How to start up a software business within a cloud computing environment

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1 Thomas Buchegger How to start up a software business within a cloud computing environment An evaluation of aspects from a business development perspective Anchor Academic Publishing disseminate knowledge

2 Buchegger, Thomas: How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective. Hamburg, Anchor Academic Publishing 2014 Buch-ISBN: PDF-eBook-ISBN: Druck/Herstellung: Anchor Academic Publishing, Hamburg, 2014 Bibliografische Information der Deutschen Nationalbibliothek: Die Deutsche Nationalbibliothek verzeichnet diese Publikation in der Deutschen Nationalbibliografie; detaillierte bibliografische Daten sind im Internet über abrufbar. Bibliographical Information of the German National Library: The German National Library lists this publication in the German National Bibliography. Detailed bibliographic data can be found at: All rights reserved. This publication may not be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publishers. Das Werk einschließlich aller seiner Teile ist urheberrechtlich geschützt. Jede Verwertung außerhalb der Grenzen des Urheberrechtsgesetzes ist ohne Zustimmung des Verlages unzulässig und strafbar. Dies gilt insbesondere für Vervielfältigungen, Übersetzungen, Mikroverfilmungen und die Einspeicherung und Bearbeitung in elektronischen Systemen. Die Wiedergabe von Gebrauchsnamen, Handelsnamen, Warenbezeichnungen usw. in diesem Werk berechtigt auch ohne besondere Kennzeichnung nicht zu der Annahme, dass solche Namen im Sinne der Warenzeichen- und Markenschutz-Gesetzgebung als frei zu betrachten wären und daher von jedermann benutzt werden dürften. Die Informationen in diesem Werk wurden mit Sorgfalt erarbeitet. Dennoch können Fehler nicht vollständig ausgeschlossen werden und die Diplomica Verlag GmbH, die Autoren oder Übersetzer übernehmen keine juristische Verantwortung oder irgendeine Haftung für evtl. verbliebene fehlerhafte Angaben und deren Folgen. Alle Rechte vorbehalten Anchor Academic Publishing, Imprint der Diplomica Verlag GmbH Hermannstal 119k, Hamburg Hamburg 2014 Printed in Germany

3 Cloud computing is an online based technology approach that is used to deploy, operate and distribute Software as a Service. Therefore, cloud computing offers storage, computing hours and other more complex subjects in the form of a service and by a pay-as-you-use model primarily to Software vendors. Software vendors themselves can benefit from cloud computing by running their own software and offering it as a service to their own customers. The author evaluates the effects of cloud computing for business development in software start up companies.

4 Acknowledgement I would like to thank my employer runtime software in Stuttgart, with CEO Markus Eilers leading the way, for enabling me to write this book and their remarkable support during this period. Cordial thanks to the management team of the investigated company for providing me with insights into their core business development processes, answering unlimited questions and leading many discussions. Furthermore, I would like to thank several employees at Microsoft for a vast number of subject related discussions and insights. A special thank to Mr. John Unruh for his valuable inspiration, faithful feedback and extraordinary support. The final thank you is extended to my better half Sonja as well as my family. Without your encouragement, support and love I would not have been able to take this effort. Thank you very much to all of you.

5 Table of Contents List of Figures... IX Chapter 1: Introduction Background Aims and Objectives Methodological approach Chapter 2: Literature Review Introduction Business Development Framework Software as a Service framework The customer s viewpoints on Software as a Service Conclusion Chapter 3: Methodology Introduction Justification for case study selection Market view CashOnePro Conclusion Chapter 4: Results and Discussion Summary of the results in the literature Summary of survey results Summary of case study results Discussion of research findings Answers to research questions Conclusion... 75

6 Chapter 5: Conclusion Introduction Key findings Recommendations Key success factors Scope for further research Conclusion Annexures Questionnaire analysis References... 86

7 List of Figures Figure 1: Diffusion of Innovation Figure 2: Long Tail Figure 3: SaaS Sales Process Figure 4: Recurring Revenues from SaaS Business IX

8

9 Chapter 1: Introduction Background The entire software and information technology industry is currently facing a change of paradigm as the era of traditional business software is facing a massive theoretical shift and many common software offerings will be transformed into software service. These circumstances will not only influence the way companies develop software, moreover it will have drastic impacts on entire business models (Saugatuck, 2010). Software as a Service (SaaS) is part of the cloud computing concept and mixes up business-to-business offerings with a consumer-oriented approach (Gross, 2010). Former well-defined limitations between business-to-business and business-to-consumer products have become softer. Users of software and services typically favor well-designed software in terms of both usability and appearance. Experts often mention the terminus consumerization of IT in this context (Gross, 2010). Nowadays consumers are in constant touch with software and applications and consumeroriented applications are typically more standardized, better looking and easier to use than business applications. A typical SaaS offering exists physically just once on one cloud platform and is run in a multi-tenancy environment (Koenig, 2006). In other words this means that there is just one physical version of software that is delivered to all customers. To provide better understanding, Software as a Service (SaaS) is being delivered in a similar way like conventional websites, where every visitor comes to see physically the same website. This new concept of distributing Software as a Service requires a high level of standardization, which is reasonable due to the fact that the target group should 11

10 be as large as possible and therefor the scope for individualization and customizing is decreasing enormously. Experts are apprehensive that standardization will be enforced to the disadvantage of the level of customization (Schwartz, 2005), and this is just one indicator that the entire software industry is in a state of flux. Another indicator is that one of the most common business models in software business, which consists of a unique license fee plus annual service fees, will be replaced by a variety of pay-as-you-go payment plans. New payment options and dynamic usage plans are just one result of a big change in software business. The market entry barriers into the software industry for new businesses are lower than ever before. On the other hand the way to a Software as a Service (SaaS) offering for an existing Individual Software Vendor (ISV) is not that easy because it goes hand in hand with a couple of risks for their existing business. From the viewpoint of an Individual Software Vendor it is important to find the right mixture of business development aspects and adjust their priorities in accordance with the SaaS offering. Aims and Objectives When establishing a SaaS business the most important aspects of business development probably come from the common business models in the software industry, because SaaS and the concept of cloud computing brings many new opportunities, such as scalability, internationalization and marketing-driven sales as well as with a large number of variations; for instance, a higher cash intake over time instead of a high upfront license sell-off (Ratameta & Veeragandham, 2009, pp ). A new venture will have to consider several 12

11 factors for a long period before they start to be productive, like stressing the opportunity, creating a sustainable team of creators and followers, setting up strategies and much more (Copeland & Om Malik, 2006, pp ). The objective of this book was to find out on what aspects of business development successful ventures starting their business particularly in a cloud computing environment paid more attention to and their relevance to start up companies in the software business. The current research was authored to assess what aspects of business development are essential to create a successful SaaS venture and where SaaS business creation differs from the traditional way of software business creation in relation to an on-premise software approach. The analysis concentrated on both research methods and professional ways of proceeding. The data collected was carried out by merging information that was gathered out of evaluating a questionnaire with IT decisionmakers on the buyer s side and compiling a case study with a successful SaaS vendor. This book focused on the need of new ventures to make decisions in respect of a potential cloud / SaaS strategy. The investigated aspects of business development were primarily corporate strategy, product development, marketing, sales (with a special focus on pricing strategies and models), distribution and the special aspects of business acceleration. On the other side, it was important to find out what successful companies left undone with intent, as Porter (cited in Oblinger, 2011) stated that it is more important for a company s strategy to know what not to do instead of what to do. It was an indispensable requirement for this book to research a company 13

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