According to Forrester’s Forrsights Combined Budgets and Business Decision-Makers Survey, Q4 2012, 61% of Asia Pacific (AP) organizations are currently using or actively planning to implement software-as-a-service (SaaS) for collaboration, which puts AP adoption ahead of both North America and Europe (see the figure below). I believe that the increased rate of adoption of cloud-based collaboration services is mainly due to three key factors:
The consumerization of IT, changing social behaviors, and AP end user communication preferences are compelling organizations to consider deploying enterprise collaboration solutions. To this end, cloud collaboration services are gaining traction among organizations seeking to extend collaboration capabilities to their employees, while also minimizing the costs associated with both hardware and operational expenditures.
The easy provisioning and simplified maintenance of cloud-based collaboration services allows organizations to quickly operationalize new sites and individual accounts with minimal IT effort.
The strong focus from service providers like Orange Business Services and Verizon Business in building and strengthening their regional capabilities in cloud collaboration services is leading to an abundance of service options for customers that are competitively priced and packaged to align with their requirements.
I’ve noticed a growing trend among Asia Pacific organizations over the past 6-12 months: complete IT resistance to SaaS has steadily given way to more pragmatic discussions, even if IT has come to the table grudgingly. Over the next two years I expect this trend to accelerate. In fact, I believe that many SaaS solutions, particularly those that cross business and functional boundaries, will be rapidly subsumed within the broader IT portfolio, even if they were originally sourced outside IT.
Many SaaS vendors report already seeing more IT involvement in procurement, requirements definition, RFP creation, and negotiations. The clear procurement guidelines published by the IT department of the Australian Government Information Management Office (AGIMO) is one high profile example. Don’t get me wrong, in most instances business decision-makers will still lead, particularly in identifying the required business processes and determining how best to consume SaaS-based services. But IT decision-makers are getting more involved, particularly around integration.
Some areas to consider as you look to work more closely with business decision-makers to evaluate and negotiate SaaS and other public cloud deals:
In my last post, I wrote about the evolving need for big business to source generic capabilities from business partners/vendors. This shift provides an enormous opportunity as well as a threat for technology vendors and CIOs.
I’m not talking about the wholesale outsourcing of IT. Rather, the selective sourcing of business capabilities and business process through software-as-a-service (SaaS), most likely deployed through cloud-based platforms (capability-as-a-service, or CaaS). Software and hardware vendors need to rethink their business from the customer’s perspective. They must figure out how to transform their products into services that deliver business capabilities and business outcomes.
If you’re a tech vendor, this means that you need to analyze each target industry and determine which business capabilities are likely to be strategic, and which are most likely to be generic. In retailing, for example, strategic capabilities might center on mastering customer data to create unique and valuable customer experiences as well as price optimization. Whereas capabilities around merchandising and assortment planning may be generic across many retailers (even though most merchandisers I know would never admit to this), these generic capabilities are likely to be delivered as SaaS in the future.
If you have existing solutions that target an industry’s generic capabilities, they are prime candidates for delivering the capability to the market as a service. Where your solutions target strategic capabilities, you will need to provide highly customized services through strategic partnership arrangements.
It's a little-known fact that both Southwest Airlines and the (soon-to-be) famous Yee-Haw Pickle Company began life on a cocktail napkin. What better medium to illustrate why Windows Intune should be on your radar as an I&O leader or professional?
In the late 1990s, no one could have imagined what PC management would eventually entail in an always-on, always-connected world. Those of you who know me, know that I've either managed or marketed 3 different client management product lines in my career. All of the vendors in the space, including Microsoft, have spent the last 15 years trying to make it easier to manage Windows PCs on an enterprise scale, for utility, security, business continuity and performance.
A mess? I'd say! I spoke with a mid-sized oil company a few weeks ago about their client management tools, processes and maturity. They use only a fraction of System Center Configuration Manager (SCCM) 2007's capabilities. The weekly patch cycle and packaging alone are a full time job for one person, and endpoint protection and remediation are still wishlist items. Half of their assets sit at the end of satellite links 50 miles from the nearest towns and they have a fleet of trucks manned by a small army of techs dedicated to just fixing PC problems over 5 big western US States. Expensive? You bet. Ineffective? Absolutely.
Sourcing executives are winding down 2010 and gearing up for 2011. Most of the sourcing executives we have spoken with recently are bullish about the year ahead, despite some looming uncertainty about the economy, particularly in Europe. Spend is opening up again, and buyers are investing in more strategic initiatives. But sourcing groups still struggle to balance low cost and high value.
Many of the sourcing groups currently working with Forrester are asking about cloud as a viable alternative to traditional deployment models. Cloud promises rapid deployment, potentially significant cost savings, and variable pricing in line with how buyers want to pay in the current economy. And cloud offerings continue to mature in areas where buyers previously had concerns (vendor viability, security, architecture, location of data). Cloud adoption is already over 25% in North America, and continues to grow in Europe (led by UK, but also growing in areas like Germany, France, the Nordics).
Most sourcing strategies around cloud consist of five key phases:
1. Understanding the evolving supplier landscape and market maturity across cloud offerings.
2. Educating business (and potentially IT) about the advantages and disadvantages of cloud.
3. Building decision frameworks to support cloud purchases.
4. Creating a contract negotiation and pricing strategy for cloud; building contract templates.
5. Working with business, vendor management, and IT to routinely evaluate ROI and decide whether to renew relationships or find alternatives (potentially cloud, hosted, on-premise, or hybrid).
TECH DYNAMICS: Last Friday, June 25th, the US House and Senate reached agreement on a financial reform bill, which is likely to pass and be signed into law.* At first glance, this legislation has nothing to do with the IT industry directly. But buried in this bill is a provision regarding debit card fees, which could serve as a model for how end users of software could bring about a change in something that is very important to the economics of the software industry — software maintenance fees.
Now, software maintenance fees have been one of the givens in the software industry in perpetual license deals. Typically set at 18% to 22% of initial license fees, they are fixed in stone. An enterprise software buyer can try to negotiate a discount on a license fee; a really smart one can negotiate a deal where the maintenance fee rate is applied against the discounted license fee, not against the list license fee. But software vendors rarely discount maintenance fees.
Why? Established software vendors depend heavily on maintenance fees for the bulk of their revenue. Almost half (49%) of SAP’s revenues and Oracle’s applications revenues in 2009 came from maintenance fees. Oracle’s middleware business earned 55% of its calendar 2009 revenues from maintenance fees.
And yet maintenance fees are one of the biggest sources of complaint from enterprise software buyers. Every so often this dissatisfaction breaks into the open. SAP faced massive client unrest when it raised maintenance fees for most customers during 2009. SAP tapped the biggest vein of resentment about maintenance fees: fees on old software. Old software is the crux of the problem with maintenance fees: It tends to be stable and therefore requires little support.
TECH DEVELOPMENTS: I have been re-reading Clayton M. Christensen’s The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail in preparation for a session that Chris Mines and I are running on adapting to the Next Big Thing at Forrester’s IT Forum 2010.* Last week, I attended SAP’s SAPPHIRE NOW conference in Orlando, listened to co-CEOs Bill McDermott and Jim Hagemann Snabe, and met with McDermott along with other Forrester colleagues. The juxtaposition of the book and the event caused me to wonder: is SAP like one of the highly successful companies in Christensen’s book that failed to adapt to disruptive technologies? As Christensen noted, “the managers of the companies studied here had a great track record in understanding customers’ future needs, identifying which technologies could best address those needs, and in investing to develop and implement them.”
Everything that McDermott and Snabe said was consistent with these characteristics. They talked about how companies were facing a world of mobile, empowered customers; their need to be connected with each other to optimize the value chain through to the end consumer; the desire for new process flows; and the importance to them of fast decision-making. They identified a combination of on-premise, on-demand, and on-device solutions that SAP will be offering to meet these needs. They discussed SAP’s investments and new offerings in these areas, including its acquisition of Sybase for its mobile solutions and real-time analytics capabilities.
TECH DEVELOPMENTS: With SAP's release of its Q1 2010 earnings, it is clear that those who saw an irresistible shift from licensed software to software-as-a-service (SaaS) are a bit premature in their obituaries for the licensed software model. SAP's license revenues increased by 11% in euros, and by 18% when its euro revenues are converted into dollars at the average exchange rates in Q1 2010 and Q1 2009. Oracle's license revenues for its fiscal quarter ending February 2010 rose by 13% in US dollars (and 7% in euros). Among other vendors, Lawson reported a 28% increase in its license revenues (in dollars), and Epicor reported 23%.
These growth rates partly reflect how badly licensed software (which is treated as capital investment) got hit in the general cutbacks in business corporate investment in 2009, as panicked companies scrambled to conserve cash and avoid having to borrow from shut-down financial markets. However, I think there's more to the recovery than rebound from depressed levels a year ago.
Forrester's surveys of companies about why they don't like software-as-a-service consistently turn up five reasons: 1) inability to customize; 2) difficulty in integration to other systems; 3) security of data and information; 4) worries about pricing models that put clients on a constantly rising escalator; and 5) lack of SaaS products. SaaS vendors are addressing all of these, and there is no question that these barriers are eroding. But they still persist, and mean that the license software model has a high degree of persistence in software categories like core ERP systems (integration and security of core data), industry-focused applications (need for customization), eProcurement products (integration to ERP systems), and contract life cycle management products (security of contract data).