Business Web 2.0: The Rise of Software as a Service
Gavin Christensen
Tyler Baldwin
Niraj Zaveri
Kapil Chaudhary
Is Software Dead?
Marc Benioff
Overview
Evolution of SaaS Traditional software vs. SaaS Market Trends Hypotheses Next Steps
Evolution of SaaS
1950 1960 1970 1980 1990 2000 2006
MIT & IBM develop time-sharing on Mainframe computers
Mini computer enables more users to have computing resources
Ethernet connects PCs together
Client-server computing becomes the predominant model for software applications
The web enables hosted applications (e.g., ASPs)
Source: William Blair Analyst Report, 9/27/04
SaaS is the Future of Software
“[SaaS] affects everybody who uses software, it's a dramatic sea change." states Gates when describing the new approach in how the company develops and releases software via its live software effort
The enterprise is up for grabs again
Web 2.0 technologies enable
Web platforms will enable applications that address the long tail
Value Proposition
SaaS Key CharacteristicsSaaS Key CharacteristicsSaaS Key CharacteristicsSaaS Key Characteristics
Network-based access to, and management of, commercially available (e.g., not custom) software
Activities that are managed from central locations rather than at each customer's site, enabling customers to access applications remotely via the Web
Application delivery that typically is closer to a one-to-many model (single instance, multi-tenant architecture) than to a one-to-one model, including architecture, pricing, partnering, and management characteristics
Network-based access to, and management of, commercially available (e.g., not custom) software
Activities that are managed from central locations rather than at each customer's site, enabling customers to access applications remotely via the Web
Application delivery that typically is closer to a one-to-many model (single instance, multi-tenant architecture) than to a one-to-one model, including architecture, pricing, partnering, and management characteristics
Key BenefitsKey BenefitsKey BenefitsKey Benefits
Less pain – primary pain with traditional software are cost, time, risk e.g. 28% of CRM implementations failed to go live (AMR Research)
Management economies – manages and security updates, provisioning, license optimization, scalability
Lower up-front costs – typically enterprises face 10X license cost for full implementation, initial burden is typically much less witih SaaS
Remote access made simpler especially with Ajax
Less pain – primary pain with traditional software are cost, time, risk e.g. 28% of CRM implementations failed to go live (AMR Research)
Management economies – manages and security updates, provisioning, license optimization, scalability
Lower up-front costs – typically enterprises face 10X license cost for full implementation, initial burden is typically much less witih SaaS
Remote access made simpler especially with AjaxN
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Is Software Dead?SaaS Model Traditional Software Model
Functionality
• Can choose best of breed • Potential influence on future functionality with vendor • Remote access facilitated • Speed potentially limited by bandwidth, shared server setup
• Potential to customize to exact specifications • Unlikely future influence on vendor • Remote access potentially difficult
Implementation Speed
• Fast due to low customization, low integration, and potential for gradual rollout • Still need to adjust business processes
• Slow due to customization, integration and drain on Internal IT resources and/or consultants
Integration with Legacy Systems
• Limited integration available • Integration can be facilitated by XML or other web capabilities
• More thorough integration and customization can slow future maintenance and upgrades
Security and Reliability
• Reliance on vendor • Assess data center security, systems and operations• Content / data control an issue • Vendors must provide security or else out of business • For smaller companies, vendor security could be better
• In-house control of security • Control of content and data • Must provide own security
Organizational Impact
• Increased availability of internal IT resources • Revenue center • Training
• Cost center • Need to ensure alignment of technology with business processes, staffing, etc.
Total Cost of Ownership
• Subscription, commission, advertising, or a hybrid • Typically variable model, with small setup fee and monthly payments • Upgrades typically included • Can change or cancel contract if solution doesn’t work • Easier to budget • Low implementation costs • Hardware scalability
• Large upfront capital investment with subsequent purchases of updated versions • Opportunity for long-run economies of scale • High implementation costs, often including consultants • High, maintenance and overhead costs with internal IT staff • High switching costs • Harder to budget
Source: “On Demand: The Tectonic Shift in Computing.” Maynard, J., et al. CSFB. January 2006.
Market Potential
Source: William Blair Analyst Report, 9/27/04
$2.1
$3.3
$4.9
$6.9
$9.0
$10.8
$12.4
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$14.0
2004 2005 2006 2007 2008 2009 2010
Worldwide
34% CAGR34% CAGR
Key Players
The New Kids on the Block
The New Kids on the BlockSoftware GiantsSoftware Giants
The OutsidersThe OutsidersThe Web GiantsThe Web Giants
Hypothesis 1: Platforms will enable the long tail Will a dominate platform emerge? Very high stakes game which we believe that all the major players will seek to
play The following are early movers in the competition for the creating an ecosystem for Saas or “On-Demand
applications”
CRMEcosystems
ISVs & CustomersPartners ADP
HR
Symbiot What they do: Consolidating
sales, supply chain management, and best practices for independent commercial Pest Control, Landscaping and Snow-Removal industry
900 partners avg. revenue $5 MM Business issue – need
specialized financial and business, revenue management process applications focused on “Green Industry”
Solution: Built platform for HR, labor management, finance, accounts receivable etc on top of Appexchange
Hypothesis 1 Long-Tail Example: Symbiot
CRM
ISV
Symbiot
HR
Symbiot Partners
SaaS vendors growing at the expense of traditional software vendors Traditional software still captures 90% of revenue but
Growth slowed in 2005 to 4.9% (double digits in the 90’s) IDC predicts SaaS will grow 48% from 2005 to $4.9B in 2006
Greatest in-road in CRM market: On-demand rose from 5 to 9% Oracle, SAP, Microsoft all launching on-demand product
Companies say these are their fastest growing offerings Oracle has over 600 engineers working to better deliver this offering Siebel’s failure to adopt: Revenue ($1B-$487M), Stock ($100-$8)
Challenges large, traditional players face: Operational and Cultural Financial: Accounting practices to accommodate differing revenue streams
and expectations of analyst community
Hypothesis 2: Rapid movement towards On-Demand model
Hypothesis 3: SaaS only at the tip of the iceberg
2004 – Initial Buzz2005 – Initial implementation2006 – Reaching mainstream
Hottest IT category in VC Rocketed by 20% to $1.1B (VentureOne) First-time investments soared to 52% to $273M Overall software down 10%
Emergence of New Top Players: Salesforce.com, NetSuite, RightNow, SugarCRM
Next Wave starting: Zimbra, Vettro, Jamcracker, Rearden Commerce, Five9,
DreamFactory
Next Steps
Test hypotheses Salesforce.com, Google Platform VCs consumer & enterprise investment opportunities in
SaaS
Case Studies Dreamfactory tools for On-demand Thinkfree On demand office tools Zimbra On-demand enterprise email
Explore impacts/correlation with BPO