SaaS is a bigger change than most companies have realized - and can offer significant benefits in terms of software license cost saving and infrastructure and support cost saving. But what about differentiation and competitive advantage? Is there a way to preserve that while reaping the benefits of SaaS? Are customized services on standardized product delivery platforms the key?

Abstract

The session provides an insight on how to best leverage the maximum benefits from SaaS. The panelists shared their experiences on SaaS, both from a user and service provider perspective. The panelists brought in some very interesting point by categorizing the users of SaaS and how they can gain from it. Panelists concluded that investment in SaaS is going to provide significant business advantages for midsize and small companies. Customization of applications came up as a main area of concerns among all the panelists.

Michael King heads the infrastructure availability for Microsoft internal IT as well as for Microsoft online which is Microsoft's strategy for software as a service to their customers.

Cory is currently the CTO and CIO both at Misys, which is a software major. They have software products and applications for the treasury, banking and for the Healthcare market

Anubhav is the Assistant Vice President for Innovative Solutions at HCL Technologies and over the last two years has helped some of the leading ISVs across the world, on their stratification of software as a service model

Abstract

I am Anand Birje, the session moderator for this session which is called "software as a service - can business advantage be retained while you adopt software is a service". "Can software as a service retain the business advantage while you adopt software as a service"- while you adopt some common denominator features at software as a service is really the topic. SaaS is a bigger change than most companies have realized and can offer significant nenefits in terms of software license cost savings and infrastructure support cost savings. Can differentiation and competitive advantage be preserved while enjoying the benefits of SaaS? Are customized services on standardized product delivery platforms the key? The session attempts to throw an insight into all these aspects.

Discussion

Question (Anand Birje): The question really is software as a service adoption - both from the ISV point of view and enterprise point of view, where do you see the adoption happening, what application categories are there, certain categories that are better for adoption over the others, can we will start off with Cory- your experiences with this?

Cory Eaves: In terms of where I see adoption from an ISV perspective, I see it being adopted in both horizontally in applications like ERP and CRM and also in certain vertical applications. I think it's really across all the different varieties of applications. One of the key areas in my mind that is the driving factor is around applications which are highly collaborative- whether it is a horizontal application or vertical application, if it is one where involves lots of people within the enterprise or even people amongst different enterprises. The other area I would say is around small and medium sized businesses. These are often businesses that don't have robust infrastructure in their IT and their systems and they are again going to be key areas we're targeting for adoption as an ISV.

Anand Birje: Anubhav, your experiences of working with ISVs and the enterprises on their stratification, where do you see the adoption happening, what application categories, what is it?

Anubhav Saxena: I have worked with three of the largest ISVs in the world. Interestingly 36% of all the applications with SaaS are all vertical applications. I would have thought very differently otherwise. So it is just 36% of verticals and just about 33 to 34% horizontal applications. The ones that are really going to SaaS are the ones in the enterprise resource management space. CRM gets about 22 to 23% the kind of ratings, ERP is actually higher with somewhere close to 28%.Then there is a third classification - the classification of users- there is the underserved user, there is the unserved user and there is the over served user and I think there are varying degrees of the movement to SaaS across these three layers of users. The unserved definitely are looking out for SaaS, but there are two very interesting sets of users- one of them being underserved users and the over served users that are also looking at SaaS. We need to watch out for that space.

Anand Birje: Let's also get a perspective on the business advantages of software as a service. We have a heard varying business advantages doubted by ISVs and some of them experienced by enterprises including faster implementation time, lower cost of production and implementation of applications or better usability so what are some of these, may be, and let's hear that from all three of you.

Michael King: The advantages from a business perspective are low cost to deploy, the speed in which you can do deployment and also the speed with which the improvements to that software can be deployed. The time from a feature request to deployment of that to your infrastructure rapidly decreased in the Software as a service model.

Cory Eaves: When I think about software as a service, I sort of break it down into three categories. I think it better from a delivery perspective which some of the issues that Mike raised, financial perspective, and for me under appreciated perspective is really they go to the market of the delivery the way that software as a service changes the business model. Part of what the software service brings is it changes the delivery model, it changes the financial model but it also importantly changes the way that go to market or buying experience happens. One of the things that software as a service forces ISVs like Misys and others to think about is how they could respond to this new buying model, how you can have an application you can try before you buy, and so on. I think that one of the big advantages around software as a service is there is a new way of going to products.

Anand Birje: Anubhav, your views and from an ISV perspective, we have heard from Cory, and from enterprises what they're looking for is business advantages - beyond what has been stated, something that we have missed here.

Anubhav Saxena: I have a simple view and then I have a contrarian view. So the simplistic view is that yes it does have the advantages of quick ramp-up, quick implementations try and buy the financially kind of exercise around as long as you want, comes at a low cost, and very low risk, it comes without any strings attached to it. All these advantages are there. But the contrarian view to that is that is not the only reason why SaaS is going to sell and the reason is as follows:

SaaS is a one to many kind of a service models that has been built. You build transformation or renovation in the one and you automatically transfer that to the many. So a lot of users are going to buy it for the transformational benefits to the one that happens and the advantages they can take because it is just a part of the larger ecosystem. I have seen this in at least two of the three largest ISVs that we have worked, a lot of CEOs have come back and said that they want to benefit from the one to many transformation that they otherwise could not have enjoyed.

Actually I'm an underserved and an over served user. So I sit in the office and I actually wonder how much time I use the Power Point, the Excel and the Word and I believe that I'm an over served user. I don't know to operate even 15-20% of the application. I'm paying a lot of money for that particular application, and I'm just using very base functionalities. So I am an over served user. Given a choice if I will see an option and I have choices to make, saying that I need Excel for so much amount of time, Word and Power Point for so many amounts of time and that is available for one tenth the cost, I would very quickly make the switch. A lot of people across the world are actually looking at that very critically at this point of time. They have excess infrastructure, excess licenses, they know they are not using it all, and they're going to actually make a very quick change. The underserved user is a user who wants more from an application but the amount of time required to customize the application or the investments that are required have a very long ROI pay back. CRM went down the classical path. We have seen what happened to Siebel. So the over served and the underserved users will be very huge market for SaaS going forward.

Anand Birje: One of the underserved user markets which was seized by the ISVs was the load testing and application load analysis tools market and there were a lot of tools, ASPs, and software as a service built ups that happened to serve that market where you needed tools only for a specific time. On the contrary, on the other side the same equation this was the market where you needed tools inside the firewall because you were doing a lot of load testing inside the firewall especially in applications they have to sit inside the firewalls. So what I wanted to segway into is some of the limitations, disadvantages that enterprises have been facing of really adopting software as a service effectively even where they want to. Some of these have been security issues. Some of these have been integration or lack of integration to other applications or lack of customization to meet their features and needs. So I want to again throw it up to the panel and get views on how do enterprises deal with and what are some of these limitations the enterprises are facing in adopting software as a service.

Cory Eaves: It's actually changing because some of the barriers that perhaps slow the adopting of software as a service are concerns about security. For example, we use a popular online CRM system for our internal business and recently we had a security problem not with our system but with that CRM system and that was handled very well for us and also for the other customers. The big ones that may be future barriers to faster adoption are customization and integration and I see them as key challenges for vendors in software as a service, going forward.

Anand Birje: I want Mike's views on that. As an internal IT infrastructure and operations head for Microsoft, he's a user of software as a service in many places and as a part of the MMS strategy for business online for Microsoft he is a promoter of that strategy. So where do you see some of these risks, these challenges, and how do you see them playing over the next couple of years?

Michael King: The integration point brought up is a big one because the time that a company is willing to go for software as a service for different types of IT products that they consume. That is going to create a bit of horse race and at some point all those horses are going to get to the finish line and they better work together. The decision that you make has impact which you may not be able to see. One of the decisions that companies are faced with is how to customize on top of that software plus services offering. The opportunities exist because they now have more knowledge about their product base. There are lots of problems but the additional data set that you are going to give is to remove disabilities and how they consume it.

Anand Birje: What are the inhibitors, what are some of the challenges, risks in adopting software as a service frameworks and I want Sandip Bhatia to talk about his views on this. Sandeep is the senior vice president for applications development and services at Franklin Templeton in the Silicon Valley.

Question (Audience): Given the financial services firm with the regulatory compliance and statutory restrictions, should I say that we now have huge over side and are not being able to customize it. How do you see some of the other players in the financial service industry taking on SaaS and if it is plain vanilla Siebel on demand, you do not have much customization. I can see some of that being adopted early on, but when you talk of a global company with multiple applications to integrate with and on the other side you have security issue. How do you see that?

Cory Eaves: This is an area where vendors in the market place including Misys have various offerings today and what they have done is they have created a hybrid model where they have hosted groups of instances, single instances and so on for customers and been able to have much larger firewalls and data security protection enabled to customize the system in place. I think that is one answer, which is a bit of a stopgap answer. Customization in this multi tenant type of world is the real challenge; the software industry in general needs to step to the plate on a little bit. There is a great example- there's a new version of SAP called the A1 and it's a hosted system, it's a 'software as a service' system. The catch is you can't modify it, you can't customize it. So how you intend to have success in the mid market of ERP, with an ERP system that can't change? I'm not entirely clear on how that's going to work out. There is a lot more to be done on this front to nail this thing down.

Anand Birje: Anubhav you can talk about how limitations like these can be addressed, what ISV is doing to address these.

Anubhav Saxena: My view is that there are three issues. One of them is the security issue which thankfully has some standards behind it. These are all standards and they will last so SaaS will kind of ride on them, that's a lesser issue. The larger issues are the integration issues because there is a very little standards based on integration and the third one is in terms of SOA, in terms of making them model, and making them extract or exchange information and that also doesn't have a standard. The way the market is overcoming them is that they are actually building on a SaaS platform. They have taken the entire strata or the layers and identified which of them can be SaaSified (if I may use the term) and they have Saasified that layer and then they have built on it. However, integration and extraction layers are not standards based and that will be a problem.

Michael King: I have been faced with this problem and I don't have answers to that yet, but each of the different industry segments and their regulatory requirements are faced with a geographic component, and how do you answer a SaaS 70 requirement or SOX requirement and take the used version of that and integrate those two things together. Our company has tried to answer some of the following questions- Do we have an agreement between us around how much data is going to be retained for you, how many legal battles you will need to come back and say give me the data from six years ago, did you have the agreement upfront to deal with that problem. We are kind of used to some of this and we have some of the expertise in the company, by bringing it all together yet and trying to figure out how it helps each different industry segment- that is something which we are still working on.

Anubhav Saxena: There is a variance of SaaS that we have seen in the marketplace in the financial industry. We have realized that the solution may not lie in a hosted model. The solution may actually lie in an appliance model. We have the appliances and if you actually go out and survey a larger part of the market that is adopting SaaS, they have these integration issues, security issues and most of the issues that we talked about but they are getting over those issues by using an appliance based strategy.

Anand Birje: Anubhav, how is the paradigm going to shift from a one to many multi tenants as model but who cater to some specific large enterprise issues or are we going to end up having single tenant, single instance models of SaaS which is how currently some of the Microsoft's MMS implementations are, but is that how it is finally going to end up? Are we really going to have a multi tenant model at all to cater to all sizes and all types of enterprises across all parts of the geography or we will have these sort of semi, different versions of SaaS?

Anubhav Saxena: It's very hard to say but I will try and give an answer to this question. I believe that we are actually in the SaaS 3.0 version. So what is 1 and what is 2. SaaS 1 was when you had applications that were stand alone applications, that had very medium security requirements, could operate outside your data center and those were applications that were adopted on another SaaS 1.0.Then SaaS 2.0 came in which had some higher security requirements and larger integration requirements with the data center. SaaS 3.0 is where the issue is. SaaS 3.0 is where there are extremely high security requirements. The SaaS applications are going to replicate the package functionality applications, which means that they're going to have a very high amount of integration required and there is no way in which the SaaS standards right now can support that. Most of the players are trying to move the train by having and on premise implementation and they believe that there will be interchangeable models that the appliance will come in till the time they are ready to get into the hosted version and they live with that. They live with a single tenant, with the single solution that they have and when the comfort gets built up they will quickly take their plants away and move it to the hosted model. We have seen the end users of SaaS in this model are very comfortable with that model.

Anand Birje: Cory, again as an ISV who has adopted SaaS very heavily, where do you think you are going to end up, you are going to end up in on premise model, full SaaS model.

Cory Eaves: I don't think it would be either or, this is a question that is going to be driven by our customers, who expect us to provide both on demand software as a solution services, who expect us to host some things in a single instance and I think they will continue to expect us to provide traditional licensed software in terms of delivery model. So I don't see this as one over the other, it's really a range of delivery options that an ISV is expected to provide.

Question (Ulf): We are partnering with HCL and developing a new platform to go globally. How then do you handle customization when you would like to go global?

Answer (Audience) Pramod: I think the question was that in the case of OMX broker services they have Nordic and Baltic customers and they have been serving that area with existing application in the past and we guys are working together with them in terms of rolling out new applications. There are certain applications which are very Europe specific and so if you have something like Mifid. It is a regulatory thing which is coming out so that is a local affair and slightly easier to handle. Globalization of our business requirements- that we have within the application, but one of the first things that you have is the interfacing bodies. So in terms of localization in the financial markets area the first thing that you talk about is market access, exchanges connectivity, clearing and settlement connectivity that you have whether it's Europe or the London stock exchange on whoever it is. Localization is something we have to build in terms of the markets, but the other part of customization is that you have a core product and then you have multiple customers and they have demands in terms of little changes and I think when we have a licensed software, it's a little bit easier to handle because you make those changes, you dispatch it, and you send it out and it's difficult but you are still able to manage. But in the new world of SaaS, when you're actually sharing a software pay as you go, use what you want to use, and all that complexities, this becomes an additional problem. It would be interesting to hear what kind of experience you all have in terms of handling this.

Cory Eaves: One of the big pieces of advice I give people who were worrying about software as a service is, go on to salesforce.com, spend that $50.00 and sign up for an account. If you haven't done it, it's worth it. Those guys have really done a great job; this customization issue is the one they're highly focused on at the moment. So they have created a platform for customization of what you customize, the database, the business logic or the user interface, you load those things into the platform and then once you made those customization, individual companies can pull down those applications and sort of built on this customization on to the core salesforce.com system. How do you take a product for the global markets, how do you customize it for a particular enterprise - that's maybe one example of companies who are doing a good job in that front. We today provide ASP products really all around the world so we have global managed servers that have foreign exchanges. So we have a whole variety of different hosted products today -ASPs or software as a service technology.

Question (Audience): Are you also migrating towards a service-oriented technology because that is easier to customize?

Cory Eaves: Yes, we are. Previously we announced we're in the process of building and releasing the next generation banking systems that is service oriented architecture in its own way that will be available once it is hosted as a service offering.

Anand Birje: Are we over time then going to lose some of the cost benefits, some of the feature benefits of having a pure based software as a service because then we're trying to build all these sort of customizable adapters for enterprises to adapt themselves. Please give your views on that.

Anubhav Saxena: I don't think that we will lose the cost advantage and the flexibility advantage. It is a choice that organizations will have to make in terms of to what level of customization they need and what level of customization they can live with. I think it is going to be a question of where they want to go with and what they want to do with the application. I also want to put a very contrarian view to this. Let's assume for a second that the cost advantages of SaaS are no longer available to us. My view is that even if you don't have subscription based pricing, and if you don't have paper use and those kinds of stuff two years later, SaaS will still survive. So SaaS alone based on the cost advantages will not be the sole selling point and it is going to be based on the organizations there and customers, how much they are going to use it and where they want to go with it.

Cory Eaves: It is something the companies actually need to be very careful about because we have done a lot of work with the ERP systems in the past, and most of the customers I meet tell me two things. When I ask them, "have you customized the system?" Almost all of them say yes, and then in the next breath they tell me they wish they had. As software as a service grows up and becomes more mature, more easy to customize, more easy to mould and shape to specific business, I think it'll be a temptation that a lot of companies should resist and really focus their customization and integration efforts on around the very specific areas where their business is truly unique.

Anand Birje: What do service providers, consultants, partners play a role in helping enterprises adopt efficiently software as a service models? Partners will also include the ISVs itself. Mike, what's the role you see of partners here in helping enterprises adopt to this model?

Michael King: In the horse race problem, there are engagements that need to occur before you start. Many times companies already have preferred relationships, have partners that they already prefer to work with and as long as the requirements can be established prior to the software service deployment-that is a place where I am seeing a lot of work happen. There is going to be a way that how a triangular relationship between the customers, the providers and the SaaS providers all have to work together to make all of this work. I can't really predict where all this is going to end up. As we do this transition phase and it becomes more mature, the comment around the platform as a service- how do you control that core and how easy you make it to do plugins into that core is going to be a key differentiator. The providers will be able to play because of their knowledge of that customer and knowledge of those specific services that need to be either modified or tweaked prior to software as a service deployment.

Anand Birje: Anubhav, where do you see service providers, partners playing a role in helping enterprises in this adoption?

Anubhav Saxena: We have worked with ISVs worldwide and these ISVs have done enough research in their market spaces. There are three entities that we're looking at here. We are looking at the end customer who they are going to serve, the ISV themselves and then the service providers. The ISVs are going to do all the research of what the end customers want and are going to come out with their products requirements definitions. That's the role the ISVs are going to play. They're not going to outsource the research. Then they're going to actually break it up into things that they can do well versus things that they cannot do well. So they're going to break up things that are core to them, and hence they will want to do it well, and which are non core to them, they are going to search for service providers. Now it's up to the service providers to take the checklist of the non-core services provided to them and then put a check list of what is core to them. Almost all organizations out there are going to make a very strong analysis of whether this is core or non-core to me and if they do establish a very strong fit, they're going to go back to the ISV and say, what is not core to you is actually core to me and hence there is a strong fit- that's one and I can participate. The second thing they are going to also say is that I think I understand the end customers that you're going to work for or work on. So that's the role the ISV will play and that's the role the service provider will play going forward.

Anand Birje: Adhunik, could you please elaborate on the software plus service versus the software as a service.

Answer (Audience) Adhunik: Software plus service in Microsoft is essentially a software that Microsoft today sells, powered by the service to be delivered over the Internet. What Microsoft is talking about is not having to choose between great services which can be delivered over the Internet and on-premise software but actually offering both the advantages to the customers. Give the customer the flexibility to get the services from the Internet - very powerful services, which would empower the on-premise software that Microsoft sells today and the ability to choose services and all the advantages that you get when you deploy or when you offer software as a service, with the ease of deployment.

Anand Birje: One of the things that we in enterprises have been concerned about is when they adopt software as a service, are they losing out on some benefits of having customizable applications and hence its business advantage? How true is that and what are ISVs and partners doing to help enterprises mitigate that risk?

Cory Eaves: No, I just don't think that as people adopt these systems, it really reduces their ability to compete and differentiate themselves. Just because every company runs email or every company uses spreadsheets, it does not make them any less unique differentiator or reduce their ability to compete. As the software becomes more customized, more easier to integrate into legacy systems and so on, over time, companies need to carefully choose the areas that they want to differentiate in and really focus their efforts around those key areas.

Anubhav Saxena: Let me start with a 30,000 foot statement. Business advantage, organizational advantage is derived by driving standardization. Some the successful organizations have actually built business advantage on standardization. The answer to your question is no. Let me just come a little lower and give a 15,000 foot answer. Businesses thrive on three strategies- one is arbitrage, the second is aggregation, and the third is adaptation. Any business, whether you pick up a Coca-Cola, or you pick up say a Procter & Gamble, or you pick up a Microsoft, they have all succeeded on doing one of the strategies very well. Now if you look at these three in context of IT, the only thing missing from SaaS is the adaptation layer to a very small extent. It gives you the aggregation advantage, it gives you the arbitrage advantage, and that's a very strong advantage to have. If businesses relied on these three strategies and assuming technology is supporting businesses in these three strategies and they're just missing out on one of them, it's hard to believe how SaaS will lend to a business, to a situation which is not advantageous to business.

Anand Birje: In this whole session we have been extremely focused on application users, IT application users and software as a service model adaptation for application users, but what about software developers, what about the intermediate users, tools users, what's happening in that market. Any views on that?

Michael King: I agree with, the answer is no. There has been a big push for companies to get their IT departments as close to the business value or business vision as they can. As we have seen that particular push occur, we have also seen some of the SaaS deployments that we have done, enable that. We have seen CIOs and CEOs are able to work much closer together because most of the talents in some of the companies in the IT departments are bogged down with complexities that they have deployed. Higher standardization frees up the people to grow up within that company, understand the DNA of that company and have a lot of business value to bring. How do you unleash that, and apply it using SaaS as a way to free up some of that time of those employees, is a way that I have seen.

Anand Birje: Is there an opportunity to serve the intermediate users, software engineers, tools users, and other non end-users or other non application users for the software as a service model? Any views on that?

Cory Eaves: I don't personally have a lot of experience in the space but I do know that several of those tools exist. There are examples of what tools would have traditionally been used inside a development organization. Some of it that is out there is probably growing, probably a fair amount of that is happening in the open source world today on the development side.

Anubhav Saxena: We are seeing that as a part of these guys writing the code, there is QA as a service, there is testing as a service and there's a lot of stuff happening there. I think from a tool perspective there are lots of vendors who believe that their tools also can be bought on a paper use basis, from batch scheduling to mainframe monitoring-those kinds of services. So there is a very strong push with tool vendors also in that space. Now, we're seeing that catching up slowly.

Answer (Audience): In software as a service, you do not lose any competitive advantage from not picking up the customers. I will entirely agree that for commoditized services like payroll. But when you get to core business, while we must adopt standards, I have a fundamental problem by saying everything should be standardizing, we are diminishing the importance of technology when we say that it can be the same. If you say that by not customizing the software, you can still differentiate, I really have a problem with that in the banking industry, a mortgage is a mortgage, a credit card is a credit card. Why do we choose one or the other, it goes to marketing, it goes to the way companies present and process and shape the customer experience. Software is at the very heart of that. So when you say do not worry about customization, I think you are wrong.

Cory Eaves: Companies need to pick carefully the areas where they're going to customize. The absolute model is how to have 80- 90% which is standard, how to have that 10% which is unique to your business and customize the system around that 10 or 20% which is specific to you. Today the software as a service systems make that a little difficult but eventually they need to get to that point. I don't think it is driven by standards across the board.

Anubhav Saxena: SaaS is where SAP was 25 years ago. SAP 25 years ago, built a business process platform, and said it works for utilities, it works for the financial industries, it works for the warehouse management manufacturing and so on and it took them 25 years to bring it up to a level where they had industry value networks and industry solutions. That is what is going to happen to SaaS. They are going to go through an evolution, where they are going to mature through the technology. They will try and eventually get there but there will be an element of customization required.

Question (Audience): Do you foresee the entire desktop being provided as a service especially in the consumer market?

Anand Birje: The answer is yes from my side, may be the question is for Mike King because Microsoft is already offering that as parts of the desktop services.

Michael King: Desktop as a service, we do offer that in the enterprise space today. So I see it continuing, and I see there is a lot of work going around it.

Question (Audience): In SaaS, do you expect a whole lot of people to come and jump in or do you expect a just a few to make a mark?

Cory Eaves: The whole model for innovation in the software industry is really going through a dramatic change and the market is stratifying. You are seeing large global providers like SAP, Microsoft and Misys that have capital to invest, and do innovation and research. There is also a whole ecosystem of small, innovative, quick entrepreneurial type of companies at the low end that are able to do some exciting and new things, and you see it hollowing out in terms of hundred million dollar and two hundred million dollar software companies, just fewer and fewer of those everyday. That's quite a big change in terms of how the software lands people and it looks like software as a service tends to be just a special case of that, in terms of how the industry overall is shaping up.

Concluding remarks

Anand Birje: I believe there is no one answer to that question on whether software as a service is right for you, is it going to keep up your business advantage, but like the panel said you have got to be selective in where you implement it, in where you would adopt it, you have got to work with some leading ISVs and some leading partners to find your own answers and solutions and the whole topic is emerging and evolving. Hopefully it would not take 25 years that SAP took, in the next two to three years we will see a lot more mature adoption of this framework.