Software-as-a-Service as a software (or should I say service) delivery model is causing upheaval in the software industry. Everyone from large software vendors to System Integrators are forced to take a look at it despite their announcement to the contrary.

SaaS changes a lot of things that are true in software industry as we known it. What was a strong bastion of the large ERP vendors is being challenged.  I am personally very convinced that majority, if not all, of software will be delivered in this model going forward.

Let me tell what I see, from my vantage point after working at a large on-premise ERP vendor for close to 9 years.

Enterprise software is tough business. Contrasting a large ERP implementation with a SaaS solution, here are some of the inferences

ERP Software

They are expensive to create and involves large R&D cycles and despite that the outcome is still not a high quality product. Case in Point – Microsoft Vista.

If you just take a look at the three large software vendors Microsoft, SAP and Oracle. Each of them has large R&D organizations spread all over the world that contribute to the large software releases. The sheer challenge of aligning those teams across the world towards a single effort is near impossible.

They cater to multiple industries which have disparate needs and the chances of ensuring any updates/enhancements works for all the industries is remote.

They have become monolithic beasts and got out of control. Supporting them across multiple platforms is just not possible.

Large efforts are needed to implement them and still the customer (and vendor) is not happy. Large upfront budgets for IT needed by customers for hardware infrastructure, software licenses , personnel, training. Then there is ongoing costs towards upgrades, training and support. If you take into account the need for Development, QA, Training instances, DR, Backup infrastructure and the requirements around Governance,  the costs start becoming a percentage of the company revenue.

On the business front – according to the customer – Risk is not equally shared. Customers take risk on (unbaked) software while the vendor gets paid before the software is proven.

Software-as-a-Service and the values it professes (intentional choice of word). Time will tell.

Start with business model – software vendor, by hosting the software themselves take on majority of the risk. The hardware, software license, IT personnel etc are now the responsibility of the vendor. All upgrades, updates now factored into the price of the services used.

In general, software costs can be forecast more effectively as the price is a subscription. Atleast to the extent the usage is predictable. Depending on the model used for subscription – per user license or per transaction one should be able to come up with more closer estimates that a on-premise model.

Support costs are baked into the subscription price and the SLA management is now the responsibility of the vendor.

Typical SaaS applications are designed with a multi-tenancy architecture. They have to be highly configurable with inbuilt workflows, extensibility, web services to meet the needs of SMB or Large enterprises or companies across different verticals.

Since a single code base is used by all customers, the customer share the efforts of testing the product and the resultant high quality.

About Subraya Mallya

Subraya Mallya is a technology executive, entrepreneur involved in conceiving, building software businesses. In this blog, he focusses on business and technology strategies around Business Model, Product Development and Marketing. Connect with me on Twitter - @subrayamallya