The Impact of the SaaS, Cloud Evolution on ISVs

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By Colleen Smith

A Cloud Evolution

The rise of Software as a Service (SaaS), and more recently, the cloud, has brought both technology and business changes for service providers, developers and users – but also for Independent Software Vendors (ISVs).

The SaaS business model enables ISVs to reduce costs, enter new market, and launch and run a future-oriented SaaS business in the cloud. But transforming an existing on-premises application into reliable, scalable software capable of supporting many customers simultaneously is not a small thing – and the business changes are harder and still ongoing. In essence, the delivery method has changed, and therefore the business model of selling SaaS and cloud services needs to change as well.

A New Way of Doing Business

While traditional software vendors are primarily concerned with application functionality and their customers are responsible for operating and managing the respective environments in which they run the software. A cloud vendor, on the other hand, needs to be equally concerned with operating and managing the environment that supports all its customers.

SaaS has been around long enough that most ISVs understand this and the basics of what SaaS brings - the benefits of a scalable and flexible, multitenant computing platform, alongside the risks and challenges such as legislation, security and performance. The right SaaS/cloud enablement partner will help maximize these benefits and navigate the challenges.

ISVs tapping into these benefits are able to offer applications out to multiple customers, gaining economies of scale while allowing customers to only pay for what they use. They also have the ability to gain access to computing power when they need it –and only pay for what they use and need – and with the right deployment platform, it can be done in a public or private cloud environment.

Furthermore, doing this through the cloud also improves time to market and productivity, allowing ISVs to quickly build and deploy new cloud applications and services.

A New Business Model

This shift is happening throughout the software industry, delivering rapid technological changes, with new innovations and capabilities coming all the time. The introduction of a new computing paradigm (cloud) combined with reduced budgets, means that long-term licenses aren’t attractive to most customers anymore.

As a result, a new approach to selling means there needs to be a change to the way an ISV prices and markets its solutions. Similarly, moving from a traditional on-premises software business to a SaaS business can cause a significant amount of disruption to an established ISV.

One of the key changes to the business model is the shift away from this traditional licensing model, which has peaks and troughs of income, to a more stable and constant revenue stream.

This change can also help cut churn rates, as there isn't the periodic 'big spend' crunch time that comes with traditional relicensing contracts. However, this also can make additions and up-selling harder as these one-offs break the cycle of regular and predictable monthly payments.

New Requirements

From a delivery perspective, the move to SaaS and the cloud brings changes to the business requirements too. As such, priorities need to shift when looking at developing a SaaS application.

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