Software as a Service (SaaS) is an increasingly popular delivery model for a wide range of business applications. We outline the challenges that traditional software vendors face by not adopting SaaS.

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The inability to recognise re-occurring revenue

By not adopting a SaaS model for licensing software the Software Vendor relies on the ‘perpetual license’ for selling its software and maintenance to clients. This means that a higher price is normally associated with the initial purchase but then the main bulk of purchasing is complete. This is all good when the orders do come in regularly but can you accurately predict cash flow?

In addition, the customer with an On-premise system needs to update their software periodically to preserve compatibility with other technology. If they upgrade one resource it can create a ripple effect that forces multiple systems to be updated. This can be difficult for customers to predict and budget for, creating problems with cash-flow when unexpected upgrade costs are incurred, or causing productivity problems if upgrades are delayed.

Vendors that provide a SaaS model are offering a very flexible way for the customer to buy and just as importantly the Vendor now has a predictable revenue stream on a monthly or yearly basis. The initial purchase may not be as big but the difference is that now they can plan for the future accurately as long as the customer is happy with the service.

Cloud systems are easier to budget for the customer as they remove the variable of future upgrade costs. Subscription costs are known in advance and can be budgeted throughout a fixed term in line with user numbers.

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The longer buying cycle

How many times as a Software Vendor have you found yourselves in a position where you are waiting for different groups of people to make decisions? and so the buying cycle goes on and on.

How good would it be for you if you could remove the IT department from much of the decision process to speed up your sale? Do you not think the business owner would like to get on with things more quickly than being told that IT cannot spare the resource due to other more critical projects etc?

Under the SaaS model the software is hosted by the vendor, they take on the responsibility for maintaining the software and upgrading it, ensuring that it is reliable and meeting agreed-upon service level agreements, and keeping the application and its data secure.

While some IT people worry about security outside of the enterprise walls, the likely truth is that the vendor has a much higher level of security than the enterprise itself would provide. Many will have redundant instances in very secure data centers in multiple geographies.  Also, the data is being automatically backed up by the vendor, providing additional security and peace of mind. Because of the data center hosting, you’re getting the added benefit of at least some disaster recovery.

So, if you would like a simpler sale, SaaS is the right model for you. Little IT involvement from an evaluation, management or support perspective. Save your IT staff time for work on the systems they know best.

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Competing in a market place that has moved on

The traditional Software Vendor if not making a move to SaaS will struggle to survive as SaaS is rapidly becoming the norm. Are you finding any of the following challenges with the new competition you face?

We like your software but ABC company only charges £50 per month

Going with your competitor means we do not have to install on site and manage the system internally

Should we have an increase in numbers, we will need to add more software, hardware and people costs.

The SaaS market continues to grow quickly. In fact, in its report “Forecast: Software as a Service, All Regions, 2010-2015, 1H12 Update,” Gartner predicts the market to be $22.1 billion globally by 2015, up from $12.5 billion in 2011.

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Lack of control in customer implementations

As a Software Vendor do you ever think to yourself how good it would be if you took responsibility for the customer implementation? How many times does a customer Query / support call come from the way that the implementation has been configured by the customer.

Legacy server-based systems require upgrades to the latest version of the software. This often results in companies having outdated technology and missing updated features and functionality unless they purchase and install the latest version.

With cloud-based systems, updates with additional features and functionality are applied seamlessly many times per year. These include entirely new features, third party integrations, and enhancements to improve the client and user interface experience.

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Less value in scale and flexibility of customer solutions

Clients that are planning massive growth or are subject to mergers and acquisitions need to be able to rapidly scale when needed and not be subjected to large costs and long timescales to implement.

Traditional ‘on premise’ solutions provide limited scalability and only that which has been specifically planned and invested in. If increases in capacity or number of users are required, this can mean significant increases in cost and lengthy projects to implement it.

Scalability is simple with a cloud provider, all the Software Vendor has to do is inform their provider of the change in requirements and this can then be made to them almost immediately.

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How Vendors can reduce SaaS costs

Are you a Software Vendor that has moved your product into a SaaS environment with a hosting provider but you are struggling with the complexity and running costs of your service?

Most Software Vendors that are running public cloud for SaaS will find at some stage that they would like to control / contain their costs to be able to better predict their profit margins.

A study by a group of companies that sell products to build private clouds has determined a price at which it claims it is less expensive to operate a private cloud compared to using an IaaS public cloud.

A report from the vendors – which include a collocation provider, a cloud management vendor and a network operator – attempts to address a question many organizations may be considering: When is it better to use a public cloud versus a managed hosting or collocation environment? The case study finds that if an organization is spending more than £5000 in public cloud each month, then it can be cheaper to operate a private cloud.

IDC Analysts say it’s difficult to put an exact figure on when a private cloud will be more cost effective than a public cloud; there are just too many factors to consider like the type of workload that is being run, how much the infrastructure is being used, how highly available it has to be, if regulatory or compliance issues need to be addressed and if there are any performance or latency issues are all factors that could influence the costs.

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