Gartner projects that the global SaaS market will grow to more than $21 billion by 2015, with a CAGR in excess of 15%. This means that the SaaS market will be growing 5 times faster than the traditional on-premise software market and customers are now making a serious pivot towards SaaS. This change in buyer preferences has become a big driver for many traditional ISV’s to start seriously considering moving their businesses towards SaaS. This move to the Cloud is causing traditional software businesses new set of unique challenges such as:
- How much will my firm have to invest in order to reach profitability and how long will it take?
- Will our new SaaS products result in existing customer cannibalization?
- Should we build our own data center or use a partner? What are our options?
- How will our go-to-market approach need to change?
- Are we ready to move to SaaS?
Montclare has worked with, and profiled, many different types of Hybrid firms and they are building their new SaaS businesses generally in four different ways. Many of these transition strategies are based on the realization that SaaS in not just a software delivery option, but a different business model. The considerations listed above are just some of the common questions that are asked and a reason why many of these transition strategies have emerged recently. The first strategy is based on acquisition of SaaS assets.
Buy & Fly
This strategy is based on ISV’s purchasing smaller SaaS firms as a way to jump start their SaaS initiatives. By purchasing an existing SaaS firm, ISV’s can gain instant access to some critical ingredients that are needed to build a successful and profitable business including:
- Talent. Having the right personnel who are experienced in the SaaS model is very important and these critical SaaS skill sets are often difficult to grow internally such as; hosting operations, sales, Cloud architects, agile development teams and even executive management.
- Recurring Revenues. Building a large and growing recurring revenue stream takes a long time, that’s why there is high interest in buying them.
- SaaS Platform. Another important ingredient for a successful SaaS business is an efficient, scalable SaaS platform. This is often difficult for traditional ISV’s to build their own multi-tenant platform, so purchasing an operational SaaS platform, that can scale is really an an important business accelerator. This is also one of the biggest investments required to operate a profitable SaaS enterprise and sometimes M&A can be a more cost effective strategy.
- Customers. Being able to have a solid SaaS customer-base is also a benefit for a new Hybrid SaaS business. A customer-base provides input and credibility for a new SaaS business. Customers are also a critical part of the expansion of the SaaS sales model as well.
The two step strategy is when an ISV takes their existing single-tenant product and offers it as a hosted or managed service. This is usually a defensive strategy that can be used to protect ‘at risk’ customers who are considering moving to a SaaS solution. The ISV will also offer additional value added services along with complimentary upgrades to encourage existing customers to migrate to their Cloud service.
As part of this strategy the ISV will then use this managed services ‘air cover’ to build or buy a new platform in the background using a separate development team or even use a PaaS to as their SaaS platform for the future. This strategy can also be operationalized quickly, at a reasonable investment level, and usually requires only a small number of employees to get started.
Hub and Spoke
This strategy is when an ISV surrounds their existing on-premise solutions with new value added SaaS solutions. This Cloud-connected type of approach allows for a more incremental launch of new SaaS capabilities as a way to bring the value of the Cloud to customers who might be tempted to move to more of a pure SaaS offering. The Hub and Spoke strategy is one where ISVs are actively looking to a PaaS or Infrastructure-as-a-Service offering as a quick way to build out their hybrid business.
This approach is well suited for organizations that have products that manage very large amounts of data and there is a business opportunity to collect, aggregate and analyze it. As an alternative to building a new SaaS platform or set of new products. The Big Data strategy allows the ISV to leverage existing Cloud-based analytics product instead of having to build their own. By developing a standard way of accessing their on-premise data assets, it allows ISVs to quickly build value-added data services that can help jump start their SaaS initiatives. This approach is being used effectively for vertical markets or highly specialized solutions that may require a lot of data management.
What we have seen is that many ISV’s are adopting one or more of these four strategies to hasten their move to the Cloud both for defensive reasons, as well as to find new growth markets. This pace has quickened recently as the large master brands are starting to make moves to acquire SaaS expertise and recurring revenue streams, just like SAP did by buying SuccessFactors and Oracle did as they purchased both RightNow and Taleo.
For more information about these Hybrid SaaS Strategies contact me at firstname.lastname@example.org.