enterprise saas: a mismatch made in heaven

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A Mismatch Made in Heaven

The Enterprise and SaaS

9 September 2013

Stanton Jones Paul Schmidt

© 2013 Information Services Group, Inc. All Rights Reserved 2

The Enterprise and SaaS: A Mismatch Made in Heaven

Enterprise CIOs estimate that in 5 years, they expect to spend a majority of their software budgets on SaaS, including ERP.

- Citi Research


The Enterprise and SaaS: A Mismatch Made in Heaven

Enterprise demand for SaaS is surging. Providers are building, acquiring and partnering SaaS platforms at a breakneck pace. What happens when they meet?

Financial

Contractual

Operational

Buyers Expect

Financial

► Substantial savings over on-premises

Contractual

►To negotiate all aspects of contract

Operational

►To dictate “how” operations should occur (e.g., security, support, updates)

Providers are Delivering

Financial

►Premium for up-to-date technology

Contractual

► Short, standardized MSAs and exhibits

Operational

► Standardized operations with focus on transparency of “what” over “how”


The Enterprise and SaaS: Closer and Closer to the Core

SaaS is generally accepted at the periphery of the enterprise; however, this mismatch becomes more acute when evaluating it for the core…

Finance HR

IT

Workforce Administration

Corporate ERP

Email

Business Unit ERP

Talent Management

Spam Management


Why the Mismatch?

Multi-tenant architectures

Single line of code for all customers

Creating a intuitive “black

box” for business buyers

Creates new contracting models

with focus on:

Shared, multi-tenant architectures create huge strategic benefits. However, they are hard to quantify and conflict with traditional enterprise sourcing archetypes.

Cash to fund customer

acquisition and R&D

Standardization in order to scale


Buyers: Where Does ISG See Most SaaS Demand?

Stand-alone platform comparisons, BPO provider platform changes, systems integrator selection and SaaS business case/strategy are in most demand:

SaaS Platforms in Demand Types of Client Demand

Platform-based BPO

• Platform change • Process harmonization • Business case

Platform Comparisons

• RFX & feature comparisons • Negotiations • Business case

Systems Integrator

• Who can implement? • Who can configure? • RFX, financial, negotiations

ISG believes this list will expand significantly over the next five years as leading outsourcing suppliers productize their IP into vertical SaaS offerings.


Sellers: A Stampede to SaaS

The enterprise SaaS market is seeing a tremendous amount of acquisitions, partnerships and IPOs…

Acquisitions

Adoption trends over the next three years support 33% annual growth in SaaS with significant headroom beyond this as long-term SaaS adoption could be 9x current levels. -- Citi Research

Partnerships

IPOs


Barriers to Adoption: Financial

Up-front payments that begin before the system is live, combined with prices that increase over time create sticker shock for enterprise SaaS buyers.

Reality

Buyer Expectation

Cheaper than on-premises

Scale up and scale down easily

Short contract durations

Easy termination

Monthly payments

Pay only for what you use

Price decreases over time

May be more expensive

Baselines make scaling down difficult

Multi-year commitments

Limited to no term for convenience

Up-front / annual payments

Payment begins on signing

Price may increase over time / CPI


Barriers to Adoption: Contractual

Procurement and internal counsel are often unprepared to negotiate SaaS agreements. Leading providers are sticking to their guns and holding firm on terms.

Reality

Buyer Expectation

Contract will be on buyer’s paper

Unlimited liability for data breach

Termination for convenience

Outsourcing SLAs and reporting

“Try before committing”

Transition assistance

Step-in rights

Contract on supplier paper

Limited liability (breach exceptions)

No termination for convenience

Web 2.0 SLAs; self service reporting

“Commit then try”

Self-service data exports

No ability to step-in


Barriers to Adoption: Operational

The standardized nature of SaaS operations requires a movement from “how” to “what”, causing challenges for buyers that want to dictate requirements.

Reality

Buyer Expectation

ITIL-based operations

On-site security audit & pen testing

Dictate data location; no changes

Robust BC/DR; participate in testing

E-Discovery / Legal Hold Process

Dictate maintenance/release window

All data is encrypted

Service health and ops portals

Rely on 3rd party audit(s)

Changes; customer can limit to region

Simple BC/DR based on RTO & RPO

E-Discovery / Legal Hold Functionality

Standard windows/continuous update

In-memory DBs vs. persistent stores


Recommendations: Creating a Match Made in Heaven

Early in the process, be transparent about the SaaS business model, then focus on specific pain points of executive decision makers:

CIO

CMO

CHRO

COO

Inherent modernization

Decrease reliance on IT

Embedded analytics

Early transparency around SaaS business model with IT, Finance, Procurement & Counsel: • Cash up front • Multi-year term • Supplier’s paper • Standard SLAs • 3rd party

security audits

A

B

C

D

Digital platform (prospects, customers, influencers)


Let’s Talk…

► Stanton: linkedin.com/in/stantonjones

►Paul: linkedin.com/pub/paul-schmidt/1/5b1/59b

►@stantonmjones

►@phshss

►Blog on Consider the Source focused on how emerging technology is impacting the broader sourcing market

► [email protected]

►[email protected]

http://www.linkedin.com/in/stantonjones/

http://www.linkedin.com/in/stantonjones/

http://www.linkedin.com/pub/paul-schmidt/1/5b1/59b





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Information Services Group is a leading technology insights, market intelligence and advisory services company, serving more than 450 clients around the world to help them achieve operational excellence. ISG supports private and public sector organizations to transform and optimize their operational environments through research, benchmarking, consulting and managed services, with a focus on information technology, business process transformation, program management services and enterprise resource planning. Clients look to ISG for unique insights and innovative solutions for leveraging technology, the deepest data source in the industry, and more than five decades of experience of global leadership in information and advisory services. Based in Stamford, Conn., the company has more than 800 employees and operates in 21 countries.

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