Transitioning from On-Premises, often referred to as deployed or Legacy Software, or from Application Service Provider (ASP), to Software-as-a-Service (SaaS) is much more than a simple delivery model or technology change; it requires a wholesale change in company mindset. To be successful in SaaS, you must stop thinking like a software company and start thinking like a Service Company. You are now solving problems, not selling software.
SaaS Business Considerations
Along with the fantastic opportunities that SaaS brings with it, from the variety of revenue model options to the improved customer experience, come the potential pitfalls that all vendors should be wary of, but especially those migrating from On-premises software.
SaaS is more than just a technical delivery model for software; it also includes the business model. Often this business model involves some type of subscription or usage-based revenue model. This is often much different than the licensing and maintenance revenue model leveraged by the On-Premises product the vendor has been selling. This means that at the accounting level, revenue recognition will be different. Sales force compensation will also be different, and sales and marketing will have to take a different approach than in the past.
Additionally, since the SaaS application will now be running on servers, either at the Vendor's data center or "in the cloud" somewhere and not deployed to the clients' data center or desktop, the operational expenses for the vendor will go up. In a well-planned, and well-run, Software-as-a-Service business, these operational expenses are easily controlled and impact revenue in a minimal way. However, if operational efficiencies are not considered and economies of scale are not leveraged, the additional overhead can become an unbearable burden on the SaaS vendor.
SaaS Technology Considerations
Switching to SaaS requires changes to the overall technology model of your application. In many cases, applications must be rewritten to support the new model with the only the business rules, algorithms, etc. being "ported" to the new product.
Some on-premises vendors try to take a "short cut to SaaS" by loading their software onto a server and provide access to it via Citrix. Some will package the application onto a physical or virtual server and allow access to it over the web on a client-by-client basis. These are not SaaS and will ultimately fail, or at least fail to thrive, due to the inability to leverage true economies of scale as well as operational and support issues.
Those non-SaaS techniques for distributing software over the web are reminiscent of the failed Application Service Provider (ASP) model of the late 1990's. Why was ASP a failed proposition? Because at its core, it does not scale. It does not scale due to both business model (licensing, support, etc.) and technology issues. Even if this type of delivery method for software worked well and scaled, it still lacks the benefits of the Software-as-a-Service delivery model at the business level.
What about Both On-Premises and SaaS or "The Hybrid Model?"
Sixteen Ventures generally does not recommend that a vendor offer both an On-Premises and a SaaS "version" of their product. The main catalyst for this recommendation is that on-premises and SaaS applications often have competing value-propositions. This can cause a significant misalignment in sales and marketing. Also, it is often quite difficult to maintain two, often very different, code bases and keep them aligned on a feature-by-feature basis. There are many other reasons why this is difficult at best and a recipe for failure at worst.
There are exceptions, but if you are considering this, it is definitely worth a detailed opportunity assessment due to the significant risk associated with this approach.
Contact us today if you are switching to SaaS and we can discuss how Sixteen Ventures can ease the transition and help you reduce the chance of failure and increase the chance of success. Contact us on the form to the left, or call us at (972) 200-9317.