Recently I was on another trip to Europe to speak with Oracle partners who were interested in understanding business considerations related to building a successful Software-as-a-Service business.
Last November, I also spoke to a packed house of interested Independent Software Vendors (ISV’s) outside of London about SaaS and its many business considerations. The audience was quite engaged and asked a lot of questions. From that meeting it appeared that SaaS was starting to become a real strategic consideration for many European ISVs as they were thinking through their strategies for 2013.
It is also important to remember that Europe is not like the United States, and comprises many different countries, markets, languages and cultures. As example what is popular in the UK may not be of interest to ISVs in other parts of Continental Europe. I have always felt that the SaaS business model would play well in Europe, because the software buyers are:
• Price conscious
• Want to pay-as-they-go
• Like the idea of trying software before you buy it
• Geographically dispersed
The traditional concerns around SaaS are now beginning to be solved, especially as they are related to data sovereignty and security. These were many of the same issues that were holding back SaaS in the US about five years ago but once they were addressed, the overall adoption of SaaS solutions dramatically increased.
So I find myself in Stockholm and it was clear that there is genuine interest in SaaS, but the pain of the broader market shift to the Cloud appears not to have really hit Scandinavia yet. Executives that I spoke to understand that the market is evolving, and they can see it very clearly happening in the US, but aren’t compelled to make the move to SaaS just yet. Even though their customers are starting to ask about subscription pricing plans, they are still willing to accept on-premise software. For many of the larger software companies, they have not felt the pain associated with start-ups jumping into their market. They know it is coming, but they feel they have more time to adjust.
Starting a new SaaS business or transitioning to your business model is a difficult proposition. Companies are only going to endure this pain, only if they really have to do it. This was the mindset of the major ISV’s in the US prior to the 2008 economic downturn. They were convinced that SaaS and the Cloud were just marketing fads that would probably go away. As it turned out, not only didn’t it go away, but also the trend accelerated. There were many new SaaS start-ups who jumped into the market and put a lot of pressure on the major players like Oracle, IBM and SAP. Then over the past two years, it’s these big players have responded by moving aggressively into the SaaS market, starting a major M&A binge that has seen them buy out some of the best known SaaS firms including Ariba, Eloqua, Kenexa, RightNow and SuccessFactors. With a similar economic situation now going on across Europe, we may be seeing the beginning of another market move to SaaS.
One of the more interesting aspects of my recent trip to London was a visit to an innovative company called Central Working. I was able to discuss the idea behind Central Working with one of company’s founders, Steve Pette, who used to run innovation at Virgin Atlantic. This company is a new breed of business incubators that is springing up across Europe, which provides a collaborative environment and support for all types of new companies including software start-ups. This sort of software incubator is something that you would commonly see South of Market in San Francisco or in Cambridge in Boston. Central Working takes the incubator concept to the next level by providing an extra layer of collaboration where members can get connected to other members with complimentary ideas and skill sets.
For example, someone may be working on a cool iPad application but not be an experienced businessperson. Central Working’s management will look to partner this member up with another member who might be a former software executive, which might result in the connected members forming a new start-up. During my short visit, it was clear that there is a lot of energy in the start-up area of London called Shoreditch, and there many new companies emerging who are building the next generation of mobile and SaaS software.
Montclare compiles the market’s leading of SaaS and Hybrid companies globally, the SaaS Top 250, and today there are currently fewer than 10 European ISV’s on the list today. After my recent trip to London and Stockholm, it appears that there is a lot of interest in SaaS in Europe but we are still in the early stages of a major market move. By 2014-2015 we should see a critical mass of customers pressing their local ISV’s for Cloud-based products, and there will be a lot more SaaS firms in Europe.