Watching the Software Dinosaurs Die

February 6, 2007 by Kevin Reynolds.

In my last post I mentioned there was a new style of software on the market. It is known as On-Demand or SaaS (Software as a Service). What is SaaS? A good definition is a software application that is hosted by the software company, which the end user accesses via the web. Thereby freeing the end user from the need for on-site servers, installation, maintenance, or support.

A few SaaS stats provided by Bill McNee, CEO of the research firm Saugatuck Technology:

55% of all SMB companies currently have at least one SaaS application running.

61% of North American companies with revenue over $1 Billion plan to use SaaS applications in the next year.

Almost all new software venture money is flowing to SaaS startups these days. NOT traditional enterprise software companies.

Industry experts estimate that by 2010 (just 3 years away) 30% of all software will be delivered in a SaaS model. (Based on the number of new SaaS companies entering the marketplace, I think that this estimate is conservative. I believe the number will be well over 50% of software delivered.)

What do these numbers mean? It depends on where you stand. The consumer is about to score big time, and the traditional software vendors are about to go out of business. It is that simple.

Evolution is happening in the software industry. Something better has come along, and it is better suited to the current consumer environment. Consequently it is quickly making the older products irrelevant and pushing them toward extinction.

Why is the SaaS model thriving? Because it offers consumers the flexibility that they demand.

1) Up-front costs – With SaaS, the up-front costs are minimal. The very concept is to remove all up-front costs and move you to a small recurring monthly subscription. In traditional Supply Chain software, up-front costs can be considerable when you are deploying a large enterprise application. A small mid-level WMS can easily cost over $100,000 when you figure in software, hardware, implementation, support, etc.

2) Implementation – SaaS has no on-site servers, very little (if any) on-site installation, web based training, and can be up and running in days. Traditional software is the exact opposite.

3) Ongoing Management – With SaaS, ongoing management of the system is the software companies responsibility. Not yours. Maintenance, upgrades, enhancements, testing and bug fixes all are handled by the software company. Not by you. You simply log on and use the product. Consequently IS folks tend to have a love/hate relationship with SaaS. If they are currently utilized to the max, SaaS provides them with a solution that will not take any more of their time. But in the end, well.. you can see where this is going. Most SMB’s don’t have an IS staff anyways, and don’t want to hire one to support their Supply Chain Software.

4) Flexibility – SaaS allows you to scale up or down depending on your needs. Need to add another site, no problem. (Web-based makes this easy.) Need to add users for the summer rush. Sign up for a few more licenses and in my case, rent a few more handheld scanners. Need to drop a few users after the rush. Just cancel a few subscriptions. Hate the product and want to try something else? Simply cancel your entire subscription. When you are not tied to a product for years looking for elusive ROI and TCO, all of the sudden all sorts of exciting options open up.

In the end, this is what will destroy the traditional software companies. They simply are not structured to meet this new demand. From a technical perspective, the cost to rewrite their applications to make them a true SaaS product is prohibitive. From a operational perspective, they are addicted to the big invoice and they can’t make a change to small monthly recurring revenue.

Their mindset is just in the wrong place. They say things like people will not want to trust their private data to a outside company. I say why not? A dedicated hosting company will have levels of backup and security far beyond what you have in-house. (560,000 subscribers place their most important customer and prospect information on Salesforce.com) They say speed is an issue. Not usually. From my own experience, I can say that SaaS can provide sub-second response times to transactions. They talk about long-term ongoing costs. I say you can pay $1000 per month for a long time before you reach the $100,000 mark. And at that point, your SaaS software will be as current as the day you subscribed.

What does this all mean to you? Well, going back to my previous blog, here is your way out of that nasty little hole. A Supply Chain Software solution, wrapped up in a affordable little bow. You can get the functionality of a $100,000 plus solution, but with a small monthly subscription fee. Your supply chain partners are happy, because you are giving them exemplary service and providing them with accurate real-time information. And you are happy, because now you have many of the same competitive advantages as the folks who invested in the big-ticket software solutions, but you are not saddled with recouping the capital expenditure.

Give it a try. Just about every area of Supply Chain Software is represented by a SaaS solution. You have options. Something that you didn’t have three years ago. Find an area where a little technology can help you out. Something that is an unending thorn in your side. Then turn to the web. Do a search for whatever you are looking for and include one of the following terms – On-Demand, SaaS, or Subscription. You will be surprised how many options you do have, and how little it will cost to remove that thorn.