1. Navigating the Top Six Business Challenges
of Delivering Software as a Service
whiTEpApEr
Executive Summary
For Enterprise organizations, utilization of software as a service (SaaS) applications means
Sixty-five percent or more of all easier budgeting, faster deployment, and reduced risk. For cloud service providers and
new business applications in the established on-premise software publishers, SaaS presents a new opportunity to give
enterprise will be cloud-based customers what they want—while ensuring recurring revenue streams and exploring new
or hybrid by 2015 (up from 15-20 markets. According to industry analyst firm, Saugatuck Technology, 65 percent or more of all
percent in 2009). And all customer new business application/solution decisions in the enterprise will be cloud-based or hybrid by
segments will be impacted. 2015 (up from 15-20 percent in 2009). And all customer segments will be impacted.1
Saugatuck Technology, The future of software delivery is clear. It’s the path to software monetization in the cloud that
January 2011 becomes foggy for both cloud service providers and established software publishers. While
delivering software as a service opens many doors for software vendors, it also presents a new
set of challenges. This paper explores the top six challenges software publishers are faced
with, and presents a quick and easy way for SaaS providers to define their service catalogs,
Thirty percent of enterprise provision and control user access at the feature level, measure service usage for billing and
spending on new software business intelligence purposes, and instantly adapt their service catalog to embrace new and
in 2010 was for cloud-based evolving market opportunities.
technology. And by 2014, 50% of
the IT budget for new software Accelerating Towards the Cloud
will be for cloud-based solutions The software industry is accelerating towards the cloud. According to Saugatuck Technology,
30 percent of enterprise spending on new software in 2010 was for cloud-based technology.
Saugatuck Technology,
And by 2014, they predict that 50 percent of the IT budget for new software will be for cloud-
January 2011
based solutions.2
70%
60%
50%
40%
30%
20%
10%
0%
2010 2012 2014
Percentage of New Software Expected to be Cloud-based
Source: Saugatuck Technology Inc., Cloud Infrastructure Survey (Fall 2009), Global N=670
Percentage of New Software Expected to be On-premise
Navigating the Top Six Business Challenges of Delivering Software as a Service Whitepaper 1

2. This technology is playing out not only for the early-adopting SaaS players with ERP, CRM, and
customer support solutions, but also has expanded to include the more traditional workflow-
based solutions, including HR, finance, and collaborative design. The cloud movement seems to
be affecting us all.
This paper is a reflection of SafeNet’s experience and take on the top challenges software
vendors face when considering a move to the cloud, as well as how the cloud is changing (or not
changing) how vendors are monetizing their software solutions.
The Top Six Cloud Challenges
The cloud is not only changing the way we in which we build our software offerings, it also has
an impact on how we do business and interact with our customers. Over the past two years
SafeNet has been studying how software vendors can monetize (i.e., sell, do business, interact
with customers) most effectively in the cloud. Our research included data from top industry
analysts, vendors with a long history of successful services in the cloud, vendors currently
in the process of offering services, and existing software vendors that are currently selling
installed on-premise solutions and are just now building their cloud strategies.
We have distilled our research findings down to the six core challenges independent software
vendors (ISVs) face when attempting to monetize solutions in the cloud:
1. Costly to enforce contract compliance
2. Limited feature bundling
3. Costly to repackage
4. restrictive and very basic subscription business models
5. Manual and complex usage tracking and reporting
6. Fragmented operational processes for delivering both installed on-premise and
cloud offeringss
Service Agreement Compliance
It is easy to understand how enforcing contract compliance can help you squeeze every dollar
Interestingly enough, what we out of legitimate users. Interestingly enough, what we discovered is that a majority of cloud
discovered is that a majority of service providers are still using paper contracts. The belief is that getting to market quickly is
cloud service providers are still the most important factor and starting with paper contracts to get the initial set of customers
using paper contracts. won’t have a negative long term impact. They feel that their target customer base wouldn’t
intentionally overuse and that enforcement technology can be rolled out simply in a future
Up to 60% of ISVs do not have
version of the service.
systems in place to accurately
assess how customers are using Unfortunately, those that choose this path, underestimate the negative impact associated with
their software. allowing a customer to be ‘out of compliance.’ Let’s explore this with an example that we have
heard time and time again from our clients:
Sandhill Group Web Site,
October 2010 “We are a mature SaaS company that has been serving the industry for over ten
years. Our services are sold into large enterprise technology companies. When we
launched, we figured that because we were targeting household-name technology
companies, that we would have no problems with maintaining compliance with the
contract terms through just a standard paper license. Well, a year and a half went by
and we noticed that even though we were successful on-boarding new customers,
not a single customer came back to renew or to increase the limits on what they
purchased. This led us to perform an audit. What we discovered shocked us. Not a
single customer was in compliance with their service agreement terms. How could
this be? Even the largest, most well-known customers were consuming more service
than what they had purchased!”
Navigating the Top Six Business Challenges of Delivering Software as a Service Whitepaper 2

3. They had identified that their customers were outside the boundaries of their contracts, and the
real cost of having to bring customers back into compliance revealed itself. This is a relationship
cost that starts from first having to explain to a customer how they were able to get out of
compliance in the first place. It was astonishing to these paying customers that they could
unintentionally become out of compliance. New terms were renegotiated and the customer’s
purchaser had to explain to management why, during the next budget cycle, the budget for the
software needed to be increased even though they would be using the same level of service as
the year prior
With the luxury of hindsight, we can understand how having the proper controls in place, allowing
our customers the transparency in their contract terms, and providing a smooth easy upgrade
path to increase limits (and functionality) eliminates this costly customer predicament.
product Versatility
Packaging is an art improved over time, based upon competitive offerings, evolving technology,
emerging problems, customer preferences, and targeting new markets. All of these things
influence how to best package or bundle our products to maximize the applicability of our
offering.
It’s clear that the SaaS market is still emerging, and so far there is minimal diversity in the way in
which various service offerings can be consumed. SafeNet has recognized this same trend with
installed applications over the years. During the early stages of installed on-premise software’s
rise, most software was offered with limited functionality. As the market grew year after year,
packaging versatility played a key role in positioning and maximizing a software vendor’s
business.
How do we reach the right product versatility?
Product
Segmentation
Which features Optimized Market
do I monetize? Product Applicability
Packaging
The right offering for
How do I deliver every customer
those features?
Business Agility
Versatility is only half the battle. If you are unable to rapidly respond to ever-changing market
demands, you create an opportunity for your competition to catch up with you. Being able to
adapt your service catalog in real time significantly reduces your time to market and R&D costs.
Decoupling engineering from your business decisions is one of the smartest moves you can
make. Involving R&D when making repackaging changes is a real momentum killer. Ideally, what
you should aim to accomplish is to be able to make business decisions regarding packaging,
licensing terms, and pricing without ever having to involve engineering. Involving R&D at these
stages defocuses your precious limited resources from their core responsibilities.
One of the most successful SaaS players to date (a service that nearly everyone has used)
highlighted the problem for us perfectly. To introduce new packages to the market took them
nine months. They were not introducing new features, not releasing new innovation, just a new
package of existing features. Nine months of precious development time just to sell the same
product in a different way.
Navigating the Top Six Business Challenges of Delivering Software as a Service Whitepaper 3

4. Sophisticated License Models
Up to this point, we have been talking about product packaging—what a customer can consume.
Now we will switch gears and move to another important topic—how they consume.
As your target markets mature, the way that customers want to consume your offering will
diversify. We have seen this truth play out in the on-premise market time and time again.
The same trends are happening with SaaS as it continues to mature. You want to allow your
customers to budget for and consume your service in the best way possible for their business.
Some of the main factors that influence consumption preferences are market segmentation,
customer size, and how critical the offering is to their business. To highlight an example of
customer size, a recent CoFluent Design news release detailed a new way to do business.
CoFluent is a leading electronic simulation-level company providing system-level auditing and
simulation for embedded devices. They have a very high-value asset in their design software,
and they are very successful at the high end of the market. They adopted a pay-per-use model
for their design software to address the need for a lower price point. This lower end of the
market only requires the software to do one or two designs a year but couldn’t afford the high
price tag for their subscription. As CoFluent’s market matured, they needed to find new ways to
offer, not repackage their features, and sell to a different segment of customers.
Business intelligence
The cloud delivery model for software offers vendors the ability to much more easily track
customer usage. Unfortunately, the majority of service providers are only collecting and using
this information for billing. This approach leaves valuable strategic information on the table that
can be used to improve your offering.
Recent research shows that up to 60 percent of ISVs do not have systems in place to accurately
assess how customers are using their software.2 One of the most basic day-to-day influences
product managers have on their product line is in prioritization of their product’s user stories
for the development team. Having the right tools in place allows product managers to easily
understand what the most popular features are and where to direct their investment. If there are
areas that are of very little use to customers, you shouldn’t continue to invest your R&D and Q&A
cycles in these areas with every release.
Business intelligence can also lead to making better packaging decisions. Understanding who
is using what can highlight which features to monetize separately. Maybe there is a low-interest
feature that you could package in a different way to accelerate demand.
As important as business intelligence is to making the right technology decisions, becoming
more intimate with what your customers are doing makes you a better technology partner. We all
want to realize a partnership with our customers and not just drop off software and hope they
figure it out.
One of the most common ways this business intelligence can help is by bringing potential
Augmenting your on-premise deployment issues to light. If you sold 1,000 seats and, after three months, you get a report
portfolio with a cloud service should showing that only ten seats are activated, this can be an early warning sign of a deployment
not double your cost or increase issue. It could be a customer training issue or perhaps a professional services integration issue.
your operational workload. Whatever the root cause, having the insight upfront to proactively reach out to your customers
allows you to realize the promise of becoming a technology partner and not just another vendor.
Back Office Support
If you have been involved in establishing the business process for licensing, from contract
creation to delivery to activation tracking, and then upgrades, you know that it requires a high
level of sophistication and work to have a smooth running system. Having the right systems and
the right training of your internal and external (customers, distributors, partners) users is critical
to the success of the business process. Augmenting your on-premise portfolio with a cloud
service should not double your cost or increase your operational workload. If you are going to be
offering both on-premise and cloud-based solutions, it doesn’t make sense to have two separate
Navigating the Top Six Business Challenges of Delivering Software as a Service Whitepaper 4

5. systems in place to handle the different types of business. We can examine the impact in two
ways—from the internal vendor perspective and from the perspective of the external users.
As a vendor, you need a single way to manage multiple business lines. You don’t want to fall into
the trap of having two separate systems to create and manage contracts. Because you would be
losing a lot of efficiency along the way, not to mention that different systems would drive up IT
costs, hardware costs, software costs of the managing systems themselves, training costs, and
overall complexity.
Let’s not only focus on the disruption of two disparate systems on your internal users, but let’s
also be cognizant of the effect on your customer. One of the most overlooked aspects of a good
license management system still tends to be its effect on the end user. As your customer, I want
to, at any time, be able to access detail of my assets. I want to know what I have purchased. I
want to be able to map my costs to the value I am getting (e.g., I have 20 users and those users
logged so many hours). I want to be able to know how I could upgrade my plan to take advantage
of new features or maybe other product lines you offer. And, most importantly, I want the various
product lines that I purchase from you to be consolidated and understandable in a unified way. I
don’t want to have to view my entitlements from three or four different systems.
Growing pains – A Natural progression
The following is very common scenario in the software product lifecycle. And because the same
things hold true for SaaS business lines, we’ve included it in hopes that it will help you plan for
the road ahead.
As a software provider, when entering a new business line into the market, it is common to take
a relatively simple application with a very small and manageable number of features and offer
it at a flat rate. And as typical with an introductory offering, because of the limited number
of features, you aim to capture a very targeted segment of the market. As customer adoption
increases, you will go through the traditional market saturation cycle with your customers.
You will start on-boarding customers of different types and from different industry segments.
This will push you to grow your offering in varying directions; different features that are only
applicable to certain market segments. As this continues, you will be faced with various
challenges.
The first challenge will be to build a plan to monetize all this additional investment. Your
customers will expect that the increased R&D investment should be covered under their low
flat-rate subscription. As a software vendor, you have the foresight to know that if you’re not able
to monetize your continued R&D investment, you are in a losing financial proposition.
The second common challenge is in knowing how to package this larger set of features to more
specifically target each customer segment. This step then leads you to realize that a subset of
these features are high value and/or potentially very costly to maintain. Therefore, you need to
know how to monetize these features with a model that more directly ties the value of use to
each specific feature.
As your success grows, you bring more offerings to market and build a larger and larger customer
base. How will you manage the ever growing product/service catalog? How will you automate
contract creation, delivery, activation, and asset detailing for all those customers? How will you
incent upgrades and continued growth of your existing customer base through promotional
plans and packages targeted to specific segments of the market? How will you manage across
business lines? How will you manage across licensing technology? How will you manage multiple
delivery models (SaaS and on-premise) for your entire product portfolio?
This natural progression has played itself out in the on-premise space time and time again. And
our research and experience tells us this same cycle holds true for SaaS applications.
Navigating the Top Six Business Challenges of Delivering Software as a Service Whitepaper 5

6. Summary
As early adopters of SaaS have realized, it is not easy to find the right catalog segmentation,
feature bundling, and pricing models. It takes time, experimentation, and, most importantly,
service catalog flexibility. As with traditional software consumption, ensuring user compliance
with the terms of a service agreement is critical to profitability. Before SaaS, data collection was
a premium feature of most software licensing and entitlement management systems, used to
forecast trends and make informed business decisions. In the cloud, usage data is not only used
for business intelligence but is vital for supporting business-critical processes, such as billing.
Therefore, it is essential that cloud service providers are able to easily track, organize, and
report on service usage.
While cloud service providers are running into many of the same challenges faced by ISVs in
delivering on-premise software several decades ago, the benefits of cloud service delivery
far outweigh the potential growing pains. The good news is that you don’t have to go it alone.
SafeNet is a partner that has been serving these markets and solving these challenges for over
25 years.
SafeNet Sentinel®Cloud Services
Sentinel Cloud Services make it quick and easy for SaaS providers to define their service
catalogs, provision and control user access at the feature level, measure service usage for billing
and business intelligence purposes, and instantly adapt their service catalog to embrace new
and evolving market opportunities.
DEFINE
DEFINE
A versitile service catalog for maximum market penetration
ADAPT PROVISION
PROVISION
Contracts & automate business processes to maximize efficiency
CONTROL
Service authorization to ensure service agreement compliance
MEASURE
Service usage for billing support & instant business insight
ADAPT
Service offering on-the-fly to embrace new & evolving markets
MEASURE CONTROL
About Sentinel Software Monetization Solutions
SafeNet has more than 25 years of experience in software protection, licensing and entitlement
management, enabling software monetization of applications delivered on-premise, embedded
within a piece of hardware, or hosted as a service in the cloud. The Sentinel product portfolio
includes: Sentinel HASP, Sentinel RMS, Sentinel EMS, and Sentinel Cloud Services.
Bibliography
1, 2 Saugatuck Technology, Key SaaS, PaaS, and IaaS Trends Through 2015: Business
Transformation via the Cloud, January 2011
http://saugatucktechnology.com/images/Exec_Sum/834SSR_Exec_Sum.pdf
3 Sandhill Group, Software Pricing and Licensing Trends -
2010 http://www.sandhill.com/opinion/editorial.php?id=330
Navigating the Top Six Business Challenges of Delivering Software as a Service Whitepaper 6

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Navigating the Top Six Business Challenges of Delivering Software as a Service Whitepaper 7