Third Wave Of SAAS On the Way

By Jessica Davis

Software as a Service’s next wave of opportunity will come in the form of vertically-oriented industry hubs or exchanges that have the potential to turn traditional customer relationships upside down for ISVs and VARs.

That’s according to Colleen Smith, managing director of SAAS at Progress Software, a provider of tools and infrastructure that ISVs need to build applications.

Smith, a former industry analyst, joined Progress two years ago and has been part of the company’s effort to help transition its ISVs to also offer SAAS to customers by enabling them to add multitenant capabilities and the ability to integrate with other applications, among other capabilities.

The first wave of SAAS, then cast as being offered by ASPs (application service providers), consisted of providers offering standalone applications to customers in order to lower the customer’s total cost of ownership.

“We think that wave has come and ended,” Smith said. “It was the end of that wave that made the industry focus more on software as a service.” And that has been the second wave as companies went from offering a single-hosted application to integrated business suites such as those from Salesforce.com and SAP.

But with the introduction of software concepts such as the ESB (Enterprise Service Bus), ISVs are creating applications that can be integrated with any number of applications or services from other companies, Smith said. That’s opened up a whole new realm of opportunities for ISVs to work together and with VARs and for companies to expand their capabilities.

“This is the trend that is going on now,” Smith said. “It still means that you have traditional channels or traditional go to market, but now there are more ways for ISVs to work together as long as they’ve integrated their business applications.”

For some companies that means expanding their offerings vertically, Smith said, making for some interesting business combinations that go beyond what the industry traditionally has seen. For example, legal and news content provider Lexis-Nexis recently acquired a Progress Software ISV, Visual Files. Now Lexis-Nexis is looking to offer not only content but also software services to their existing customers of news and legal information.

“We are seeing a move from horizontal business processes to more of a vertical play,” Smith said, as companies look to offer more services to their existing base of industry clients rather than diversify to other industries. “That’s just one of the acquisitions that has happened this year. Next year we will see the building out of hubs or exchanges.”

For example, Progress is currently working with EDS on building out a vertical industry travel hub.

“This trend will be great for the small ISV,” Smith said. That’s because, in this model, large business service providers are beginning to pick up applications from smaller ISVs, bundle them together and offer them to customers, making the large company the reseller for the smaller company.

To take advantage of this new opportunity, ISVs need to change their expectations. First, they must adjust their idea of what a deal pays because instead of getting a percentage of a $100,000 deal, they may instead get a portion of a $100 a month deal.

Second, channel partners must figure out who is going to own the customer, and, in some cases, they must give up that relationship.

The question between the ISV and the VAR is who will host and who will service the customer,” Smith said. “Somebody has to say, ‘I’m going to be the owner,’ and if ISVs don’t give up customer ownership, they may not be successful.”

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