Business Web 2.0: The Rise of Software as a Service Gavin Christensen

Business Web 2.0:
The Rise of Software as a Service
Gavin Christensen
Tyler Baldwin
Niraj Zaveri
Kapil Chaudhary
Is Software Dead?

Marc Benioff
Overview
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Evolution of SaaS
Traditional software vs. SaaS
Market Trends
Hypotheses
Next Steps
Evolution of SaaS
MIT & IBM
develop timesharing on
Mainframe
computers
1950
1960
Mini computer
enables more
users to have
computing
resources
Source: William Blair Analyst Report, 9/27/04
Ethernet
connects
PCs
together
1970
1980
1990
The web
enables hosted
applications
(e.g., ASPs)
2000
Client-server
computing
becomes the
predominant
model for
software
applications
2006
SaaS is the Future of Software

“[SaaS] affects everybody who uses software, it's a
dramatic sea change." states Gates when
describing the new approach in how the company
develops and releases software via its live software
effort

The enterprise is up for grabs again

Web 2.0 technologies enable

Web platforms will enable applications that address
the long tail
SaaS Key Characteristics



Network-based access to, and
management of, commercially
available (e.g., not custom)
software
Activities that are managed from
central locations rather than at
each customer's site, enabling
customers to access applications
remotely via the Web
Application delivery that typically
is closer to a one-to-many model
(single instance, multi-tenant
architecture) than to a one-to-one
model, including architecture,
pricing, partnering, and
management characteristics
Need fatpipe + Ajax-type applications
Value Proposition
Key Benefits

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Less pain – primary pain with
traditional software are cost, time,
risk e.g. 28% of CRM
implementations failed to go live
(AMR Research)
Management economies –
manages and security updates,
provisioning, license optimization,
scalability
Lower up-front costs – typically
enterprises face 10X license cost
for full implementation, initial
burden is typically much less witih
SaaS
Remote access made simpler
especially with Ajax
Is Software Dead?
SaaS Model
Traditional Software Model
• Can choose best of breed
• Potential influence on future functionality with vendor
• Remote access facilitated
• Speed potentially limited by bandwidth, shared
server setup
• Potential to customize to exact specifications
• Unlikely future influence on vendor
• Remote access potentially difficult
Implementation
Speed
• Fast due to low customization, low integration, and
potential for gradual rollout
• Still need to adjust business processes
• Slow due to customization, integration and drain on
Internal IT resources and/or consultants
Integration with
Legacy Systems
• Limited integration available
• Integration can be facilitated by XML or
other web capabilities
• More thorough integration and customization
can slow future maintenance and upgrades
• Reliance on vendor
• Assess data center security, systems and operations
• Content / data control an issue
• Vendors must provide security or else out of business
• For smaller companies, vendor security could be better
• In-house control of security
• Control of content and data
• Must provide own security
• Increased availability of internal IT resources
• Revenue center
• Training
• Cost center
• Need to ensure alignment of technology with business
processes, staffing, etc.
• Subscription, commission, advertising, or a hybrid
• Typically variable model, with small setup fee and
monthly payments
• Upgrades typically included
• Can change or cancel contract if solution doesn’t work
• Easier to budget
• Low implementation costs
• Hardware scalability
• Large upfront capital investment with subsequent
purchases of updated versions
• Opportunity for long-run economies of scale
• High implementation costs, often including consultants
• High, maintenance and overhead costs with internal IT staff
• High switching costs
• Harder to budget
Functionality
Security and
Reliability
Organizational
Impact
Total Cost of
Ownership
Source: “On Demand: The Tectonic Shift in Computing.” Maynard, J., et al. CSFB. January 2006.
Market Potential
$14.0
$12.4
$12.0
$10.8
Worldwide
$10.0
$9.0
$8.0
$6.9
$6.0
$4.9
$3.3
$4.0
$2.1
$2.0
$0.0
2004
Source: William Blair Analyst Report, 9/27/04
2005
2006
2007
2008
2009
2010
34%
CAGR
Key Players
Software Giants
The Web Giants
The New Kids
on the Block
The Outsiders
Hypothesis 1: Platforms will
enable the long tail
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Will a dominate platform emerge? Very high stakes game which we believe that all the major players will seek to
play
The following are early movers in the competition for the creating an ecosystem for Saas or “On-Demand
applications”
Partners
ISVs & Customers
CRM
HR
Ecosystems
ADP
Hypothesis 1 Long-Tail Example:
Symbiot
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Symbiot
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What they do: Consolidating
sales, supply chain management,
and best practices for
independent commercial Pest
Control, Landscaping and SnowRemoval industry
900 partners avg. revenue $5 MM
Business issue – need
specialized financial and
business, revenue management
process applications focused on
“Green Industry”
Solution: Built platform for HR,
labor management, finance,
accounts receivable etc on top of
Appexchange
Symbiot
Partners
CRM
HR
ISV
Symbiot
Hypothesis 2: Rapid movement
towards On-Demand model
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SaaS vendors growing at the expense of traditional software vendors
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Oracle, SAP, Microsoft all launching on-demand product
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Traditional software still captures 90% of revenue but
 Growth slowed in 2005 to 4.9% (double digits in the 90’s)
 IDC predicts SaaS will grow 48% from 2005 to $4.9B in 2006
Greatest in-road in CRM market: On-demand rose from 5 to 9%
Companies say these are their fastest growing offerings
Oracle has over 600 engineers working to better deliver this offering
Siebel’s failure to adopt: Revenue ($1B-$487M), Stock ($100-$8)
Challenges large, traditional players face:
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Operational and Cultural
Financial: Accounting practices to accommodate differing revenue streams
and expectations of analyst community
Hypothesis 3: SaaS only at the tip
of the iceberg
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2004 – Initial Buzz
2005 – Initial implementation
2006 – Reaching mainstream
Hottest IT category in VC
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Emergence of New Top Players:
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Rocketed by 20% to $1.1B (VentureOne)
First-time investments soared to 52% to $273M
Overall software down 10%
Salesforce.com, NetSuite, RightNow, SugarCRM
Next Wave starting:
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Zimbra, Vettro, Jamcracker, Rearden Commerce, Five9,
DreamFactory
Next Steps
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Test hypotheses
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Case Studies
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Salesforce.com, Google  Platform
VCs  consumer & enterprise investment opportunities in
SaaS
Dreamfactory  tools for On-demand
Thinkfree  On demand office tools
Zimbra  On-demand enterprise email
Explore impacts/correlation with BPO