Why ISVs are leaving money on the table on the journey to SaaS. | Itoc

Why ISVs are leaving money on the table on the journey to SaaS.

Written by Richard Steven, Co-CEO | Brisbane.

Posted September 30, 2019

Evolution of software delivery models

In this blog I’d like to provide some insight into the evolution of software delivery models that we’re seeing in our customers across Australia and New Zealand and why ISVs are leaving money on the table as they build out SaaS offerings. In most ISVs minds, the progression from installable software to SaaS is clear.  They need to invest in building a compelling SaaS offering and fast.

But is it really as simple as that?

In the meantime, are new deals being lost and is money being left on the table? Almost certainly…

Is your ISV in the Disruption Danger Zone? Read on to find out and how taking action now could win you more business and open up new revenue streams.

Software is dead (kind of).  Long live SaaS.

We’ve all heard the stats...

Software-as-a-Service (SaaS) is becoming the de facto delivery model for core business applications with customers welcoming a myriad of incredible benefits such as lower initial costs, painless upgrades and a higher level of integration.

And it’s not just startups…  By 2019, more than 30% of the 100 largest vendors' new software investments will have shifted from cloud-first to cloud-only.*

With investment in on-premise software almost at a standstill and with 73% of organisations saying nearly all of their apps will be SaaS by 2020 it’s clear that the tipping point for SaaS has long since passed.**

If you’re not providing an “as a Service” offering your likely losing business and market share every day.  Not good.

Check out our whitepaper for key success factors for your online business! 

What we see at Itoc

We work with a wide range of software vendors from more traditional ISVs that provide customer installable software that we deploy on the cloud (for end customers) to fully cloud native, multi-tenant Software as a Service providers - some of which are now providing their services via a combination of PaaS / microservices - completely serverless platforms.

The typical ISV progression happens as below - please note the “Pseudo SaaS” stage.  This can be particularly important especially for enterprise software providers that may be at risk of losing customers in the Disruption Danger Zone which I will illustrate later in this post.

Of course startups and disruptors typically don’t have a legacy of technical debt and existing customers to support and so they normally launch straight into the true saas, cloud native model.

Managed "on-premise"

  • Dedicated tenancy
  • Significant onboarding time and cost
  • Limited repeatability
  • High management overhead
  • Lack of agility
  • Traditional licensing & billing model
  • High costs all round
  • Uncompetitive vs SaaS

Pseudo SaaS

  • Existing code base with smart cloud architecture/automation
  • Dedicated tenancy
  • Reduced onboarding time and cost
  • High repeatability
  • Lower management overhead
  • Increased agility
  • SaaS licensing & billing model

True SaaS

  • Largely new code base with smart cloud architecture/automation
  • Mobile first
  • Simple API integrations
  • Multi-tenancy
  • Minimal onboarding time and cost
  • High repeatability
  • Centralised management overhead
  • Agility
  • SaaS licensing & billing model

Disruption Danger Zone

What is it and why does it matter so much?

This typically occurs when an existing ISV, often with large market share is challenged by startup disruptors that seek to woo customers with a SaaS product offering slick online user interface, ease of use, minimal management, access to an API and a host of other compelling features.

Often the challenger does not have full functional equivalence but customers will often choose the simplified MVP SaaS experience over the legacy installable application and all the associated issues with licensing and management etc.

This presents a customer attrition issue for the ISV during the race to build a compelling SaaS product, often unable to match the pace or experience provided by the challenger.

How to win business and thrive through the Disruption Danger Zone and beyond.

Customer’s want an “as a Service” model now, not in two or three years time, and that’s where the Pseudo SaaS model comes into its own.

Pseudo SaaS

By taking the operational management away from the customer and providing the application back as a service, the customer gets a lot of the SaaS benefits today.  

This also opens up your software to customers that previously did not have the capability to self-host and are SaaS only - that’s a new potential revenue stream.

But this is not achieved simply by providing a hosting service in the traditional sense.  That would be cost-prohibitive and a massive undertaking.

Rather it is achieved by applying cloud and DevOps practices such as Infrastructure as Code, using smart automation and configuration management and augmenting the application stack with aspects such as exposing an API.  In this model the technology stack can take on some of the attributes of a SaaS platform such as:

High repeatability and centralised configuration control

By taking the deployment and operational side back from the customer it’s possible to template, standardise and carefully manage configuration of the application environments across the full customer lifecycle from Presales to Production.  This results in a host of benefits from reduced onboarding time and cost (think days not weeks) to a reduced requirement for ISVs to perform technical validation and certification across a myriad of infrastructure and application stack components.  These points alone often provide a huge opportunity.

Single code base & increased agility

In a SaaS model customers expect to bend their business processes or requirements to fit into the product.  Albeit with extensive configuration.  By moving into this model there is an opportunity to consolidate and simplify the codebase and development activities. This will reduce effort, cost and ultimately allow the ISV to ship faster.

SaaS licensing & billing model

This is a key aspect that not only satisfies the customers’ procurement preferences but also opens up new revenue streams.  In the traditional software model the customer buys the software and then pays an annual maintenance contract.  In this new model the customer is paying for a service, a business outcome - that offers intrinsically more value and can be sold at a premium.  Furthermore, if the ISV is using partners in a buy to sell relationship then a simple mark-up on the partners pricing will deliver an instant and significant new revenue stream. 

How do ISVs build out and operate the Pseudo SaaS model

As I’ve said the shift in the business model from software vendor to an “as a Service Provider” is significant but with the right guidance and partnership it’s very achievable.

The two main options are 1) build the internal capability or 2) work with a next generation cloud partner such as Itoc.  

If you would like to explore how these options stack up and discuss how we’ve already successfully delivered this model I’d love to hear from you so please contact me today.

It will pay off to do your research now and save yourself time and significant problems down the track. Learn more about the types of business and operational challenges the right NextGen MSP partner can help you solve in our whitepaper. We have also created a checklist to help you evaluate the right MSP for you. 

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** State of the SaaS Powered Workplace Report

Richard Steven

Co-CEO | Brisbane

Deliver a successful SaaS platform.