There has been quite a number of PAAS vendors who have made news recently. Force.com is the posterchild ofcourse along with the traditional Oracle and Microsoft platforms. But the new entrants BungeeLabs, Apprenda, Zoho and Etelos are crowding up the PAAS space quickly though there seem to differences in what each are offering.
Are we going to see enterprises take on PAAS in a big way? Already we have impressive examples from Starbucks, Dell, Dolby etc. on Force.com. So it seems like there is quite a bit of momentum in this space.
Perhaps one of the biggest play in the PAAS market might be Google. They have recently announced their App Engine solution. Check this video that describes their solution. With the ginormous Google infrastrcuture I would think they will be leaders in this space pretty soon.
Not to mention the development platforms offered by Facebook, MySpace and the likes of LinkedIn. These are very likely to be very important developments in the way enterprise and consumer applications are going to be delivered in the near future.
Not to be left behind, Microsoft offers its Windows Live Development Platform which is quite a powerful platform in itself. Many of the new entrants seem to be discounting the power of Microsoft to lead in the market eventually as it has done in the past. Today they announced the Windows Live Mesh, which is Ray Ozzies pet project and seems to be a Web 2.0 version of his Groove product.
Together Live Dev and Live Mesh could be head to head with Google’s offerings. Eventually these are the two companies that are likely to be the dominant forces in the PAAS space. It remains to be seen how IBM, SUN and Yahoo! plays in this space.
Attended the SaaS Economic Summit last week and there were some interesting sessions that talked about the economics of SaaS.
Lauren Kelley, CEO, OPEXEngine presented some operating benchmarks on SaaS companies that was aggregated from data OPEXEngine collected from SaaS & non-SaaS companies. Some of the key points from her presentation:
She quoted Will Price’s data summarizing that SaaS companies take 1.6x longer to get liquid, 3.65x more capital and 1.75x more revenue to hit profitability versus traditional license software companies.
Growth rate of SaaS companies are much higher vs traditional software companies however, the SaaS companies are struggling to reach profitability. Her explanation was the SaaS companies have higher per subscriber costs due to the overheads related to reliably hosting and managing a SaaS application. The cost of revenue as a percentage of revenue recognized is 30-40%.
A key conclusion was that in the current economic scenario there will be pressure for SaaS companies to attain profitability sooner at $50M rather than $70-$100M. The other key data was that majority of SaaS revenues are from US so far. But EMEA and APAC is likely to be growth markets this year.
Will Price’s blog pointed me to a very interesting post by Lars Leckie titled Magic Number for SaaS companies that summaries a talk by Josh James that presents a metric for assessing the health of your SaaS company based on MRR growth rate. If you are running a SaaS company or planning to launch a SaaS product then you should check this out.
Todd Gardner, CEO of SaaS Capital talked about funding the SaaS business. He had the chart shown below that shows the cash burn for SaaS companies initially is more requiring higher capital investment. His presentation is available here.
The other interesting presentation on SaaS Economics was by Jeff Kaplan of Thinkstrategies. One interesting slide he had was the SaaS Supply Chain opportunities where he is showing offshore software engineering engineering firms as key SaaS technology enablers.
Based on these data points and economic scenario, SaaS Product Engineering services companies especially with offshore presence will be a key partner for companies who are transitioning to a SaaS model. It is likely to be applicable for existing SaaS companies in attaining profitability sooner by leveraging offshore SaaS delivery centers for scaling up as well as continually grow their SaaS applications. Offshore SaaS engineering partners may also be able to play a key role not only in internationalization of the SaaS products but also in penetrating the global markets where many of the offshore players have presence in selling and supporting applications.
One of the other interesting conversations I had while at SaaSCon was with couple of gentlemen, one from a company that offers quality process documentation solutions and the other from a leading investment banking financial applications software maker.
In the case of the quality process documentation company, they went from an on-premise model to a multi-instance model to potentially transition to a complete SaaS solution. However, in their case some of their customers are still interested in an on-premise model, especially the larger clients.
The financial apps company has currently products that are in the traditional on-premise mode and this person was responsible for assessing the need and feasibility of transitioning to a SaaS model. Due to the nature of their products that handle sensitive financial data, he was not sure if SaaS will be an acceptable model for their clients in reality. Even though there was a lot of interest from users in Saas & Web 2.0 as well as being able to mash-up data from their application.
These scenrios seems to indicate that SaaS maybe coming full-circle from going from an on-premise model to SaaS and now companies like Sugar CRM are offering the Sugar Cube as an on-premise solution. For on-premise software companies who are on the fence, it is inevitable that moving to SaaS will eventually be the right approach because it will widen their market reach to SMBs and capturing this long tail market. There is a very interesting and detailed paper on this topic titled “Application Marketplaces and the Money Trail” by Microsoft’s Fred Chong. The SaaS on-premise appliances will help them still address the needs of their larger clients who insist that their data is hosted on premise.
