The Recipe for SaaS Success Ensuring Good Customer Experiences

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1 The Recipe for SaaS Success Ensuring Good Customer Experiences Robert Mahowald VP, Cloud Software, IDC microsite: September 2015

2 Agenda I. Customers: Cloud Opportunities II. Providers: New Imperatives III. Tying it All Together 2

3 Key Forces Driving Cloud Choices in 2015 New imperatives, new delivery choices, and new requirements for IT orgs Asset-Lean Open Desire Hyperscale, Chasm Means to for match Opens Best Density- Technology IT in the LOB Expenditure optimized, Run by -> IT Specialists Service Engineered with Business Delivery for Traditional Model Performance purpose 30% of businesses ownership model WW spend inadequate on Open for Scale AGILITY. Source; & Speed Strategic IT s mission Keeping 7-10 to up with Outcome-Driven Subscription, OpenStack key IaaS acknowledgement Build or demand is services match supported Leasing, leaders, Spot by Disconnect from all IT orgs that Source based markets. impossible between - IT buyer, cost with value, major constantly vendors; Reserved they do not need on best service Instances New spending requests operator, and and user connect LOB Cross to industry to specialize in available financial change innovating type of a technology the technology data-sharing flexibility run-the-business technology Federal-Reserve and velocity apps type system End of Ownership

4 Demand for Cloud Solutions Cloud services are changing how IT services are created and delivered Software revenue growth rate through % 20% 15% 10% 5% 0% 22% 5.5x Higher cloud SW growth vs. packaged SW 4% Key software trends Customers are purchasing services, not servers, and using SaaS to extend or replace existing applications $76.1B 22.1% 2.5x 91% 10x Predicted cloud software market size by 2017 Cloud software market CAGR through 2017 More cloud ISVs (CSVs) by 2017 of net new software will be built for cloud delivery in x more discrete software services available in 2017 Source: Worldwide SaaS and Cloud Software Vendor Shares and Forecast, (August 2015, IDC #276344) 4

5 What Do People Really Mean When They Say They Want To Use Cloud? I want new capabilities I don t currently have & can t afford to buy - Better business apps, application & content hosting I don t want to build a data center - Lower cost of entry for start ups (SaaS, Web 2.0, departments, etc ) Its where the users are - Efficient delivery of information/applications to Internet and mobile users I have a temporary liquidity problem - IT on-demand for intermittent, bursty or unpredictable workloads (reporting, analytics, media launch) I need to park some data for a long time - Lower/shared cost solutions for long term archiving of digital assets (medical records, personal images, sensor data) 5

6 Relying on Providers The Move to Provider-Based IT Estimate what percentage of your organization s total annual IT budget is allocated to each of the following procurement/management models. Today External Cloud: 31.4% In 24 Months External Cloud: 40.8% (29.8% growth) Provider Site: 52.9% Traditional Outsourced (eg., Application Management) 21.5% Virtual Private Cloud 5.5% Public Cloud 19.5% Dedicated Private Cloud 6.5% Traditional Outsourced (eg., Application Management) 21.5% Virtual Private Cloud 10.8% Dedicated Private Cloud 12.0% Public Cloud 17.9% Provider Site: 56.8% Customer Site: 47.1% Traditional In-house 36.4% In-house Private Cloud 10.7% Traditional In-house 27.5% In-house Private Cloud 15.7% Customer Site: 43.2% Cloud: 42.1% Source: IDC CloudView Survey, December n= 3,451 respondents in 17 countries Cloud: 56.4% (34% growth) 6

7 All Parts of IT Moving to Cloud SaaS PaaS IaaS Your New Hybrid IT Org Your IT Org CDN Appliance Resource MGMT Rich APIs Security Packaged Application Custom Application Mainframe Custom Application Custom Application Packaged Application Your Company Compute Virtualization Storage 7

8 Agenda I. Customers: Cloud Opportunities II. Providers: New Imperatives III. Tying it All Together 8

9 The Evolving WW SaaS ISV Universe +/- 20k Software Vendors (ISVs) +/- 1.4k SaaS Born on the Web Hosting Hybrid >1% of SW rev from aas* +/- 1.8k Native SaaS Prospect Traditional SW (Single tenant/packaged SW) Non Native (Single Tenant on IaaS HW partitioning) SaaS ISVcontrolled +/- 16.8k Stay Traditional Considerations/Assumptions Decisions shaped by VC, and low CAPEX choices Key feeders for early-stage: VCs, university outreach, Incubator programs Will build multi-tenant Mixture of startups and maturing (1-10 years) Growing pains On/Off premise hosting decisions Concerns: cost efficiencies, security, control of asset, responsiveness to customers Considerations/Assumptions Decisions shaped by age of company/it leadership; board $$ to buy aas capability Will NOT re-code, but net new stuff will be MT Assumption: 100% of mid-tier/larger ISVs have are now focused on trying to move to SaaS 90% will seek enablement services Market concerns (fear of SaaS, concern with bus. model changes, cost, survival) *Hybrid = between 1% and 90% SW revenue derived from SaaS. SaaS = >89% of SW revenue derived from SaaS. Traditional = <1% of SW revenue derived from SaaS. Does not include mobile-only firms, or consumer-only firms Source: IDC,

10 Key Questions for SaaS ISVs How Is It Built? Develop Rebuild? Architecture Runtime Environment Services Single-stack or Composite? How Is It Run? Operate Ops Responsibilities Hosting Solution Hardware Location Patch and App Maintenance How Is It Consumed? Market Customer type Business Model Monetization Strategy Ongoing Support Marketplace Target customer: Who will be the buyer? How will they access? Runtime Environment: What component services are used by the application? Operations Approach: Where & How each layer of the application stack is run? Division of Labor: What will we build, versus source elsewhere? End Points: How and by What is the application consumed? Monetization strategy: How/whether the application is monetized? 10

11 Diagram Concept: Cone What Does It Take To Build SaaS? Customer OPs Subscription mgmt, metering, Onboarding, UI refresh Moderate value for us to build 44% Business OPs Marketplace, channel management Billing, analytics, end-user support Little value for us to build 18% SaaS OPs Deployment topology, services bus, tenancy mgmt App optimization, compliance Some value for us to build 41% Application OPs Application modules, version mgmt, lifecycle App modules, libraries, SDKs Essential value for us to build 92% Technical Ops Infrastructure and Hosting Security, DR, load balancing, scaling Highly automated Limited value for us to build 21% Source: IDC interviews with 341 SaaS ISVs in US, GE, UK, in IDC# August 2014 IDC ISV Focus groups, December Percentages reflect % of respondents who answered essential value for us to build I d say about 90% of the time and cost of running our SaaS business has nothing to do with CRM Marc Benioff, Salesforce.com,

12 Where Are SaaS ISVs Running in 2015? What are the triggers in coming years? 42% of WW ISVs will have at least >1% SaaS revenue by 2015 <2% 7% Scenario Cloud-based Infrastructure (eg, Microsoft, AWS) Enhanced Managed Services (eg, Rackspace, IBM, HP) Who OPERATES the IT? Who OWNS the IT? Who OWNS the Datacenter? 69% IaaS* Use a HYBRID composition IaaS with > 1 IaaS API-based tier, service, or component Fastest growth: 1) some BSS services 2) some SaaS ISV Enhanced Hoster Enhanced Hoster ecom 3) minimal asset ownership 11% 39% 41% Hoster/Managed Services (IBM, VZTerremark, T-Systems) Hoster SaaS ISV Hoster 91% Co-Location (eg, Equanix) SaaS ISV Still buy/own SaaS ISV traditional CoLo stack ISV On-Premise (DIY) SaaS ISV components SaaS ISV SaaS ISV Source: IDC interviews with 341 SaaS ISVs in US, GE, UK, in 2013 and IDC ISV Focus groups, December IDC & *IT below the hypervisor/application instance change 12

13 Customer Attitudes Towards Cloud Security Please indicate your level of agreement with each statement about SaaS security Cloud computing can provide better security than the level my organization s IT security team can provide The use of cloud services by individuals or business units without the knowledge of IT security teams is a problem for my organization Private cloud architectures are inherently more secure than public cloud services Any potential security risks around cloud computing are outweighed by the benefits Ceding control over internal infrastructure and application patching and overall vulnerability is a barrier to adopting cloud We believe that cloud services can offer better continuity and disaster recovery than traditional technology Public cloud providers are solely responsible for the security and integrity of data and systems used by customers Responsibility for securing cloud services is shared between customers and cloud service providers Caveat emptor: public cloud environments are inherently insecure; security and liability is ultimately the responsibility of the customer 0% 10% 20% 30% 40% 50% 60% Percentage of Respondents Source: IDC CloudView Survey, December, 2014, 1676 worldwide respondents Strongly Agree Agree 13

14 So How Do I? Act like a large-scale service provider? With 6 people on my IT operations team, provide world-class multi-platform App Dev, Web security, Support, Routing, Content Management, etc? Have a source for web infrastructure and security OTHER than my platform or CoLo provider? Build social, mobile, and analytics capabilities into my apps? Have a source for web infrastructure and security OTHER than my platform or CoLo provider? Get value for my maintenance investments as I pivot to cloud? Really SEE application delivery as my users see it? 14

15 Which Capabilities Are Most Important to Serving SaaS Customers? Application Performance 21% Overall Network Performance 36% Elastic load-balancing 46% App Acceleration 32% Encrypted client 19% Strong NAT/WAN capabilities 39% Provider Sites Multi-site, real-time failover and DR 42% High-performance web tier 41% User Sites Sources: IDC SaaS Infrastructure Survey, September 2014; and SaaS provider interviews, May-June 2014 (26 US-based firms); IDC CloudView (December 2014, n=3,451) 15

16 Agenda I. Customers: Cloud Opportunities II. Providers: New Imperatives III. Tying it All Together 16

17 Recipe for SaaS Success Ensuring Good Customer Experiences KeyTakeaways Customers have very high expectations for availability and performance of SaaS solutions Public Cloud SaaS services have multiple points of failure along the delivery chain Skills and capabilities to consistently secure and support elastic, Webscale, SaaS apps is way outside the skillset of most SaaS providers Only the very small and some of the very largest SaaS ISVs do their own Web infrastructure, monitoring IDC advises BUY, not BUILD 17

18 Hosting Choices vs. SaaS ISV Needs Build Deploy Host Run Fulfill Monetize In-house IT and private internal cloud In-home washer and dryer Components Supplier cloud Laundromat Cloud business platform Dry Cleaner In-Sourced Customer owned and managed Self-Serviced Provider-owned components; customermanaged integration Provider-Enabled Outsourced factory Help me start life asset-light/lean! Lower cost to build/run is #1 driver Let me focus on my business! SLA, security, subscription management, support is #2 driver Help me sell! MDF, Access to community of interest" partnerships, automate marketplaces Help me create new business models! Embedding, rev sharing, co-branding, co-innovation Make me smarter! I have domain knowledge, but need industry skills, compliance support Source: IDC SaaS Infrastructure Survey, September 2014; and SaaS IDC Visit provider us at IDC.com interviews, and May-June follow us on 2014 Twitter: (26@IDC US-based firms) 18

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