If you are a software solution vendor, the need to offer a Software-as-a-Service (SaaS) model should be obvious by now. The market is moving to Cloud deployments and SaaS. The need to reduce IT costs and to offer services that can scale up/down based on varying demand will cause this trend to accelerate in the next years and vendors that cannot make the shift will be left behind.

While most deployments of mainstream applications (CRM, ERP, email, document sharing) are already moving to the cloud, vendors of on-premise solutions in more vertical areas have been able to defend their market share based on richness of features. But as SaaS vendors accelerate innovation, that situation is not going to last long.

It makes sense for customers

From the customer’s perspective, SaaS offers multiple advantages compared to On-Premise solutions:

Time-to-Value – Implementation times for SaaS are significantly shorter than comparable on-premise projects. While there may be situations where On-Premise can claim competitive long-term return-on-investment, SaaS trades CapEx for OpEx and presents less upfront costs and risks.

Reduced IT Costs – Most companies are trying to reduce their dependence on local IT teams working on systems that are not market differentiators for them, so they can focus their energy and resources on what makes them more competitive.

Current Software – Updating On-Premise software can be both disruptive and expensive. Most companies delay their upgrades as long as possible and run on software that is a few years behind the state of art. SaaS customers are (for better or worse) always running the latest version. Changes in functionality and user interface are more frequent and gradual, but generally there is no big operational disruption caused by upgrades.

Built-in Availability/Reliability – Sure, large enterprises can afford to build reliable systems through redundance and manage things like backup and security on their own. But for most companies, that is not the reality. By using SaaS, small and mid-sized companies gain access to shared “enterprise-class” infrastructure.

It makes sense for software vendors

From the SW vendor’s perspective, SaaS provides a direct connection with customers, more opportunity to innovate and better business:

Reduced barrier to sales – With less of a financial commitment, less IT dependences, and shorter time-to-value, SaaS reduces barriers to sales. More predictable and recurrent revenues lead to higher company valuations.

More upgrade revenue – SaaS enables a “land and expand” strategy where an initial sale can be more readily expanded by adding additional seats, companies divisions, and new modules than with on-premise software.

Lower maintenance and support costs – Without a legacy of old software to support, all resources are directed at providing the best software to all customers without being slowed down by supporting and being certain not to break compatibility with the prior releases.

More opportunities for innovation – The elimination of support burden saves development costs and dramatically increases the ability of the SaaS company to respond to new market opportunities.

Hosted is not SaaS

An on-premise vendor decides that a ‘hosted’ application is a close enough to a SaaS solution. Allocate some servers in Amazon cloud, put the old good software to run in some virtual machine, add some SaaS marketing we are done, right? Not really.

Sure, moving on-premise software to the a virtual server in the cloud can be a valid first step for the user to move towards Cloud Computing. But that doesn’t mean Software vendors can confuse hosted SW with a SaaS solution.

For example, if your software is not a multi-tenant solution, neither you or the customers will benefit from the scalability and management advantages of SaaS.

On-premise vendors have had a hard time shifting to compete against SaaS-only new entrants. They have been particularly troubled with:

Multi-tenancy – Products that were designed to be one-off implementations for each customer cannot  be quickly changed to work hosting a large number of separate customers in one system instance. These systems require full re-architecting.

Scalability – On-premise software is often designed with tightly coupled components requiring well defined and dedicated combination of computing resources. A SaaS solution needs to be able to allocate resources from elastic pools and be able to scale up and down according to demand.

Integration and Customization – On-premisse software required professional services to be adapted to the specific needs of each business and to integrate with other solutions. That continues to be true, but SaaS vendors generally do a much better job at offering software that is configurable and provide well-behaved APIs that allow for easier integration.

The right architecture for the cloud

At Daitan, we have seen increased demand from traditional SW solution providers for development to re-architect and move traditional on-premise applications to the cloud, so that they can be offered in a SaaS model.

We are preparing a reference model that will explore concepts like multi-tenancy, load balancing, application scalability, caching, database scalability and architecture for the cloud, NoSQL databases.

If you are software vendor facing the challenge of moving a solution to the cloud, click on “Contact Us” to find how Daitan can help.

Watch for the upcoming White Paper “Daitan SaaS application reference model”. Subscribe to the DaitanFlash Newsletter to get the last updates from Daitan Group.

Daitan Group is a software development service company that partners with technology vendors to build their next solution in Communications, Mobility, Web/Cloud. We can help companies to develop their next SaaS offering in the market.

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