Impact of Software as a Service on ISVs

I love seeing people start to undertake research work in computing areas. There aren’t nearly enough. Oscar Trimboli told me today that he’s undertaking predoctoral work at present and his topic is the “Impact of Software as a Service on Australian Independent Software Vendors”. Oscar is keen to recruit ISVs who are either traditional ISVs or SaaS (Software as a Service) ISVs (or a combination) that have their management and marketing decision making based in Australia. If that sounds like you, I’d encourage you to get in touch with Oscar (Oscar_trimboli @ hotmail.com) and answer his survey questions. Alternately, if you have strong opinions about this space, I’m sure he’d love to hear them.

A description of his research topic is as follows:

RESEARCH SUMMARY

Software as a Service (SaaS) is a fundamental change in the architecture of software development and distribution model that will change the way Australian Independent Software Vendors (ISVs) compete locally and globally.

SaaS is an exciting opportunity for local ISVs and simultaneously the most significant threat to the industry in the last 30 years. SaaS rapidly increases the competitive intensity of firms operating in the Australian market place as global ISVs seek to expand into the Australian market. Conversely it offers an important export opportunity for the local industry if ISVs can leverage the impact of the technology and distribution discontinuity created by SaaS.

There is a significant national economic impact through employment growth in the information economy and associated industries especially telecommunications. As a result, there are significant barriers and costs which will limit the effectiveness of Australian ISVs exporting such as the impact of national broadband policy and natural barriers to competition such as national taxation and business processes.

SaaS, as a new distribution model impacts the sales and marketing mix of ISVs. Traditional methods of face to face sales and marketing will adapt to the changing nature of the medium and the ability of prospective customers to preview the software they will actually use immediately rather than the traditional approach of presentations and demonstrations via sales and marketing staff. In parallel, ISVs paid upfront commissions to their sales organisation to access ongoing maintenance revenues from their customers.

Overall capital allocation to research and development will alter through SaaS along two major dimensions. Traditionally, ISVs have maintained multiple versions of their software as their customers where running historical versions. Customers paid annuity maintenance to the ISVs to in part help fund research and development for future versions of software and partly to fund employees which support older versions of software.

Conversely, SaaS enables the continuous maintenance on the single and most current version of the software. Customers will always be using the most current and up to date version of their product via SaaS and as a result research and development will be focused on the most current version of the product exclusively.

Capital allocation beyond research and development, focused on human and physical resources will alter the business models of ISVs going forward as they need to invest beyond software into data centres and networking competencies.

The business model via SaaS can explore alternatives in their revenue models including using upfront licensing revenues, subscription based revenues and advertising revenue based models.

SaaS is the most recent technology and business model dis-continuum facing the local ISVs, which the industry faces each decade. Very few Australian ISVs have survived the past 3 decades and the industry has a strong history of generating new ISVs which are successful during their decade.

Finally, the growth of SaaS is a function of end user adoption and these users currently have not be totally embraced SaaS applications due to security, reliability and availability concerns, despite the low cost of entry of the new SaaS applications.

2008-04-21