A while back we wrote two articles that address your questions,

The first one addresses the benefits, and the second one addresses the challenges.

As far as possible solutions you could consider a PaaS offering (Platform as a Service, or SaaS Platform) to aliviate most of them.

Cheers,
Abe

Someone like Salesforce may be at 10x in market cap, but their revenue is very real and has grown to $750 mil in 8 or so years and they didn’t create new customers, but instead took someone else’s customers who felt SaaS was a fad and since their was no opportunity, ignored. IMHO, existing ISVs need to look at the defensive benefits of moving to the model.

Senior executives see a huge pile of risk and very little reward for 3+ years - apples or no apples.

Measure by revenue is not apples to apples with SaaS since there is a tradeoff; that sort of scale acheivement takes longer because of the incremental addition of revenue but at the benefit of a much more stable revenue stream.

As others have said. It’s a completely new technology model, support model, financial model, sales compensation model and pricing model.

Is that enough for you? :-)

Do sample the responses and analyze them to formulate a possible state of the industry. From the responses of your potential customers will develop a story line that you will need to address up front in any of your sales material.

Your business plan should have the monetary benefit of your solution quantified and if your insights are true, folks that are looking for answers will find you and will recognize the value proposition. It is those customers you need to focus on as a tiny little start-up. You do not have the muscle, or time, to go up against vague opinion. It takes very deep pockets to steer the narrative and opinion.

I’d start by saying that this reluctance to move is both a good and bad thing. Its good if you are a start up because of MS or oracle could happily migrate…well they are helluva competitors aren’t they.

Its bad because when they do it half cocked (seibel, MS etc) they destroy the market reputation (the good work of SaaS vendors).

I think the reason they don’t move is multifaceted
1) can milk installed base
2) installed base (being milked) when asked, don’t want to move to SaaS
3) cultural - be step change
4) financial - hard to tank cashcows and get away with in on the ’street
5) distribution / sales channel. they aren’t set up for it. Siebel for instance are still leading with their on prem, if they loose they have a throw away line ‘we do it on demand
6) confusion about what SaaS is, how it works and how it makes money

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.