International Trade and Competition in High Technology

1. Development of the Software-as-a-Service (SaaS) Industry International Trade and Competition in High Technology Charles C. Wu www.professorwu.com

2. Software as a Service Why it matters

3. Who Am I? Jimmy Tang

4. What is it? “We define SaaS (Software-as-a-Service) as a vendor renting and hosting software to users on a subscription basis.” - William Blair & Company LLC.

5. Benefits to Consumers Lower Up-front Costs Smaller Risk Reduction of IT Costs Smooth Upgrades Quick Implementation

6. Benefits to Vendor Consistent Revenue Lower Cost of Development Longer Corporate Life

7. History of SaaS

8. Future of SaaS Despite current economic conditions experts remain positive about SaaS model. “We believe that SaaS talent management vendors will fundamentally outperform the overall software industry over the next 18 months despite human resources’ inherent exposure to economic cycles. “ – Deutsche Bank “International Data Corporation (IDC) forecasts that the on-demand market will grow at a 32% compound annual rate to $14.8 billion by 2011.” - William Blair & Company LLC.

9. What Does This Mean? Darwin was right. Adapt or die.

10. References • “On demand evolution volume II”, RBC, Robert Breza, August 2008 (301 pages) • “SaaS and Cloud Computing”, Deutsche Bank, Tom Ernst Jr, 7 July 2008 (47 pages) • “Software-as-a-Service Update”, William Blair & Company, Laura Lederman, April 11 2008 (47 pages)

11. Software as a Service (SaaS) Bagher Afshar 17562187

12. Introduction • Software as a service (SaaS) is a software business model • SaaS is a web-based software that is not offered as a product, but as a service • Software runs on a web server and the user uses it through an Internet connection. The user only pays for using the software instead of owning it • SaaS is NOT new. However, customer demand has greatly increased its importance • Payroll as a very common SaaS application for the past 30 years • ASP’s were the latest fad during the dot.com days • SalesForce.com is the latest publicized SaaS vendor specially in CRM market

13. Market Overview • “Software as a service represented approximately 5 percent of business software revenue in 2005 and, by 2011, 25 percent of new business software will be delivered as SaaS”1 • “Worldwide 2.4 Billion Euros are spend on Software as a Service, an amount that is expected to grow with an average of 18 percent each year.” 2 • “We believe eventually all business software will be offered as a service”3 1: Gartner, Inc, October 2006, http://www.gartner.com/it/page.jsp?id=496886 2: P. Vermeulen, IDC Opinion “De business case voor Software as a Service”, 2006, p.1 3: IBM, Saascon congress, 2006, source: M. de van der Schueren (Chairman ASP-Forum)

14. SaaS Characteristics • SaaS main characteristics: * • Be pay-as-you-use only service (the most important characteristic of SaaS) • Be multi-tenacity • Incorporate shared services • Have a feedback mechanism • * G. Blokdijk, SaaS, 100 Succes Secrets, 2008, p.78

15. SaaS Business Model • SaaS solutions are offered in 3 major business models: Hosted solutions : Customer purchases the software license and vendor runs software in hosted environment Shared tenant : Hosted environment is offered by vendor and several customers will share instance of software Single Instance Multi-tenant : One version of the software is offered to all the customers and is updated regularly and frequently Mark Egan, SaaS Market Overview and CIO Perspectives

16. Software as a Service • Advantage • Speed and ease of deployment • Lower risk of failure • Reduce of infrastructure investment cost from end-user • More secure IT infrastructure • A very good candidate for stand-alone applications (without the need for deep integration) • Disadvantage • Applications requiring deep integration or customization ( like ERP) in some vertical markets are not good candidates • Limited ability to customize software for unique business requirements • Trusting third parties to manage their applications and data could be a challenge • Companies without well-defined business process or companies who haven’t fully addressed scalability, reliability and security issues won’t benefit from it

17. SaaS vs. Traditional Software • Traditional enterprise licensed software • Licensed on perpetual basis • Customers pay annual maintenance • Requires more implementation time to configure the software based on the needs of the customer • The customer had to pay for the application and the hardware to house and deploy it • Software as a Service (SaaS) • Rented to customers on monthly basis • Customers own their data, but not the software • Requires much shorter implementation timeframes

18. Application Service Providers(ASP) • ASP : • Are considered predecessors of SaaS • Offered application services in a hosted data center style • Because of so many customer specific applications, ASPs couldn’t offer much expertise on each application • Customers still had to have in-house expertise to make sure the applications were behaving correctly • The high cost of building and maintaining data centers and running customer-specific applications led to many ASP ventures failure

19. SaaS vs ASP • ASP: • Most ASP-supported applications were client-server programs with simple HTML Web interfaces • Concentrated on moving certain application processing duties to a third-party managed server • Technology and web interface (internet speed, web environment) were not ready for ASP • Higher set up cost • Mostly did not have required application and business domain knowledge about the applications they were running • SaaS: • Designed specifically for the Web environment • Providing shared services to multiple tenants • Technology and web interface were ready for it • More scalability Christopher Souza, Software as a Service (Saas) vs the ASP Model, http://ezinearticles.com

20. Vendor Perspective • Business argument for offering and developing SaaS as a company • Customer-focused and customer-friendly • Could be easily and frequently updated • Improved customer support, service and feedback • Faster time to market • Increases software value by less effort on delivering the software and more time and developing it

21. Client Perspective • Client arguments for using SaaS: • The costs of investing are relatively small • Fast implementation, no installation • Improved customer support, service and feedback • Shared responsibility for support infrastructure • More predictable and expected ongoing costs • Lower risk factors and more stable security

22. SaaS Sample Products

23. SaaS Usage Today • SaaS mainly offered in these Categories: • CRM • HR • Procurement • SaaS biggest users by vertical market: • Technology • Finance services • utilities Source :Gartner

24. Future Trend • SaaS provides convenience to both customers and vendors • Trend is going towards further growth and overall acceptance (can become a disruptive force in software industry) • The fast connection speeds and evolution of Internet added value to SaaS • Software as a service will represent 25 percent of business software revenue by 2011 with 18 percent annual growth • Edge applications such as SFA, Payroll, e-mail and ‘Office Functionality’ are good candidates for SaaS • It’s a desirable new industry to enter Gartner, Inc, October 2006, http://www.gartner.com/it/page.jsp?id=496886

25. Introduction to SaaS Industry MBA/ENG 290G Assignment 9/2/2009 Guan, Xu guanxu@berkeley.edu

26. Why do we need SaaS? • Addresses cost concerns • Reduced cost, more predictable costs • Provides a faster access to computing facilities • Offers both flexibility & efficiency • Has an easier development & drives innovation • It also bears some disadvantages • Immaturity of model, no standards, loss of controls, security, etc.

27. What is SaaS? (1) • a model of software deployment • a service on demand • share licenses within a firm or sharing licenses between firms • from IaaS to PaaS, then to SaaS (horizontal) • IaaS: technology infrastructure on-demand • Apple, Dell, Amazon, Google, HP • PaaS: software services and tools • Google, Yahoo!, Facebook, MySpace • SaaS: application functionality on top of basic infrastructure; usually with the highest profit margins • Google, Yahoo!, Microsoft, Facebook, LinkedIn

28. What is SaaS? (2) • Corporate cloud vs. consumer cloud (vertical) • Corporate ex., Salesforce, Cisco, Google, Netsuite • Consumer ex., Facebook, MySpace • Blurring lines between both horizontal & vertical segments

29. Comparison of SaaS, Software & ASP Local computing resource allocation • Software • require significant up-front time and resource investments, internally managed systems to the outsourcing provider. • ASP • client-server technologies, • fails to a large extent. Cost decreases • SaaS • lower management cost, • has better scalability Cloud computing resource allocation

30. Desirability of SaaS • Potential acceleration factors • User adoption • Vendor ecosystem • Major endorsements • Economic weakness • Funding environment • Potential deceleration factors • Security breaches • Outages • Market consolidation • Economic weakness • A noteworthy portion of the market is likely to shift to cloud computing!

31. Issues to Enter SaaS Industry (1) • Business model discussion • Subscription model • Usage-based model • Advertising-based model • Offering SaaS Along With PaaS • increase the market size and cross-sell opportunity • closer strategic relationship • Impact of SaaS deployments • Beneficiaries • PaaS vendor, corporate IT, storage providers, hardware infrastructure players, virtualization vendors, cloud-based services firms

32. Issues to Enter SaaS Industry (2) • Impact of SaaS deployments • At risk • Hardware category, SaaS vendors, companies that is slow to evolve

33. Is SaaS a Desirable New Industry to Enter? • Probably not. • 1. Big players, i.e. Microsoft, Google, etc., are already in place. Newcomers are not expected to have an upper hand in this face-off with the software giants. • 2. Size of the total market might be increasing. But the expanding speed is still unclear. • 3. Business model needs to be better understood before one enters the industry. Which business model for SaaS is better ought to be investigated.

34. Why These Reports Exist & “Free” • For commercial purpose mainly, with a fairly hefty price tag • Consulting firms serve as the insiders of certain industry, especially emerging industry or commercial opportunity. The reports could potentially revoke people of other fields to consider entering the industry and lead to the consulting opportunities. • For research purpose, free • Open to the researchers for intellectual elevation. And in return, the fresh ideas within academia circle can be absorbed by the consulting firms.

35. References • On demand evolution, volume II, Insights and Best Practices at Leading On Demand (SaaS) Providers • RBC Capital Markets Corp., July 2008 • SaaS and Cloud Computing • Deutsche Bank, August 2008 • Technology: Software & Services • William Blair & Co., July 2008

36. Software-as-a-ServiceIndustry Update2008 Lindsay Brown September 1, 2009

37. SaaS Industry Overview • Software-as-a-service (SaaS) is defined as a vendor who develops, rents and hosts software through a user interface, enabling customer activities on a subscription basis • SaaS, and the broader cloud computing marketplace, is one of the fastest growing segments of the information technology industry • Garner Group estimates the SaaS market to grow to $19.3 billion by 2011, a CAGR of 25% • Access Markets International believes Saas adoption in the US among small and midsize businesses has doubled since 2004 to 21% and 31% adoption respectively • Top SaaS performing companies include: • Salesforce.com, Concur Technologies, Vocus, The Ultimate Software Group, DealerTrack Holdings, Constant Contact, and NetSuite Source: * Garner Group, forecast ** IDC forecast

38. SaaS Industry Economics

39. Saas SWOT Anaylsis Strengths • Lower up-front costs and reduced investment risk. Users can get up and running quickly • Outsourcing of IT • Ease of upgrading • Larger total available marketplace – can accommodate large and small companies Opportunities • Untapped international markets • Tying servers to social networking sites to improve ease of use • More collaborative applications, easy integration interfaces Weaknesses • Larger horizontal markets represent a larger return to investors, yet new companies will have to target more narrow/niche industries • Investors will demand greater profitability • Fluctuating pricing models introduce financial volatility Threats • Fluctuating pricing models introduce financial volatility • Investors cautious because of the economy • Not all SaaS companies deserve premiums they are selling for • Potential security issues

40. Advantages of SaaS vs Traditional Software SaaS • Customer Benefits • Lower initial cost • Lower ASP (Active Server Pages) • More predictable expenses • Reduced risk • Quick implementation • Minimal IT support • Circumventing IT • More frequent upgrades • Security • More relevant product enhancements • Vendor Benefits • Better revenue and earnings visibility • Lower cost of development • Longer corporate life • Shareholder Benefits • Less volatile revenue and earnings • Longer public life • Larger target markets Traditional Software • Customer Benefits • Lower total license costs • Increased control • Fewer performance problems • More customization • Vendor Benefits • Faster growth • Less complicated business • Greater total available market • Shareholder Benefits • Lower valuation

41. SaaS Trends • Platform-as-a-solution (PaaS): • Platforms that allow 3rd parties to build and run their own software on it. allowing others to run their SaaS applications on it. Salesforce.com has changed from offering just a SaaS application to also selling its platform as a service, with important positive consequences for its growth and market opportunity (allowing core application to be expanded) • Companies charging per click or usage instead of selling upfront subscriptions • Architecture Multitenant vs Single Tenant Models • Multitenant must be written from the ground up, should maximize shared business logic

42. Future of SaaS • SaaS is a long term trend • Excluding recession, SaaS has not been strongly cyclical • Desirable industry • Loyal customers (85-95% renewal rates) • More diversified customer base • Quicker ROI • Successful over traditional software • Untapped international markets • Potential Risks • Low industry margins • Many companies selling at premium • New companies may need to focus on narrow verticals (difficult to compete with larger companies like Salesforce.com)

43. SaaS Industry Overview MBA 290G Kevin Liu International Competition in Technology

44. What is it? • Software that runs on a browser and users subscribe to its services • Any Web 2.0 tool that you sign up for

45. How’s it Different? ASP – Application Service Provider • Servers dedicated to individual companies • High Operating Costs • Multitenanted Architecture • A remote server runs the program • Multiple users’ browsers connect to the server

46. Pros and Cons • High Churn Rate • ~90% • Quick and easy updates • backwards compatibility • Piracy protected • Portability • Low computing costs per user • Maintainability • Fewer systems to manage • Security • more passwords • twitter exec hack • Graphically Weaker/Slower • Javascript is weak • Lack of windows/tabs • Slower loading of pages due to network • Tied to WiFi • More work for developers • robust servers, secure data, user preferences, security

47. What should be SaaS’d? • Social interaction, networking • Easy access • Sharing of data • Does not need fancy graphics (people hate installing software)

48. Long Term Trend “SaaS companies’ target markets will become increasingly narrow – and hence likely smaller – over time.” -William Blair & Company

49. But it will continue to grow… • International Data Corporation • predicts a 32% compound annual rate to $14.8 billion by 2011 • Gartner Group • expects $19.3 billion by 2011 • Access Markets International has observed • 21% adoption in small businesses • 31% adoption in medium sized businesses

50. International Competition in High Technology Class 2: Development of the SaaS Industry Jeff Gordon, jeff_gordon@mba.berkeley.edu September 1, 2009