Thursday, January 28, 2010

Keys to SaaS success

Had an interesting conversation with Juergen Biffar, co-founder and technical guru at German imaging and DM specialist DocuWare the other day. His company has just committed $1 million Euros, in addition to its regular R&D budget, over two years to development of Web-based technologies. Half of this money is committed to SaaS development, which Biffar views as an important method of delivering software in the future. He is taking the attitude that SaaS competition is going to come from start-ups and other people, like Google even, who are not in the DM industry today.

He said one of DocuWare's board members commented that it has been said that it is impossible for a vendor of traditional software to make the successful transition to SaaS, to which Biffar replied that he plans to be part of the first one. Our discussion led to trying to come up with successful SaaS ventures aside from Of course, companies like Digitech and Filebound have had some success in our industry, and we recently talked with a Web-capture ISV, CAPSYS, that said about half its new sales are SaaS-oriented. Anyhow, going over my notes led me to a Google search on "SaaS success stories," which yielded this article detailing one analyst's ideas on why traditional software vendors have trouble succeeding at SaaS and what they need to do. I thought it might prove useful to some of my readers.

Happy trails.


Anonymous said...

Yeah well a Kodak service guy has been here for about five days, four hours a day, trying to repair our NEW BBH nGenuity scanner.

DIReditor said...

I think you meant to post that comment after the last post - but that is not good. Kodak was BBH's preferred service provider even before the acquisition. How long have you had the nGenuity?

Anonymous said...

I'm still a believer in traditional document management solutions and providers.

It's tough enough for CFOs, etc. to rid themselves of paper, let alone storing their data externally?

DIReditor said...

Yeah, but once you make the step to go digital, how much bigger of a step is it just to virtualize your data storage? Actually, the two steps could potentially go hand-in-glove, as going straight to SaaS saves a user the trouble of even having to account for in-house image-based storage.

Ron McClellan said...

Your comment regarding traditional vendors struggling to migrate to SaaS may ring true for most traditional software companies. However, at Hyland Software, we have always had a robust and growing Hosted/SaaS practice. Our thousands of banking customers are largely hosted; in 2003, we started our OnBase OnLine solution to further commit to online delivery as a viable and advantageous approach to ECM.

That commitment has paid off; in 2009 over 20% of Hyland's new customers embraced the SaaS model.

With a rich, web based UI, a go-to-market strategy with our reseller channel, and a world-class, audited infrastructure and a certified business process...OnBase OnLine has thrived...with an over 50% annual CAGR since its inception. We are growing AND we are profitable...with continued growth forecasted in the coming 36 months.

With a new Data Center opening last year in the European Union and additional geographic expansion in the Asia/Pacific region and South America planned in 2010 and 2011, our growth in the SaaS space will not slow down.

The key to our success is the choice we can offer customers. Hyland sees value in both on-premises and SaaS deployment methodologies. That means we deliver our world-class ECM software how the customers wants or needs it. It also allows us to have a growing and profitable important consideration when selecting a vendor. The pure play SaaS vendors in our space are not growing and are not profitable (a scary thing for customers worried about accessing their hosted data).

Hyland's consistent growth in both on-premises and SaaS, and our continued global expansion is an indication that Hyland Software has been successful in making that the delight of our customers and our partners!

Ron McClellan
Director, OnBase OnLine & Hosted Services

DIReditor said...

Thanks Ron, I knew Hyland has been having success with an SaaS model, but you seem to be the exception rather than the rule.

paul s said...
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paul s said...

The board member of DocuWare raises a very serious challenge for the traditional on-premise software vendors. How do you convince your board, executive teams and shareholders that your top line revenue is going to take a hit for the next 3 or 4 years while you build out and chase this monthly recurring revenue model?

If you are a channel and direct sales organization, how do you deal with slicing up margins and setting suggested retail prices? Is the software you have been selling for years as on-premise work well or at all in a software as a service environment? Who is going to host the applications? Are you going to build out a datacenter, or co-locate? Who is going to maintain it and support it? Direct sales model, channel or both?

Here is another nagging issue. The original business models of the usual suspects were designed around transactions that were measured in 25/50/100k increments. How do you revamp your compensation plans for your direct or indirect sales and technical teams when revenue is now measured in hundreds or thousands of dollars per month per transaction, vs the traditional avg sale that ranges somewhere between 25-100k?

Assume for a moment the organization decides to embrace the SaaS business model. Now as an organization with all that legacy overhead, you are now faced with trying to serve two masters: Do I sell the reoccurring software as a service offering to my customer because it is better for them and for long haul of the company...OR, do you push the on-premise offering because you recognize the revenue NOW and get paid in full N30-N60. In other words, do I wait for 3 years to realize the same revenue in a SaaS model that I could realize in this FY.

If you are a sales rep, getting heat from your sales manager, who is getting pressure from the chiefs at the top for quarterly revenue recognition to make number, keep the board and shareholders happy... well, you can figure out which way the rep is probably going to steer his customer.

It is all a rather tough pill to swallow but these issues are in fact the stark set of new realities software companies are faced with when contemplating transitioning from an exclusive on-premise model to a software as a service model.

Impossible to overcome? No but does raise a new set of difficult business challenges. It will be all rather interesting to watch how this all shakes out in the end.


Paul E. Szemplinski
CAPSYS Technologies

paul s said...
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paul s said...

Nearly 9 months from the date of your original post, Software as a Service sales in the Enterprise Content Management space continue to trend strong - both in the area of document capture (via CAPSYS Capture) and content repositories (such as Hyland and FileBound).

The primary driver behind the SaaS adoption rate - at least on the capture side is lowering ongoing costs. As we are all keenly aware, budgets continue to be tight, LOB owners have projects they need completed, but budgets continue to be slashed.

In the Global 2000 clientele, we have learned that the real problem - thus opportunity - with the costs reach far beyond the annual software and hardware maintenance fees.

Look at the Internal IT charges being assessed by the 3rd party outsourced large SI's. They charge 10-15k per server annually to maintain and support the server infrastructure (patching, hotfixing, rebooting, monitoring, managed services essentially). If you have a 3 or 4 server capture environment - BINGO. You can save the LOB owner 30-40k on top of the annual software assurance dollars. To boot, they are typically generalists and inadequately equipped to serve the needs of the business.

Inevitably, the SaaS model does save the client significant budgetary dollars, they actually can realize and achieve a distributed, centralized capture model w/o breaking the bank due to the alternative licensing model: no click charges, no seat licenses, etc.

Certainly, SaaS offers up a new set of challenges with integration, firewalls, security, etc. All those challenges - like any emerging technology - can usually be overcome and will continue to get better as technology advances.


Paul E. Szemplinski
President, CAPSYS Technologies