Software Delivery ModelsMyth: SaaS is the Software Delivery Model of the future

Confirmed? Plausible? or Busted?

Terms• Software as a Service

(SaaS)• Application Service

Provider (ASP)• Monthly Recurring

Revenue (MRR)• Annual Recurring Revenue

(ARR)

SaaS Value – Mythical?Break it down into separate “myths”

– SaaS software costs less than packaged software

– SaaS can be implemented more quickly than packaged software

– SaaS facilitates more frequent improvements / releases

– SaaS facilitates faster corporate growth

– SaaS software is more secure than packaged software

SaaS Value – Mythical?Break it down into separate “myths”

– The cost of SaaS development is lower than that of packaged software

– SaaS allows customers to focus on their core mission

– SaaS provides the customer more control over the software

– SaaS facilitates a better understanding of the user

– SaaS companies have a higher valuation

What is SaaS• Define SaaS

– SaaS is a model of software deployment where an application is hosted as a service provided to customers across the Internet.

– Multi-tenant vs. Independent environments

– Configure vs. Customize– Rent vs. Own– Centralized vs. Distributed

SaaS: The Elevator PitchFee Structure

– All inclusive fees are steady and predictable – no large capital or expense outlay upfront

– Vendor earns the customer business every day

– Lower total cost of ownership– Healthy revenue model for the

vendor, with longer term sustainability

– Right-sized

SaaS: The Elevator PitchPlatform

– Single platform facilitates horizontal integration and best of breed partnerships

– You are always on the latest and greatest release

– Highly secure– Scalable and performant

SaaS: The Elevator PitchFocus

– You focus on doing what you do best, allow the vendor to do the same

Keys– Adoption– Retention– Clean AR– Scalability

SaaS: Maturity Levels• Level 1 – Ad-Hoc/Custom (ASP)

Benefit – Server Consolidation

• Level 2 – ConfigurableBenefit – Ease of Program Flexibility

• Level 3 – Configurable, Multi-Tenant-EfficientBenefit – Horizontal integration, Lower Cost of Ownership

• Level 4 – Scalable, Configurable, Multi-Tenant-EfficientBenefit – Scalability and Performance Source: Microsoft

SaaS: Licensing Models• Subscription-Based• Usage-Based• Transaction-Based• Value-Based (DAXKO)• Fixed-Fee

SaaS vs. Packaged: Fees• Packaged software fees

are very unpredictable• Fees will spike for “tech

refreshes”• SaaS fees are very

predictable and are based upon usage

SaaS vs. Packaged: RevenueExample: Year over year packaged sales are much higher than SaaS sales, yet SaaS revenue wins out over time

SaaS vs. Packaged: Engineering Costs• SaaS Platform

– Support one version of the product

– Support one technology stack• Packaged Software

– Support n versions of the product

– Support multiple technology stacks

• “SaaS vendors spend from 5% to 10% of revenues on R&D, well below the 10% to 22% at more traditional software companies”William Blair & Company, 2007

SaaS Myths: CostSaaS software costs less than packaged software

Myth busted, right?

SaaS Myths: Cost• What about:

– Hosting costs?– Systems Engineer support?– Professional Services for upgrades?

• Myth: SaaS software costs less than packaged software

Myth Result: Plausible

SaaS Myths: Speed• SaaS can be implemented more quickly than

packaged softwareMyth Result: Confirmed

• SaaS facilitates more frequent improvements / releases

Myth Result: Confirmed• SaaS facilitates faster corporate growth

Myth Result: Busted

SaaS Myths: Security• SaaS software is more secure than packaged

softwareMyth Result: Plausible

SaaS Myths: Customer / Control• SaaS allows customers to focus on their core

missionMyth Result: Confirmed

• SaaS facilitates a better understanding of the customer / user

Myth Result: Confirmed• SaaS provides the customer more control over

the softwareMyth Result: Busted

SaaS Myths: ValuationSaaS companies have a higher valuation

William Blair & Company, 2007

Myth Result: Confirmed

SaaS Market Trends• AMR Research: SaaS Revenue

$2 billion in 2006, up 25% from 2005

• Gartner: – $19.3 billion by 2010– 25% of new business delivered via SaaS by

2011, up from 5% in 2005

• Aberdeen: 70% of 631 companies surveyed are looking at or planning to use SaaSWilliam Blair & Company, 2007

SaaS is the Software Delivery Model of the future

Myth Result: Confirmed

The End