Media & Analysts

Three Additional Views on Software-as-a-Service

Thursday, April 07, 2005

Bruce Richardson

Mention the idea of Software-as-a-Service (SaaS), and many people will immediately think of salesforce.com. That’s great branding, but there is a lot more to this phenomenon than just “CRM on Demand.” The rapid growth of SaaS beyond Customer Relationship Management (CRM) is one of the factors behind a Webcast that we will be hosting on Monday, April 11, at 11 a.m. ET. We recently hired Bill Gannon from a competitor to be our vicepresident of consulting. During the Webcast, Bill will be announcing a new AMR Research initiative aimed at providing more insights and details on Seas.

This week, I met with three companies, all with business models that revolve around SaaS. Each takes a slightly different view of the market. Here are my findings.

OpSource: “No software platform”

OpSource provides a platform for software vendors looking to move from traditional on-premise and/or hosted implementations to SaaS or on demand. In our view, SaaS and on demand are very similar, if not the same. In both cases, customers pay for the software they use, usually on a per-user basis. If the salesforce.com motto is “no software,” OpSource should be “no software platform.” That is, why build your own platform if you don't have to do so?

The company was started in 2002 as a managed service provider that offered hosting and additional services ranging from security to storage management. This grew to a steady business with 80 customers.

When SaaS and on demand began to generate buzz, the executives realized that there was an opportunity to build a reusable software platform to support the new products. OpSource estimated that a software company might spend upwards of $1M or more to build out the initial infrastructure. It was willing to bet that most software firms would not see infrastructure as a core competency. Further, by spreading the core platform across multiple vendors, OpSource figured that it could offer a platform for about 30% of the cost of a do-it-yourself plan. As you might guess, OpSource makes extensive use of open source components for application servers and databases.

One other twist: Instead of charging on a per-server basis, pricing would be per user. This led to a lower initial for customers and also provided incentives to work with customers to make sure their client base grew. To date, the OpSource customer base includes several brand-name partners, including Agile and Blue Martini. Blue Martini: Have it your way … but SaaS is cheaper

That meeting led with an interview with Blue Martini, now part of Golden Gate Capital, an investment firm with $2.5B under management. Blue Martini was one of the pioneers in retail e-commerce and customer-facing software. Prior to working with OpSource, customers could purchase the software and run it in their own shops or contract with Blue Martini or a partner for hosted support. While the company will continue to support deployment modes, it is especially intrigued by the potential of on demand.

Rocky Gunderson, Blue Martini’s vice president of marketing and business development, said that his company started working with OpSource in November. The first joint customer will go live this week, with another scheduled to go live shortly. There are more in the pipeline, as well. The new model is drawing appeal from prospects looking for on demand/SaaS that were burned by previous enterprise application purchases, and/or lacked the IT infrastructure necessary to take on a large e-commerce initiative. He echoed the OpSource contention that wide spread adoption of a standard, shared platform would lead to a much lower Total Cost of Ownership (TCO); this could be lower than the 30% cited by OpSource. The thinking is that by reducing the cost of hardware, infrastructure software, and networking, more money is freed up for spending on more applications or additional seats.

Mr. Gunderson closed our conversation with a critical point: “Software developers don’t think about TCO, they think about building robust software.” Teaming with OpSource allows Blue Martini to focus on that robust software, but also to rethink software componentization, design, packaging, TCO, and running applications more efficiently.

Webcom: Configuring the SaaS ecosystem

I would be surprised if at least one person on the Web cast doesn’t ask Bill and me about the size of the SaaS ecosystem. I hope they ask Bill; I don’t know. I do know that it is growing.

I hadn’t even thought about it before meeting executives from Webcom, a small software company based in Milwaukee. Webcom was started by Aleks Ivanovic, a former Rockwell International engineer who was responsible for highly configurable automation and control products. Frustrated by the lack of tools for supporting his engineers, he first developed an online catalog. He later added functionality to support product configuration, proposal generation, and pricing and quotation support.

Since it began in 1997, Webcom has lined up an impressive roster of companies, with many in the highly configurable industrial products space, including Rockwell Automation, GE Industrial Systems, and ABB.

Of equal interest to me is the company’s growing relationship with salesforce.com and Siebel. Webcom CPQ is the only partner product for configuration, pricing, and quoting on the salesforce.com Website. The two share several joint customers by using their respective products in SaaS mode, linked by Web services in a Service-Oriented Architecture (SOA).

Webcom is not betting everything on salesforce.com. Last month, the company joined the Siebel Alliance Program as a CRM On Demand Software Partner. The plan is to complete the software validation early this quarter.

While Webcom is excited about the SaaS market, it does support other deployment options. But, like OpSource and Blue Martini, it does say that SaaS results in shorter sales cycles. That’s good news to a small vendor. SaaS: Not a fad, but a new way of doing business

How big is the SaaS market? How fast is it growing? Those are two great questions for Bill Gannon and his team. Those are among the inquiries we hope to answer through our research. I hope you can join us for the Webcast. In the meantime, I welcome your ideas on SaaS, on demand, and, of course, the 2005 Red Sox—brichardson@amrresearch.com.

Copyright © 2005 AMR Research, Inc.