SaaS is creating a storm for traditional software vendors

I've seen, been quoted in and contributed to a number of posts on the Software as a Service topic recently. With Microsoft's latest announcement, SaaS will begin to become a mainstream application option for general business, but there is still a lot of confusion out there over what it is, as well as company's changing to a SaaS style pricing model, when really there is a lot more to it than just delivering an existing client/server application on a hosted platform. Actually the concept isn't new. In 1961 the respected Computer Scientist John McCarthy was the first to publicly suggest (in a speech given to celebrate MIT's centennial) that computer time-sharing technology might lead to a future in which computing power and even specific applications could be sold through the utility business model (like water or electricity). It's just that technology has caught up to implement a great idea properly.

This IDC diagram explains some of the issues:



On the left we have the vendors with an existing client/server application designed for a one-to-one or one-to-few interaction, which they are endeavoring to deliver in Application Server Provider (ASP) style. This is either hosted from their own hardware or with an outsource partner, and web enabled with, maybe CITRIX or Terminal Server. They have to tackle the licencing issues of the original product and change their pricing model, but there is much more to SaaS than that.

On the right you have the true SaaS vendors, who have architected their product for the Internet and web services from the ground up, so that one-to-many is built in to the design. These vendors get the real performance, scalabilty and usability benefits. But even then, that is only part of this story.

For the traditional vendor the move to SaaS is a complete change of business model. When IBM announced, earlier this year, some special programs to support ISVs in making the switch Dave Mitchell, director of SaaS at IBM, said:

"From a business perspective, a company needs to think about revenue recognition, compensation for your sales force, routes to market, and distribution channels. From a technical side, companies have to consider service delivery, billing, and user support."

From a June press release, Treb Ryan, CEO of OpSource said:

"To make the transition to SaaS, software companies need to develop a new discipline around operational services, and it just isn't in their DNA. As a result, there is an ecosystem of SaaS enablers that has arisen, to help software companies deploy and implement SaaS."

Ryan's company is part of that ecosystem, along with others like ServePath and Sandhill. So if there's money to be made in assisting vendors make the transition, it must be a difficult prospect. There's a storm coming!

Whether it is a company the size of Microsoft, or a smaller mid-range vendor, many of the current players won't manage the transition. They would do better to start a new subsidiary with a different brand identity and the SaaS mentality embedded in the "DNA" of that company from day one.

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