SaaS and Cloud After the Storm 11 November 2009 Stuttgart, Germany Bill McNee Founder and CEO Saugatuck Technology P: +1-203-454-3900 bill.mcnee@saugatech.com
Key Takeaways from Recent Saugatuck Research Despite the economic crisis, purchase plans for SaaS and Cloud Computing remain strong through 2011 across all geographic and customer segments. For SaaS, users cite lower cost, more responsive support, and speed of implementation as key business drivers for SaaS: Cheaper, better, faster IT. While IT spending has been weak this year, SaaS ISVs have faired better than their on-premise competitors see SaaS vs. ISV market basket analysis later in this presentation. For Cloud, users cite financial benefits reducing their IT infrastructure costs, lowering capital investment spending, and reducing their IT management and support costs as they key business benefits driving adoption. A new ecosystem is forming around Cloud Computing that will transform the IT sector. This inevitable transformation will result in a multi-level ecosystem, ranging from technology suppliers through Cloud Computing providers to business services providers. Today s most aggressive adopters of SaaS are low-to-midsized SMBs with 100-499 employees, followed by upper-midsized SMBs (500-1,000 employees). A small, emerging group of SMBs, labeled by Saugatuck as The New SMB, forego traditional IT and immediately establish themselves with SaaS- and cloud-based IT portfolios. European and Asian SaaS purchase plans are especially strong indicating the potential for a leapfrog scenario. Accelerating demand for SaaS-based solutions embracing not only collaboration, CRM/SFA, and self service, but core business systems among both SMBs and large enterprises. SMBs are more aggressively pursuing core financials, whereas larger enterprises have strong purchase plans for HR (e.g., HMRS, payroll, talent mgmt.) While storage and web serving workloads dominate Cloud Infrastructure Services through 2010 by 2012, 70 percent of companies will leverage all forms of Cloud Infrastructure Services (including cloud applications development, systems management, data center operations) with a focus primarily on computeintensive and non-mission-critical applications Early on, OLTP will lag all other categories of workload in adoption, while document and data storage will lead Chart: 2 Source: Saugatuck Technology
Key Takeaways from Recent Saugatuck Research (cont.) Hybrid application architectures emerge SaaS increasingly linked with on-premise data, applications and processes through Web Services-based Integration APIs. SaaS-to-SaaS integrations are accelerating the need for customizable end-to-end workflow solutions. Most SaaS vendors with on-premise and cloud-based offerings will not have interoperating versions, or seamless data compatibility through 2011. Exceptions to this are SAP, with its Large-Enterprise On Demand initiative, and Microsoft, with its Software-plus- Services initiative. Cloud development via PaaS providers has begun to open up both to other PaaS platforms and to on-premise tool environments that can productively interact to deliver cloud solutions. Salesforce s Force.com has established linkages with Google and with Facebook for platform interoperability. The Ruby-on-Rails ecosystem is expanding on both the development and hosting side. IBM has a joint venture with Amazon.com to enable its development tools to be used on the Amazon AWS platform. Microsoft is in the process of actively recruiting its large developer network in pursuit of its Azure Platform. Oracle, in its most recent ISVs-for-SaaS program, is offering both hosting and development tools to ISVs A new SaaS-based business services delivery model is emerging as onshore and offshore BPO providers are forced to rationalize their one-to-one outsourcing models, reduce costs and bring greater process efficiency to their clients. Offshore providers begin to embrace SaaS / Cloud across multiple dimensions. While roughly 35 percent of ISVs have begun the transition to SaaS the journey will be long and rocky for most. Many ISVs are not financially prepared nor fully grasp the breadth of changes that need to be addressed and overcome (i.e., business model/funding, technology, organizational, operational, cultural). Chart: 3 Source: Saugatuck Technology
The Evolving Cloudscape The focus of SaaS shifts over time from cost-effective delivery of stand-alone application services (Wave I), to integrated business solutions enabled by web services APIs and ESBs (Wave II), to workflow- and collaboration-enabled business transformation (Wave III), leading to measured, monitored and managed business processes (Wave IV). By 2014, Cloud Computing will capture up to 40 percent of new IT spending growth. High SaaS 1.0 Beyond Software-as-a-Service: Cloud Computing SaaS 2.0 Cloud Computing Wave I: 2001-2006 Cost-Effective Software Delivery Wave II: 2005-2010 Integrated Business Solutions Wave III: 2008-2013 Workflow-Enabled Business Transformation Wave IV: 2011-2016 Measured, Monitored, Managed Business Processes Adoption Early SaaS Adoption Stand-alone Apps Multi-tenancy Limited Configurability Focus on TCO / rapid deployment Mainstream SaaS Adoption Integrated w/ Business SaaS Integration Platforms Business Marketplaces and SaaS Ecosystems Customization Capability Focus on Integration Ubiquitous SaaS Adoption Focus on Business Transformation ISV to SaaS Enablement Server and Application Virtualization SaaS Development Platforms (PaaS) Public Cloud Infrastructure (IaaS) Cloud Collaboration Platforms Customized, Personalized Workflow Post-SaaS Adoption End-to-End Cloud Business Processes Intelligent Hubs Linking Platforms Virtualization on Mobile Devices Elastic Cloud Infrastructure Standards for Workload Portability SLAs for Composite Service Offerings Support at Business Process Level Low 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Page: 4 Source: Saugatuck Technology
SaaS vs. On-premise ISVs: After the Storm 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% Actuals Forecast On-Prem ISV: Total Revenue Growth -% (y/y) On-Prem ISV: New License Revenue Growth -% (y/y) SAAS: Total Revenue Growth -% (y/y) SAAS: Deferred Revenue Growth -% (y/y) Source: Company Reports, Edgar Online, Yahoo Finance, Wedbush, Saugatuck Technology. Data normalized to reflect non-standard fiscal years. Traditional ISV Market Basket: Autodesk (ADSK), BMC (BMC), Compuware (CPWR), Epicor (EPIC), Lawson (LWSN), Oracle (ORCL), SAP (SAP); SaaS Market Basket: Blackboard (BBBB), Concur (CNQR), DemandTec (DMAN), Kenexa (KNXA), NetSuite (N), RightNow (RNOW), Salesforce.com (CRM), SuccessFactors (SFSF), Taleo (TLEO), Ultimate Software (ULTI). Chart: 5
Top 3 SaaS Solutions by Company Size In 2009: Top 3 SaaS Solutions by Company Size 100-300 300-500 500-1000 1000-2500 2500-5000 >5000 Collaboration Finance/ Accounting Collaboration HR/Benefits Payroll Collaboration Customer Service Sales Force Automation Customer Service Collaboration Collaboration Time & Labor Management Finance/ Accounting Payroll Finance/ Accounting Customer Service Customer Service HR/Benefits Thru 2011: Top 3 SaaS Solutions by Company Size 100-300 300-500 500-1000 1000-2500 2500-5000 >5000 Collaboration Customer Service Collaboration Collaboration Collaboration Collaboration Customer Service HR/Benefits Customer Service HR/Benefits Customer Service Time & Labor Management Finance/ Accounting Finance/ Accounting Payroll Finance/ Accounting HR/Benefits HR/Benefits Saugatuck Insight: In 2009, Collaboration, Customer Service and Finance & Accounting are top priority SaaS purchases. By 2011, HR/Benefits becomes a key solution priority as well across virtually all customer segments reflecting a growing emphasis on efficiency and process improvement in core business systems. Page: 6 Source: Saugatuck Technology Inc., 2009 SaaS Survey (Dec 08), N=1788
Top SaaS Solutions By Company Size US & Western Europe WW UNITED STATES EUROPE All Under 1,000 to Under 1,000 to Sizes 1,000 5,000 Over 5,000 1,000 5,000 Over 5,000 Collaboration Technologies 1 1 1 1 1 3 1 Human Resources/Benefits Administration 2 2 2 2 4 2 3 Customer Service & Support 3 5 6 7 2 6 4 Payroll 4 4 7 3 6 14 10 Finance & Accounting 5 8 9 12 3 1 5 BI & CPM 6 10 8 5 7 8 2 Time and Labor Mgmt 7 6 4 13 15 4 6 Salesforce Automation 8 3 3 4 10 16 17 Talent & Performance Mgmt 9 7 5 6 18 9 8 E-Commerce 10 9 10 10 5 17 13 Procurement & Sourcing 11 11 17 8 17 11 11 Supply Chain Mgmt 12 13 11 9 11 13 12 Supplier Relationship Mgmt 13 12 13 11 14 5 14 Mobility Mgmt 14 14 15 15 9 7 7 ERP /Manufacturing 15 16 12 14 8 10 15 Governance, Compliance and Risk Mgmt 16 15 16 16 13 12 16 Treasury & Cash Mgmt 17 17 14 18 12 18 9 Product Lifecycle Mgmt 18 18 18 17 16 15 18 Top SaaS Solutions Through 2011 Source: Saugatuck Technology Inc., 2009 SaaS Survey (Conducted Dec 08), WW N=1788, W. Europe N=706, France N=140) Saugatuck Insight: In 2009, Collaboration, HR/Benefits, and Customer Service are the top priority SaaS purchases globally. Notably, the growth in demand for core systems including Finance & Accounting, and E-commerce is even stronger in European Small-Midsize Businesses than in the US. Chart: 7
SaaS and Core Business Systems Saugatuck Planning Position: Despite the current economic climate, at least 40 percent of small-to-midsize companies will serious evaluate SaaS-based core financial solutions, as well as broader operational systems and requirements (e.g., order management, procurement, ERP, HR) by YE2012. High Key catalysts that will drive small-to-mid and large enterprises to migrate to SaaS-based financial systems ( Core and Non-Core ) Dramatically lower costs Simplification of the upgrade / release management process Powerful integration tools (apps / data) Advances in SaaS application customization capabilities to support personalized workflows Easier access to next-gen technology and architectural advances SaaS Tipping-Point (General Market) Adoption of SaaS for Collaboration, Self-Service, CRM and SFA Broad SaaS Adoption Curve Small to Mid-size Enterprise Upper-Mid to Large Enterprise Adoption of SaaS for Core and Non- Core Financial Systems / Operational Processes Low Early Adoption Early Mainstream Adoption Mainstream Adoption 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Saugatuck Technology Chart: 8
SaaS-mic Shift For the Channel Value Proposition Business Model Type I: Risk of Disintermediation Low- Support Type II: High- Support Type III: Software Solution & Support Channel Partner Value Propositions Focus on delivery of vendor hardware, software and/or hosting services with minimal support, including implementation and integration servcies. These partners compete primarily on price. Focus on delivery of vendor hardware, software and/or hosting services with heavy reliance on support services, competing primarily based on a hightouch, customer-service value proposition. Form A: Developer / provider of applications an ISV. Form B: Services provider who partners with one or more application developers. In each case, the channel partner is packaging additional application software and support along with the vendor s hardware, OS, middleware and/or hosting services. These partners compete on the basis of overall solution value. H M L/M Focus Cash Flow Contract Size Traditional Channel Partner Model Upfront Fees Cloud / SaaS-mic Shift Recurring Revenues Large Smaller Volume Low-to-Mid Volume High Volume Role Technician Business Partner Sales Emphasis Support Emphasis Line Item / Product From Break / Fix to Above and Beyond Holistic Business Solutions / Services SLA-driven support with additional wraparound services Source: Saugatuck Technology Page: 9
Key Issues for ISVs to Focus on to Win with SaaS Hybrid Architectures Are the Future SAP retrenches and rebuilds for multi-tenancy, at the same time that it develops new On Demand LE hybrid offerings (that bridge the Cloud and on-premise installed base) Oracle and Salesforce appear to be doing a dance that might imply a deal between the classic Cloud and classic on-premise installed base Microsoft Software-plus-Services / Azure the stampede to its multi-tenant platform begins Key Insight: Traditional on-premise players need to make sure that the new value proposition not only leverages its existing installed software / customer heritage, but enough new value-add is created and delivered to truly incent both existing and new customers to take a serious look and take action. A New Customer Intimacy The shift from a product to a service -focused offering and delivery is huge Requires a dramatic rethinking of the way that companies engage / interact with their customers May not be the same people internally especially in sales and in the channel Cultural transition often a more difficult longer term issue than technology and business model; if you don t get this right, you don t win Continuous innovation is critical for maintaining high satisfaction and customer retention Key Insight: SaaS / Cloud is a fundamentally different business that requires a complete rethinking of the value prop, go-to-market strategy, and internal culture Continuously Reduce Your Operational Costs Applies to people, process and technology the classic triad Outsource anything that doesn t have to do with your core value-add R&D should not only focus on new offering innovation, but on means to lower per-unit costs Operational costs for SaaS providers need to come down to 20 percent or less of total revenue Key Insight: Share with ISV partners that they can deliver more for less, and can make more money as a result (because they outsource, because they partner... ) Chart: 10
Cloud Infrastructure Mainstream in 2011 30.0 Cloud Infrastructure When Mainstream? Percentages 25.0 20.0 15.0 10.0 5.0.0 2009 2010 2011 2012 2013 2014 or beyond Never Source: Saugatuck Technology Inc., 2009 Cloud Infrastructure Survey (June 09), WW N=670 Saugatuck Insight: Note Bell Curve describes responses from 2009 through 2013 Blue columns represent IT responses, slightly more aggressive throughout the planning period. Chart: 11
Cloud Infrastructure Offerings in the Mainstream (Detail) Document Storage and Retrieval 21% 12% 23% 15% 12% 3% 6% 8% Data Storage and Retrival Web-Serving Workloads 14% 20% 12% 12% 26% 25% 18% 17% 10% 3% 6% 12% 5% 6% 8% 8% Storage, Web Serving Unstructured Data Storage and Retrieval 11% 8% 20% 20% 14% 6% 8% 12% Application Development Systems Development and Testing Capabilities 10% 10% 8% 10% 23% 22% 20% 20% 12% 14% 5% 9% 4% 8% 12% 11% Cloud Development Batch Workload Execution 9% 11% 23% 21% 14% 5% 7% 10% High Perf ormance Computing System Management Capability 9% 8% 8% 8% 18% 24% 19% 22% 16% 15% 7% 12% 5% 7% 11% 11% Core Data Center Production OLTP Workload Execution 4% 9% 18% 23% 17% 4% 9% 15% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Already in Use 2009 2010 2011 2012 2013 2014 or Beyond Not Likely to be Mainstream Source: Saugatuck Technology Inc., 2009 Cloud Infrastructure Survey (June 09), WW N=670 Chart: 12
Financial Benefits Are Top of Mind Financial Improved Operations Saugatuck Insight: While users cite financial benefits as the key business benefits driving adoption, Saugatuck believes that financial benefits are highly dependent on the Cloud provider s pricing model. In addition, other areas such as business-it alignment may reap the greatest benefits from Cloud Computing. Access to Trained Professionals Source: Saugatuck Technology Inc., 2009 Cloud Infrastructure Survey (June 09), WW N=670 Chart: 13
Key Inhibitors to Adopting Cloud Computing Saugatuck Insight: Saugatuck believes that many users will find that changes required in internal organization and politics for moving from dedicated to shared resources pose significant challenges to the adoption of Cloud Computing. Source: Saugatuck Technology Inc., 2009 Cloud Infrastructure Survey (Julne09), WW N=670 Chart: 14
Saugatuck Cloud Ecosystem Model Level 4; BPO / Managed Services. Specialized expertise often delivered in conjunction with a Cloudbased solution, e.g., Mobility as a Service, Cloud-based security. Level 3: SaaS (Waves I-III) and related services. Business solutions delivered from the Cloud, typically in a multi-tenant architecture, and billed under subscription model. Level 2: Cloud development, PaaS, SaaS integration, Service Hubs, including billing, administration, aggregation, security and mobility solutions, systems and infrastructure management, data warehousing, data access and analysis, and related professional services. Level 1: Cloud-based On- Demand infrastructure providers and platforms that host SaaS and other on-demand solutions and provide service offerings to manage infrastructure platforms (collocation); Level 0: Suppliers of hardware, system software and utilities, data center management software, networking equipment, hardware and software, and associated services Chart: 15 Source: Saugatuck Technology
Key Platform Players Platform Provider Amazon Google Microsoft NetSuite OpSource Oracle Salesforce Name of Platform Amazon Web Services Google App Engine Azure; Connected Services Framework; Dynamics CRM NS-BOS Opsource Oracle SaaS Platform AppExchange, Force.com Apex Strategic Purpose Capture mindshare, early Cloud activity Extend appeal of Google platform Syndicate Exchange to Telecoms; Manage ISV channel and developer communities Capture SMB Customers, Enable SaaS Partners SaaS Enablement Target ISVs for SaaS Enablement Establish Platform for Cloud Computing Integration Approach APIs APIs Platform,.Net, WS APIs Platform, WS APIs Boomi, Cast Iron, OpSource Connect/ X-ESB Fusion Middleware, APIs Platform, WS APIs Customize Develop Develop via partners; Python, webapp, Django Unlimited; Visual Studio SuiteScript SuiteTalk Limited Oracle SOA Suite Force SDE APIs for UI, Data, Workflow; Apex Develop and Runtime Confidential Develop via partners; Microsoft, IBM and Linux runtimes Yes Yes Yes No Yes Yes Chart: 16 Source: Saugatuck Technology
The Three Legs of Platform-as-a-Service Representative Examples ISV / SaaS Enablement Cloud Development Cloud Infrastructure India-Inc. Is Coming... Source: Saugatuck Technology Page: 17
Master Brand Insights Master Brand Amazon Strategy Strengths Challenges Provide the bare-metal necessities for the cloud Mindshare Pricing Data persistence Beyond niche use Google Move center of computing gravity to the cloud Innovation Managing data Forever Beta Enterprise buyers HP/EDS Focus on data center issues, quality of service Broad capabilities Data Center focus Coherence Market execution IBM Provide assurance of its brand, the low-risk solution Low-risk reputation Market presence Internal alignment Cannibalization Microsoft Software-plus-Services (S+S) grow revenue from base Installed base(s) Partners/Developers Turning the ship S+S vision / messaging clarity Oracle Capture hosting and SW tools revenue via moving ISVs to SaaS Hosting expertise Full product spectrum Messaging clarity Brand image Salesforce Leverage platform & partnerships; focus up-market while addressing SMB retention issues Market momentum Platform offering Sustaining growth Enterprise credibility SAP Primarily target SMB segments (via ByDesign), then move up market with LE OD initiative. Enterprise base On-premise SW Financial model Platform issues Chart: 18 Source: Saugatuck Technology
How to Contact: Regional Sales Offices US OFFICES Headquarters Saugatuck Technology Inc. 49 Riverside Ave. Westport, CT 06880 USA (P) +1.203.454.3900 Regional Sales: Al.Vanek@Saugatech.com Silicon Valley Saugatuck Technology Inc. 5201 Great America Parkway, Suite 320 Santa Clara, CA 95054 USA (P) +1.408.727.9700 Regional Sales: Andrew.Jeffs@Saugatech.com INTERNATIONAL Germany Saugatuck Technology Inc. Bluecherstr. 4 D 65343 Eltville am Rhein Germany (P) +49.6123.630285 Regional Sales: frank.sempert@saugatech.com Are you getting the best research, insight, and advice on disruptive IT? Register to receive Saugatuck s complimentary Research Alerts, and browse our comprehensive Research Library on topics such as SaaS, Open Source, Web 2.0, SOA and Utility Computing (among other). To Register: http://research.saugatech.com/cgi-bin/order/signup3.pl To Browse the Library: http://www.saugatech.com/researchbytopic.htm To Learn About Saugatuck s CRS Subscription Research Service: http://www.saugatech.com/crs.htm
Saugatuck Technology Inc. Saugatuck Technology provides market strategy consulting and subscription research services to senior executives, IT vendors and services providers and investors Strategy and marketing experts in enterprise software and business / IT services, and IT infrastructure / platforms Mission: To help our clients make better business decisions through trusted insights especially around the key trends and emerging / disruptive technologies driving change in enterprise computing For vendors: Help accelerate growth through strategic intelligence, with a focus on identifying new market opportunities and strategies that help WIN, KEEP and GROW customers. For business and IT users: We help save time and money when making decisions about emerging technologies, including understanding vendor roadmaps, key market trends and evolution, as well as implementation / adoption best practices. Saugatuck fills the gap between high-cost strategy consultants & traditional IT market research firms. Headquartered in Westport, Connecticut with 2 nd US Research / Sales office in Silicon Valley (Santa Clara), plus regional presence in Europe (Germany) and Asia Pac (Australia) Strong team of professionals with deep IT industry experience 20 core-team members, research analysts and consultants, and support staff Average 25+ years experience with leading vendors / think tanks such as Gartner, Forrester, KPMG, Giga Group, Accenture, IBM and HP Chart: 20