Management, Strategy, Technology

The biggest challenge for “traditional” software vendors moving to a SaaS model is not technical


cloud-computing-defined
Image Credit: http://www.webopedia.com

Cloud Computing is probably the longest surviving buzzword in the IT industry for the past decade or more. From a software buyer’s point of view the important decision of going for a “Cloud Solution”  is based on economics, more specifically the CapEx vs. OpEx trade-off. The pay-as-you-go nature of cloud computing is perhaps the most important economic feature for customers.

Cloud computing has three well known service models  IaaS, Paas and SaaS. Out of these, Software as-a Service (SaaS) is perhaps the most convenient model of acquiring IT for operating a business.  The huge success of enterprise SaaS vendors such as Salesforce and more recently Workday is evidence that many enterprise customers are moving towards SaaS for software “procurement”.

These new kids on the block have prompted the “brick and mortar” software vendors that follow the old model of building software, burning it on a CD and shipping it to their customers for on-premise installation to follow suit. These vendors are now making their software more architecturally and technically cloud friendly. What this usually means is that the software is now runnable on cloud infrastructure (IaaS) like Amazon AWS or Microsoft Azure.

Now building software that is more cloud friendly is one thing, but actually moving towards a true pay-as-you-go SaaS delivery model is a whole new ballgame for the traditional vendors.

I think the biggest challenge for existing non-SaaS vendors is not technical but its rather about overhauling their business/financial model. When moving to SaaS, the customers who used to pay all the license fees upfront will now be using a subscription payment model. This means the financials (such as cash flow) of the company need to be looked at from a different angle. It may also affect how sales and marketing approach their roles since customer LTV (Life Time Value) is now a bigger concern.

Possible ways to overcome this challenge would be to partner with (or even merge/acquire) another cloud company and piggyback on their business model for SaaS delivery. But when choosing a cloud partner it would probably be a good thing to avoid another SaaS provider and instead select an IaaS or PaaS provider to avoid market share erosion due to conflicting products.

Another way to address this challenge would be to setup a separate business unit for the cloud SaaS business. This would enable all new customers to be directly part of the SaaS business unit while existing customers are gradually migrated.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s