Johannesburg, 13 Aug 2008
Software as a service (SaaS) remains one of the best kept secrets in the ICT sector. While many companies are talking about it, not too many are actually delivering it.
One consequence is that companies are disillusioned and ignoring SaaS, despite the clear benefits it confers.
To summarise these:
* SaaS takes software costs off the balance sheet and allows them to be accounted for as monthly operational costs. This has an obvious and positive impact on companies' cash flow and makes it easier to motivate for new software applications, which now don't need to go through annual budgeting cycles.
* SaaS removes the risk typically associated with software implementations. The conventional model is that a vendor sells software via licences, and either implements or has a consultant implement the software. All the risk is subsumed by the customer, and delivery can take years, with no guarantee of success.
* SaaS, done correctly, can dovetail with and inform and fulfil a company's strategy.
At Progress, we have worked hard to identify and create a different model of SaaS, one which fulfils all the above criteria, and which allows our partners to share in downstream revenue creation.
The model we apply is entirely centred on our partners and the value they can provide to their customers, and in turn how they can derive long-term, sustainable annuity revenue. Note this is a sea change from the traditional, time-honoured approach, which sees software vendors derive all their revenues up-front. Instead, the vendors earn their payment for the application they have delivered in monthly increments, typically as a percentage of transactions which are powered by the software application.
Examples of this would include:
* The more people who are managed through a medical aid administration system, the more revenue the vendor collects, and conversely, if the number of lives under management taper off, the vendor loses revenue.
* The number of cars sold and loans granted through an automotive dealer network system determines the revenues the vendor earns.
* The number of policies issued by an insurer determines the monthly revenue accruing to the vendor.
In all three cases, nominated here, it is in the vendor's direct interest to take a strategic interest in his customer's business: not to do so is potentially to lose control of a revenue stream.
Naturally, in this model, the software principal also benefits in deriving a percentage of the partner vendor's revenue. The portion paid to the principal represents the value, as a percentage of the whole, it brings to the service that is delivered to the customer.
In such a situation, it is also in the principal's direct interest to work with its partners so as to identify and help close potential customers, and to help set up ecosystems of complementary vendors.
It also brings into play the issue of how service-oriented architecture (SOA) can merge with the world of SaaS. While they are typically viewed as separate, unlinked disciplines, they can converge, and when they do, the results can be dramatic for proponents of both.
As an example, one of the promised benefits of SOA, especially when it is delivered through the mechanism of an enterprise service bus, is that individual processes or applications can be exposed to other processes or applications as services. What this means is that partners can make their processes or applications available to each other, and derive ongoing revenue from each other.
In such a scenario, all that limits a vendor from creating new revenue models is imagination - their own and that of their end customer, their principal and their partners.
Given the difficult economic times in which we find ourselves, SaaS would seem to be an idea whose currency and validity are self-evident.
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