The increase in computing power, coupled with the decrease in infrastructure, storage and networking costs have enabled technology companies to move to an on-demand delivery model and thus provide greater value in terms of flexibility, ease of use, lower complexity, and costs to their end customers. Though the X-as-a-Service (XaaS) model has become commonplace with the emergence of many cloud startups, many technology companies are yet to make a complete transformation and the challenges they face need to be viewed from a new perspective. We use XaaS to mean Software-as-a-Service (SaaS), though these considerations apply to any on-demand delivery, be it Infrastructure-as-a-service or Platform-as-a-service.
While centralized hosting of applications as a concept existed in the mainframe world, SaaS made its appearance in the mid-90s with the emergence of Application Service Providers. However, it wasn’t until the late 2000s that saw the SaaS market evolve from a client-server model to a web-based model. Not having to install any software and maintain the associated infrastructure enabled the software vendors to innovate and invest in software development, leaving the administration of the infrastructure to the cloud vendors. The market for SaaS applications and services has grown multifold from just around $5B in 2007 to an estimated $200B by 2020 at a CAGR of 23-29% (Forbes article “Roundup of Cloud Computing Forecasts, 2017”). SaaS has essentially become the de-facto business model for any technology startup.
Figure 1: SaaS applications market (Source: Forbes)
Figure 2: Enterprise SaaS Growth & Market Leaders – Q2 2017
While todays startups are born digitally native, large enterprise software vendors have had to go through a transformative change to get there and stay competitive. While it is easy to assume that all technology players have caught up to SaaS, the reality is that many are still laggards and playing catchup.
Large enterprise transformation to SaaS has many success stories. When Adobe first introduced its SaaS-based product line in 2012, it initially received harsh feedback from the market3. However, the company persevered with its transition to a SaaS model and now is a case study for the success. Revenues are growing in double digits today compared to single-digit growth five years back. Salesforce, a pioneer in SaaS-based CRM and Workday, a SaaS-based HR software leader, which had its roots in PeopleSoft forced worthy competition from vendors like Siebel and PeopleSoft to adapt or perish. Smaller and nimbler companies soon disrupted the more established ones that could not manage this change.
Clearly, transitioning to SaaS has become an imperative for business survival. The market is highly competitive due to an increasing number of SaaS offerings and a broader range of vendors entering the market. Customers also demand faster and easy access, lower TCO, better performance, easy to manage feature upgrades without any compromise on quality at the same time. Accelerating the transition is key to maintaining the competitive edge and therefore growth.
As technology companies embark on the SaaS transformation journey they need to consider the following:
Changing business models require a change in the way IT operates
Enabling a business transformation involves changes to both the architecture and business processes. IT is now distributed as users are spread across geographies and have different considerations and regulations. In addition, it must support multiple ways of accessing the data and application with the proliferation of devices. Key factors to consider include interoperability,
Figure 3: Increasing ownership of the stack as one moves towards the SaaS
bandwidth, usability, and security, all of which are evolving as there is no one rulebook or standards body to govern this change.
Business model challenges revolve around converting from a conventional licensing model to usage-based or a subscription-pricing model require new sales, financial - billing and payment, and subscription management systems.
Technology is a valuable enabler during the transformation
Earlier the responsibility of running the enterprise software including the underlying technology infrastructure rested with the buyer. In the SaaS model, the responsibility lies with the technology company. With this change, the technology company must continuously be cognizant of factors such as speed, access, security, load and so on. This requires a significant investment and rejigging of operations to ensure a robust infrastructure.
Technology companies can reap returns from this investment and plow it back into the R&D for richer yields. In the SaaS model, the technology company has a unique opportunity to get a ringside view of how the product is used. By employing analytics on the deployed product, IT organizations can obtain detailed product data on the number of users, how they use it and the way the product behaves. This yields valuable insights into the technology provider on how their product can be improved or the right segment of users to be targeted, thereby directly contributing to business performance.
New engineering practices can ably support the transformation
Owing to the nature of the SaaS model, users can provide feedback in real-time and can shift to other providers easily if dissatisfied. The pressure to deliver and maintain an excellent customer experience is high and “always-on”. It is therefore critical that the technology company responds with changes in quick time while ensuring high-quality standards and managing engagement with the user through the product lifecycle. DevOps, CloudOps and Reliability Engineering have emerged to manage this complexity and ensure fast delivery of services with extreme reliability in their production environment.
The decision to move to SaaS model needs to be made with a comprehensive understanding of what is involved in this journey. Clearly, a huge amount of change on different fronts must be expected. This is critical as anticipating and preparing for these change factors will spell the difference between success and failure. Collaborating with a reliable and experienced service player to help navigate through this complex transformation will yield significant benefits.