software-as-a-Service model.

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