On The ISV Landscape & Transitioning to SaaS
I just read a post over at PaaSTalk that painted a scary picture in Germany. A recent survey showed that almost half of the ISVs have no plans for SaaS offerings. Granted, some subset of those probably are in a business where SaaS doesn’t fit at this point, but I imagine the remaining ISVs are resisting change.
The problem with resisting is how staying in the on-premise world interacts with what the SaaS paradigm does to market sizes. SaaS is an amortization of sorts when compared to on-premise licenses (from the expense perspective), and as a result absolute market size shrinks or growth rate is dampened because of the marked differences in license costs (think of it as market level cannibilization). As SaaS continues to spread across the space and end users continue to accept the model, resistant ISVs have to battle shrinking market size where their on-premise license charges are significantly disproportionate. I’m not sure how those ISVs intend to deal with this and compete. My guess is that resistant ISVs will have their “lunch eaten” by a new player in the space who clobbers them with a SaaS offering.
One thing I’m curious about is the “why” aspect of those resistant ISVs for which SaaS does make business sense. Is it because of the difficulty of transitioning (cannibilization, rehashing their company to be service focused, etc.)? Is it because they think SaaS is a “fad”? Are the hurdles technical in nature? If you had to guess, why do you think ISVs generally resist the transition?
As the founder of a PaaS company, these curiosities are multi-level: why would some people stay away from SaaS and is there something that a PaaS offering can do to alleviate their concerns?
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Hi Sinclair,
Here in Germany many small to medium-sized ISVs are often owner-run, they have a tendency to be conservative. Many ISVs have been in business for decades and take a while to adapt.
I remember talking with ISVs when applications were changing from text to GUIs in the early 1990s. Many ISVs felt strongly that GUIs were just toys and that real users would not need them. In their view, productivity was much higher with a keyboard, so why would anyone change?
For SaaS I think there is an even bigger reluctance to change because of the broad scope of SaaS. They know how to change (later, of course, no hurry…) from one platform, programming language or database to another. SaaS is different; this time they must change all parts of the their business.
The owner of a German ISV told me why he did not want to selling products on the Web. His reason? Because “we might have too many customers and not be able to cope.”
I think the impact of SaaS on their business scares many ISVs. They would rather wait and see what happens rather than risk “rocking the boat” in their day-to-day business.
I agree ISVs are taking a big risk that a new competitor will enter their niche and “eat their lunch”!
A key advantage of PaaS is that the platform solves most of the infrastructure issues. A new competitor therefore has a head start and does not to rebuild everything the existing players already have.
The move towards simpler products compounds this advantage. A new competitor can (initially) support the top 10% of the specific niche features and deliver then by SaaS. If they can do then this I think most customers look at the new solution.
Customers often have a long history of using an a specific on-premise solution. Even so, given a simpler, easier and cheaper choice I think the chances of getting them to switch are good.
Andrew.