Get Ready for SaaS, says Gartner

Mar 14, 2007 by Matt Ammerman

Via Business Two Zero, here is a press release recently issued by Gartner titled Gartner Says Service Providers Must Prepare Now for the Software as a Service Wave. The release opens with numbers: The worldwide SaaS market reached $6.3 billion in 2006, with a forecast of growth to $19.3 billion by year-end 2011.

I want to focus on a portion of the release that stuck out most to me. As I spend my days working at a company that aims to be the driver for ISVs’ SaaS strategies, my mind is trained to pick up on the subtle urgency behind this statement:

“Although the SaaS market is still relatively small, service providers need to make important strategic decisions now.”

Ok, maybe it’s not so subtle. Either way, here’s Gartner’s preliminary list of things that SaaS vendors should do to stay ahead of the SaaS ‘wave’ (by the way, ‘wave’ is their wording. I don’t like labeling SaaS a ‘wave’ – it’s just too fundamental and far-reaching of a shift.) Nevertheless, from Gartner:

“Use solutions built on next-generation Web services, SOAs and highly automated server farms to produce multitenant, mass-customizable solutions that facilitate agility while sustaining uniqueness at a reduced cost”.

“Make strategic decisions around whether to offer SaaS as simply one element of a broader portfolio or to fully evolve toward a SaaS-based delivery model”.

“Act now because of the scale of change required to successfully exploit SaaS opportunities”.

“Conduct thorough due diligence to be well-placed to take advantage of opportunities and manage risk as the market evolves toward SaaS”.

Egads! Not that it’s a surprise around here, but this further illustrates that the shift from software vendor to service provider will require herculean efforts on the part of SaaS providers – startups and existing vendors alike. It will be very interesting to see how this all shakes out; and from our perspective at Apprenda, how SaaS platforms will be perceived and utilized to address these 4 vendor pain points and beyond. The gateway for SaaS platforms to enter the market is, of course, first through the perception that the notion of the platform does indeed satisfy, ease, or otherwise unburden as many of these hurdles and new responsibilities as possible.

Given that, if history is any indicator Gartner’s list of things that SaaS vendors should do to prepare for SaaS will evolve quickly into a veritable checklist of things that SaaS vendors will look to outsource to a SaaS platform.

Are you currently developing a SaaS app? Are you using enablement technologies (such as platforms or libraries)? What are the pain points that you think should be addressed and which ones where the ones you had the most trouble with? We would love to know your thoughts and experiences!

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Impending DST Disruption Highlights the Benefits of One-to-Many Software Delivery

Mar 6, 2007 by Matt Ammerman

Here’s another spotlight article from Phil Wainewright on ZDNet – DST spells disaster for shrinkwrap software.

The article zeroes in on the impending daylight savings time change (it’s this weekend in case you didn’t know – a date earlier than any prior year), and the havoc that it has wreaked on on-premise, aka ‘shrinkwrap’, software end users who must now navigate through patches and updates to accomodate the change.

The DST implications definitely illustrate an end user benefit derived from the SaaS delivery model.  Software built to support one-to-many delivery requires major patches or upgrades – planned or unexpected – be made only to the one running instance of the application core.  We often highlight the key economical benefits of SaaS for the vendors and end users alike – but it’s incidents like this that make us take a closer look at how SaaS might smooth out technological operations when they might otherwise become a disruptive nuisance.

What are some of the other, perhaps lesser known, ancillary benefits that SaaS end users have experienced since making the move from on-premise to hosted enterprise software? What other headaches have you avoided by using SaaS apps? We’d love to know your thoughts!

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Does the SaaS Ecosystem Concept Lean Toward Natural Oligopoly?

Mar 2, 2007 by Sinclair Schuller

Rare is the day where using the phrase “SaaS Platform” doesn’t invoke the usage of “SaaS Ecosystem.” Heck, it even found its way to the title of the keynote panel I’m part of at April’s SaaSCon: Understanding SaaS Platforms and Ecosystems. The reason for this “two peas in a pod” syndrome is pretty easy to explain: SaaS platforms aggregate vendors, offerings, and end users in a pseudo-closed system which creates a huge amount of long-term value potential in exercising this network of relationships. This network is what we call an ecosystem and the value that can be created by commanding successful relationships is important to all parties involved.

I was discussing the future ecosystem landscape with someone, and inevitably the question of “How many ecosystems do you think will exist in a few years?” came up. Trying to quantify something like that this early definitely requires painting with broad strokes, but looking at the dynamics my answer is that a handful of ecosystems – a veritable oligopoly – will account for almost all ecosystem participants. In this scenario the oligopoly would not be forced or created through regulation, but would in fact be a natural oligopoly – the result of convergence due to economic factors. Why? Because ecosystems are networks.

A SaaS ecosystem’s value is very much defined by the size of its network, which is composed of three types of members: vendors, applications, and users. Looking at the trivial case, an ecosystem with zero participants of any type is valueless, as is the case of an ecosystem consisting only of suppliers and supply. As a mix of members from the three aforementioned groups start to enter a specific ecosystem, the value of the ecosystem increases. End users have the ability to gain value from relationships defined by participating vendors or deployed applications, vendors themselves can experience synergies by creating relationships with other vendors in the ecosystem. What this does is create a positive feedback loop.

If there are no costly or threatening barriers to joining an ecosystem, non-participants will measure the value of the ecosystem by the number of links it offers – the larger the network, the more valuable (i.e. Metcalfe’s Law). This is the reason why instant messaging, for example, is a natural oligopoly. If you had to choose a messaging service, what would you choose GTalk or AOL Instant Messenger? If you chose GTalk, you probably won’t be chatting with too many people. With AIM, you’re almost guaranteed to be able to chat with anyone you want. Any growth within the instant messaging realm generally gets absorbed by the few players that dominate the market because people want to join the networks that their friends are on. Ecosystems, by nature, are capable of harnessing the same network effect. A largely fragmented system with dozens or hundreds of ecosystems presents very little value to any participant. A few ecosystems that aggregate huge numbers of participants and value, however, benefits most everyone (as long as the oligopoly remains as such, offering market choice and fostering continued competition).

Right now, we’re very early in terms of the SaaS platform and ecosystem space, so I’ll be brave and attempt to be an oracle. In these early stages, value focus will not be on the value of the ecosystem; participants will choose platforms that offer the most immediate value in terms of technical merit, application offerings, etc. As the participant numbers of the early platforms and ecosystems grow, value focus will shift to the network value of each ecosystem. A market shake-out will most likely follow due to the rapid growth of some ecosystems, leaving that golden handful as clear leaders and many, many participants that can benefit from the huge amount of value that these networks can provide them.

Do you agree with this notion, or do you see a situation where many more ecosystems exist? If this was the scenario, do you think the aggregation of value is worth having an oligopoly?

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