Could Google and Microsoft’s online advertising model change the pricing of all Web services

February 20, 2008

Perhaps this micropayment model is also the future of Web services or software as a service (Saas). Soon, companies like and Qualys could be offering their on-demand services with the same pay-as-you-go pricing as Google charges for sponsored links. “There’s a growing demand of the businesses and enterprise to be treated as a customer,” says Yisrael Dancziger, CEO and president of Digital Fuel, a company that makes software specifically for measuring SaaS utilization.

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Online Software: Buzz vs. Business

February 15, 2008

Online software is supposed to make business computing cheaper and easier. But cost and simplicity don’t matter if the software doesn’t do what a company needs it to do. That is currently one of the challenges facing corporate-technology leaders. Even the ones who favor online software often can’t find a product that meets their needs. And ultimately, that is what is most important for businesses.

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The Truth About Software as a Service (SaaS)

February 14, 2008

“What if we created a utility for enterprise automation? Then you don’t have to create a data center! Then you don’t have to have a CIO!” That was CEO Marc Benioff in June 2003, selling the benefits of the then-new concept of software as a service (SaaS). Fast-forward four years, and and dozens of other companies are inundating business users and CIOs alike with pitches for all sorts of SaaS applications. Right now, SaaS seems to be everywhere.

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Strategies For Growing A Great Services Business

November 21, 2007

By Julie Giera,

Of the top 35 global IT vendors, 22 are either services providers or product companies with a large services business like IBM. This shift to services has been accelerating over the past five years among technology vendors looking to drive recurring revenues, deeper customer relationships, and additional channels for their products. Building a great services business is tough for many technology vendors, because the things that contributed to their success as product companies are the very things that can be their downfall in services. Forrester has identified the top ten strategies technology vendors can employ to build a great IT services business.

  1. Stick to services that closely tie in to your products’ strengths.
  2. Organize for services separately from products.
  3. Hire experienced sales people.
  4. Limit the services portfolio.
  5. Automate the proposal process.
  6. Market your message through multiple channels.
  7. Limit risk in very large contracts.
  8. Develop the channel and deal with conflict early.
  9. Weigh a direct service model against a subcontracting arrangement.
  10. Know your value proposition: Wal-Mart or Tiffany’s?

Source:Forrester Research

Go SaaS, Young Man

November 16, 2007

Venture capitalist Mike Fitzgerald says he’s more inclined to invest in software startups that embrace the service model.

Fitzgerald, founder of Commonwealth Capital Ventures in Waltham, Mass., says SaaS is a win-win for the software company and customers. Sales cycles are shorter for SaaS startups because it’s easy for potential buyers to try the product. And if a customer starts with a limited rollout, a department head can pay out of discretionary budget, or even use a credit card, instead of sending a purchase order through normal channels.

On the customer side, capital expenditures for SaaS are significantly lower than a traditional premises deployment, and the product gets into users hands more quickly. Customers begin extracting value right away.

A service model also provides a predictable revenue stream for the software company, because payments come in every month. That means the company can make more accurate predictions about its quarterly numbers.

By contrast, premises software vendors face more uncertainty. Because they get a large portion of revenue from the initial license sale, the timing of a purchase can make or break a quarter.

“Oracle taught the enterprise software crowd to buy at the end of the quarter to get a better deal,” says Fitzgerald. “And if you miss an order, you blew a quarter and now on the Street you’re a bum.”

The downside is that SaaS vendors don’t get a large chunk of license money up front. The number of new accounts a SaaS vendor has to open is a multiple of a traditional software company.

“You need to get an accumulation of payments to be large enough to support your operation,” says Fitzgerald. “It forces a SaaS company to be more productive for every dollar of sales and marketing.”

And as with any venture, SaaS startups need to identify an underserved market. Translation? Fitzgerald has no plans to invest in a CRM startup.

That said, Fitzgerald is bullish on the service model. “SaaS is the future of the software business.”


Third Wave Of SAAS On the Way

November 16, 2007

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 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.”


Gartner: SAAS to Make Big Jump in Business Software by 2011

November 14, 2007

By John Hazard

More than a quarter of business applications bought and sold in 2011 will be delivered as software as a service, according to Gartner projections.

A report released Sept. 26 by the research firm said that adoption is well on its way, with SAAS accounting for roughly 5 percent of business software revenue in 2005, and more in some markets such as CRM—8 percent in 2005 and an expected 12 percent this year.