Posts Tagged ‘SalesForce.com’

When, If Ever, Will SaaS Crack Core, Mission Critical Processes In The Enterprise

July 17, 2008

It’s no secret Software as a Service (SaaS) has generated tremendous excitement among many customers for its apparently transformational adoption model and ownership experience.  Unlike client-server applications, SaaS delivers faster time to value often via a viral buying cycle as well as lower risk deployment.  The early adopter focus has been on small and midsize businesses (SMBs) because SaaS makes it economical to reach them with broad penetration for the first time.  Where SaaS has carved out successes in large enterprises, it has largely been in more independent, non-mission critical departmental functions who have no capex budgets such as HR, CRM, or marketing, not end to end suites.  Despite the undoubted progress that SaaS is making, we believe the adoption of core, mission critical processes (Financials, order management, industry-specific processes such as manufacturing or securities processing) in large enterprises is still many years out for a variety of technical and business challenges.

SMBs have been the early SaaS suite adopters because traditional vendors couldn”t reach them

SMBs have been the low hanging fruit for early SaaS adoption because they’ve historically been underserved by application vendors.  Small deal sizes and bare bones cost of ownership requirements typically were critical stumbling blocks.  The small deal sizes mean vendors have to reach them with a much lower cost channel than direct sales.

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Why SaaS Isn’t The Real Threat To Enterprise Application Pricing

June 16, 2008

Whether subscriptions or perpetual licenses, it’s still about user-based pricing

Imagine for a moment that you are at IBM and a small supplier of components from the Far East has just submitted an invoice. It just shipped an order of printed circuit boards to IBM’s networking equipment division in upstate New York. IBM receives it and a clerk in its invoice processing department enters the invoice into its ERP system. Whether IBM bought a client/server or software-as-a-service (SaaS) ERP system doesn’t matter. The clerk has to fill out and navigate as many as 20 screens to enter the invoice so the purchase to payment process can move to the next step.

But go back to the distinction between client/server and SaaS applications. Conventional wisdom says that SaaS applications such as SalesForce.com and their subscription licenses represent a threat to the perpetual licenses and the business models of traditional client-server companies such as Oracle or SAP. Stretching payments out over multiple years, as SaaS does, makes it harder to show the profitability and growth that comes from the upfront payments of perpetual licenses. The reality is somewhat different. As many know, SaaS actually takes in significantly more revenue over the product’s lifecycle. But the pricing models have much more in common than their differences. They both charge based on the number of users accessing the application.

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