1. Overview of Software as a Service
Author: Tien Do (dqtien@cmc.com.vn)
28-Aug-2008

2. The Buzzword
 Software as a Service. The words are on
everyone's lips. The pages of software
industry publications are full of articles
about software as a service (SaaS)—articles
that use words like quot;revolutionquot; and
quot;horizonquot; (as in, quot;on the…quot;). Everyone
knows (or thinks they know) what it is,
roughly, and everyone knows it's going to
be big. Yet few people would say they can
really define it, and even fewer know how
to build it.

3. What is SaaS?
 Software as a service (SaaS) is a software
application delivery model in which
customers pay to access and use software
functionality over a network through a
hosted, web-native platform operated by the
software vendor (either independently or
through a third-party).
 Two major categories of SaaS
 Enterprise LOB services
 ―Web 2.0‖ consumer services

4. The Promise of SaaS (1/3)
 SaaS has the potential to change the
way business is done

5. The Promise of SaaS (2/3)
 IDC’s SaaS Capabilities and Opportunities (12/2007)
 76% said that SaaS will ―dramatically impact‖ the
partnering landscape
 70% view SaaS as a ―big‖ opportunity (not a threat)
 Many firms already engaged in SaaS-related activities
 SAP, Microsoft, IBM, Cisco Systems and others are
increasing their participation
 McKinsey finds that SaaS is a growing priority for CIOs and
VCs (Delivering Software as a Service 06/2007)
 Goldman Sachs’s Making SaaS Savvy Investments (11/2007)
 23% projected annual growth
 $21.4 billion industry by 2011
 Representing 14% of addressable market

6. The Promise of SaaS (3/3)
 By 2009
 40% of new business software vendors will offer a
SaaS model
 100% of Tier 1 consulting firms will have a SaaS
practice
 By 2010
 15% of large companies will begin projects to replace
their ERP backbone (financials, HR, and procurement)
with SaaS solutions.
 85% of SaaS vendors will offer performance SLAs in
standard contracts
 By 2012
 More than 66% of ISVs will offer some of their
applications optionally or exclusively as SaaS
Predicts 2008: SaaS Gathers Momentum (01/2008)

7. SaaS New Release Trends
SaaS New Release Trends
Less than once a
year
Three or more 17%
times a year
25%
Twice a year
Once a year
22%
36%

8. Why Customers Buy SaaS
Why Customers Buy SaaS
Operating, not
Other capital expense
14% 16%
Replace
client/server
11%
New
capabilities
access
59%

9. How SaaS is Sold (1/2)
Primary Means of Selling Product
Resellers Other
10% 5%
Indirect
Marketing
Direct Sales
18%
Force
57%
Telesales
10%

10. How SaaS is Sold (2/2)
 93.9% to businesses
 ―Sell and grow‖ vs. ―sell and go‖
(until upgrade time)
 Committed to ongoing customer
contact 24/7/52

11. Time to Close Sales Rates
SaaS Sales Close Rates
Less Than 3 3 to 6 6 to 9 9 to 12 12 to 18
Months Months Months Months Months
16.6% 41.6% 33.3% 4.1% 4.1%
Enterprise Client/Server Sales Close Rates
Less Than 3 to 6 6 to 9 9 to 12 12 to 18
3 Months Months Months Months Months
3.5% 32.1% 28.5% 23.8% 11.9%

12. Selling Rates
Medians of Percentage of Sales Personnel
Achieving Quota By Software Type
Enterprise/Client SaaS Desktop/Retail OEM
Server
50% 58% 50% 33%
Medians of Percentage of Sales Personnel
Exceeding Quota By Software Type
Enterprise/Client SaaS Desktop/Retail OEM
Server
15% 5% 10% 10%

13. Why is SaaS Succeeding?
 VCs love recurring revenue model
 Customers love SaaS
 Frustration with traditional software buying cycle (license +
maintenance contract + upgrades)
 They hate their IT people
 Finance people like shifting software to operating budget lines
 Reduce the number of IT people
 Offer companies access to new capabilities
 24/7/52 customer services
 Anytime, anywhere access
 Automatic, offsite backups
 Vendors love SaaS
 Faster to sell, deploy, and innovate
 Larger customer base
 Easy to maintain
 Consistent and predictable revenue flow
 Early SaaS success stories Salesforce.com, WebEx, etc.

14. Big Deal 1: Leveraging Economy of
Scale
Hardware Cost People Cost
at Provider at Provider

15. Big Deal 2: Selling to the Long Tail
$ / Customer
Dozens of markets of millions or
millions of markets of dozens?
Your Large Customers
What if you lower your cost of sale (i.e. lower barrier
to entry) and you also lower cost of operations
Your Typical Customers
New addressable market >> current market
(Currently) “non addressable” Customers
# of Customers

16. Big Deal 3: Monetization Options
 Subscription (monthly fee per seat)
 Transaction based pricing (profit
sharing)
 Ad-based revenue (e.g. pay per click)

17. Big Deal 4: Human are Costly
 Reduce human intervention
 No Direct Sales (but referrals and
breadth marketing)
 Self Provisioning
 Self Customization
 Delegate Administration
 Automatic billing

18. Challenges of SaaS
Software as a Service will change the way people
build, sell, buy, and use software

19. The Delivery Model is Just the
Beginning
Software as a Product Software as a Service
Delivery Installed Hosted
Development Longer cycle, ―big bang‖ Short, continuous cycle
Pricing Perpetual license + maintenance Subscription (all inclusive)
Allocation Capitalized Expensed
Installation, maintenance,
Additional Costs customization, & upgrades Configuration
Platform Multi-version Single Platform
Updates Larger, less-frequent Shorter, frequent
Sales Focus Close the deal Prove value in first 90 days
Feedback Cycle Long Short
Profits Initial sale Ongoing
Success New license revenue Lack of churn

20. Design and Development
 Upfront design and development requirements are
greater
 Infrastructure
 Hosting
 Billing
 Other systems
 This can require
 Greater upfront resources
 Increased initial investment
 New and different skill sets
 Consider available third party SaaS platform providers
 Challenges of covering all users (covering ―the long tail‖)

21. Revenue Model
 Subscription model: Pricing and packaging options
 Subscription pricing means:
 Lower short term revenue
 Slower revenue growth
 Slower cash inflow
 Complex quote-to-cash processes
 In return for the prospect of:
 Predictable, compounding revenue stream (less volatility,
better ability to plan)
 No end-of-quarter frenzied pricing discounts (better margin
potential)
 Higher long term revenue
 Shorter ROI time scale
 Different metrics: MRR (CMRR), ACV, churn, others
 When does it start to pay off?

22. Sales and Compensation
 Different sales model
 Different compensation structures
 Commissions based on ongoing customer
usage and revenue
 Not on sale of large up-front licenses
 Dealing with renewals and churn is
key

23. Partners and Distributors
 Require adjustments to existing partnerships
 Competitors
 Partners and resellers
 Systems integrators
 Also creates opportunities for new partnerships for
 Application integration
 Data integration
 Data mining
 Upstream providers (e.g., Business Process
Outsourcers) looking to embed SaaS offerings as part
of their solutions

24. Customer Service
 Perhaps the biggest challenge?
 SaaS presents different issues
 Hosting (rather than shrink-wrapping)
 Data center operations
 Systems and network monitoring
 Billing
 Requires a different model
 Managing customer expectations
 Customer education
 Leveraging increased ability to collect customer
feedback and data
 Additional issues presented when transitioning legacy
customers to SaaS (or maintaining them after others
have transitioned)

25. Product Support and Maintenance
 SaaS model shifts the burden of support to
the vendor
 Focus on the risks of reliability
 Must ensure that customers can access their
apps
 One outage or crash can affects all customers
 Service levels (SLAs)
 Trend toward SLAs (although most SaaS
vendors do not provide them at present)
 Adoption will depend on criticality of the
application, size of deal, etc.

26. Research and Development
 Traditional ―plan-driven‖ development approaches do not work
 Agility is key
 Rapid releases and upgrades
 Focus on
 Absorbing rapid and immediate feedback
 Leveraging usage data to development
 Meeting customer needs
 Ever tighter deadlines
 Early and frequent testing
 R&D must deal with the entire SaaS platform
 Platform and tools for hosting and serving the software
 Software itself
 Billing
 Customer service
 Service aggregation

27. Legal
 Contracting model is different with SaaS
 Driving contracts online
 Dealing with mixed contracting model
 Identity validation
 Contract duration strategy – trials, 1 yr, 3yr, etc.
 Preparing for service levels agreements (SLAs)
 Termination and migration
 Security
 Data privacy (and data usage)
 Transition of legacy customers (for those customers that
have purchased long-term contracts for updates and
maintenance)
 Making SaaS subscription model work within traditional
procurement cycles

28. Valuation and Funding
 VCs love SaaS
 Estimated that as many as 90% of new software companies
funded by VCs have SaaS models
 More cash required to fund company to breakeven
 3 - 4x more
 Large upfront infrastructure investment
 Slower revenue growth and cash inflow
 Valuation can take an initial hit, but appear to attain a
premium (as subscription revenue grows and compounds)
 How soon does SaaS catch up with the traditional perpetual
model?
 Another important factor is renewal rates / expected life of
subscriber; without longevity, model doesn’t work
 Calculation ultimately dependant on the company’s
particular business model

29. Pure-play vs. Dual Environment
 Difficult to move to SaaS
incrementally
 Many ISVs opt for dual environment
 This can create issues
 Customer retention and service (during
and after a transition to SaaS)
 Continuing to operate in a dual
operations during transition (customer
support, R&D, etc.)

30. Mythical Concerns
 Myth #1: Still relatively new and
untested
 Myth #2: Just another version of
failed ASP in the past
 Myth #3: What about security of
data?

31. Worldwide Success Stories
 Salesforce.com
 The leader in Web-based CRM business
applications
 Highrisehq.com
 Elegant and Simple CRM
 Basecamphq.com
 A fresh, novel approach to project collaboration
 Flickr
 Almost certainly the best online photo
management application in the world

32. Local Case Studies
 Vietnamworks
 The leader in Vietnam online recruitment market
 Chợ Điện Tử
 Online store, auction marketplace
 Ttvnol.com  Muare.vn  ???
 The biggest online retail market for individuals
and small businesses
 VinaGame
 Online game, online store (123mua)

33. The 2008 Softletter SaaS Report
 The best source of SaaS
information and
statistics for technology
providers. Over 204
pages, only $249.
 The Softletter Software
as a Service Handbook is
another must
purchase.

34. References
 Business of Software: SaaS
 The Challenges of SaaS
 Understanding SaaS Architecture
 SaaS: Architecture Strategies for
Catching the Long Tail
 Google’s search results ;)

35. Questions & Answers