First grow, then pay

Defined as a software delivery model in which the software is delivered via a
Web browser, what makes the software as a service (SaaS) model popular among
users is that they (users) don't buy the license for the software, but only a
right to use it on a subscription basis.

SMB has been the Holy Grail for software vendors, who earlier did not know
how to tap this segment. Balaka Agarwal, Manager-Syndicated Research,
Springboard Research, believes that SaaS is the most suitable medium to reach
out to the untapped SMB segment that could not afford expensive software.
“Because upfront costs are low, SaaS has broken the entry barrier by offering
low-cost applications that are quite effective. For many small companies, SaaS
will enable them to use software for the first time,” she added.

Springboard Research estimated that the SaaS market in India stood at $27
million in 2007 and is expected to grow at a CAGR of 77 percent till 2010, when
the market will touch $165 million. The momentum of SaaS in India is taking
place in key industries such as banking, manufacturing and telecom enterprises
that have been at the forefront of deployed software adoption in India.

“Currently the SaaS model is gaining traction in both generic applications
like CRM, HR/payroll as well as the more specialized chip industry. Soon ERP,
SCM and other HR applications will also fuel the demand for SaaS in India,” said
Manish Malhotra, Director-Software, Sun Microsystems.

Simply defined

Kiran Datar, MD, WebEx Communications India said, “Also known as 'on-demand
software' or 'hosted software', SaaS allows one to rent web-based software from
service providers. Over the years, it has matured to a high level of acceptance
and usability for a growing customer and is a part of the Web 2.0 features.”

The SaaS model has two fundamental characteristics-the multi-tenant
imperative wherein every customer is running on a single instance of software,
which provides organizations with the lowest total cost of ownership (TCO), and
everyone shares immediate access to the latest innovation. The second is
subscription-based pricing. This allows companies to fund software requirements
from revenue streams (as operating expense) as opposed to the traditional
requirements of large capital budgets.

SaaS in India

“The SaaS model does not require large IT expenditure to make the software
run and so it presents another cost-saving opportunity for enterprises,” said
Chetan Shah, MD, Synygy India.

Even according to IDC, the domestic market for deployed software based on
service-oriented architecture (SOA) grew significantly due to increased
globalization and integration activities that drove the deployment of
web-enabled applications. Further, the availability and presence of a large
number of skilled developers and engineering talent has given a further impetus
to the adoption of SaaS.

Malhotra said that India and China have been ranked as having the greatest
potential in the mid to long-term future by SaaS application vendors. Gartner
Research predicts that by the end of this decade, 30 percent of new software
purchases in Asia Pacific will be delivered via an application utility or the
SaaS model.

Advantages abound

When compared to the licensed packaged software, one of the key advantages
of the SaaS model is that it can help businesses get operations up and running
without breaking the bank.

Ganesh Swaminathan, Head-Office of Innovation, CSC India agreed that SaaS
simplifies the budgeting process since subscription fees are monthly or annual
and therefore upfront “This is a significant benefit for utility companies
especially that are municipally owned, who must finalize their budget in advance
for municipal approval,” he said.

SaaS offers huge benefits for companies in terms of cost where there is a
shift from their capital expenditure to the operating expenditure. Datar said
that SaaS enables customers to have a computing experience that scales up or
down as demand dictates, all with a seamlessness and continuity that minimizes
or eliminates disruption for end users with flexible pricing models. It provides
for seamless interoperability with existing systems, so companies do not have to
re-invest in additional infrastructure, to accommodate SaaS.

On the other hand, while utilizing canned software, companies spend in excess
of four times the cost of buying the software itself due to the overworked and
overloaded internal IT department, a strong case can be made that the SaaS
delivery model alleviates headaches such as capital expense, end-user training
and others.

SaaS also means higher revenue from applications due to volume, quicker
upgrades and platform-independent applications. From the business angle, said
Malhotra, business-to-business integration and collaboration will be easier due
to common platforms and compliance to standards.

Swaminathan feels that with a majority of SaaS vendors aiming for the SMB
market, SaaS applications might not be enterprise ready to service thousands of
concurrent users.

Trends for 2008

With close to eight million SMBs in India, SaaS will see a major increase in
2008. According to Springboard Research, the year 2007 was for creating
awareness among users and 2008 will see the increasing adoption of SaaS.
Globally, more and more companies have realized the importance of SaaS, the
driving reason being the CRM and collaboration.

Datar believes that companies in India are increasingly looking at the
delivery and collaboration of software over the Web. “Although different
providers are approaching SaaS in different ways (SOA, on-demand, etc), it will
ultimately dove-tail into the same pool of software as a service,” he said.

Small to mid-sized companies are also looking at the SaaS model to leverage
the RoI advantage-mainly the low monthly income fees and outsourced
administration that hosted application offer.

Cooper believes that as organizations move toward ways and means to cut the
amount of time and resources spent on IT deployments, platform-as-a-service (PaaS)
will grow in importance. This is especially so in India, where the level of
understanding on the benefits of SaaS is relatively high. “Companies will start
leveraging on on-demand in areas beyond CRM, and PaaS will provide the building
blocks necessary to create and deploy any business application, and allow
organizations to focus on what their applications do, rather than the software
and infrastructure to run them. This is significant to companies which are
looking at lowering their overall IT infrastructure cost,” he said.

From the customer's perspective, software on demand seems to be a very viable
option-a few on-demand providers are offering entirely new Web-based application
or new versions of enterprise requirements (like financials or inventory
control), designed in a new way. These are intended to provide a competitive
advantage by offering faster implementation, different business models, or new
features.

Businesses would want to be able to do more with the existing on-demand
applications-both in terms of customizing the interface, as well as adding
enhanced features. For example, salesforce.com recently announced the
availability of its multi-tenant network-Salesforce to Salesforce. It allows
customers to click, connect and share data with their partners on-demand. For
the first time, customers of salesforce.com will be able to securely connect and
share information among individual salesforce.com deployments with the click of
a button.

SaaS is poised for tremendous uptake in India. Customers have only just
started exploring, and as they experience SaaS, adoption will increase. “Rising
domestic consumption and exports, expanding broadband infrastructure and
increased Internet penetration among SMBs will make India a significant market
for SaaS application,” Shah said.

Vendors are also very keen on the Indian market and 2008 is going to see a
number of players enter the market. Balaka said that Salesforce will increase
its presence, which will really be a big boost to the market.

As India moves toward a web connected world with increasing Internet
penetration through expansion in broadband infrastructure, SaaS adoption will
grow not just in the enterprise sector, but also in the SMB sector. Web
services-dependent areas such as e-learning, online banking, share trading, and
online shopping will also drive SaaS. With more and more software vendors moving
into delivering SaaS, increased vendor activity will lead to market expansion
and hence market uptake.

STUTI DAS

stutid@cybermedia.co.in