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Business Web 2.0: The Rise of Software as a Service

Business Web 2.0: The Rise of Software as a Service. Gavin Christensen Tyler Baldwin Niraj Zaveri Kapil Chaudhary. Is Software Dead?. Marc Benioff. Overview. Evolution of SaaS Traditional software vs. SaaS Market Trends Hypotheses Next Steps. Evolution of SaaS.

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Business Web 2.0: The Rise of Software as a Service

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  1. Business Web 2.0: The Rise of Software as a Service Gavin Christensen Tyler Baldwin Niraj Zaveri Kapil Chaudhary

  2. Is Software Dead? • Marc Benioff

  3. Overview • Evolution of SaaS • Traditional software vs. SaaS • Market Trends • Hypotheses • Next Steps

  4. Evolution of SaaS MIT & IBM develop time-sharing on Mainframe computers Ethernet connects PCs together The web enables hosted applications (e.g., ASPs) 1950 1960 1970 1980 1990 2000 2006 Mini computer enables more users to have computing resources Client-server computing becomes the predominant model for software applications Source: William Blair Analyst Report, 9/27/04

  5. SaaS is the Future of Software • “[SaaS] affects everybody who uses software, it's a dramatic sea change." states Gates when describing the new approach in how the company develops and releases software via its live software effort • The enterprise is up for grabs again • Web 2.0 technologies enable • Web platforms will enable applications that address the long tail

  6. Value Proposition SaaS Key Characteristics Key Benefits • Network-based access to, and management of, commercially available (e.g., not custom) software • Activities that are managed from central locations rather than at each customer's site, enabling customers to access applications remotely via the Web • Application delivery that typically is closer to a one-to-many model (single instance, multi-tenant architecture) than to a one-to-one model, including architecture, pricing, partnering, and management characteristics • Less pain – primary pain with traditional software are cost, time, risk e.g. 28% of CRM implementations failed to go live (AMR Research) • Management economies – manages and security updates, provisioning, license optimization, scalability • Lower up-front costs– typically enterprises face 10X license cost for full implementation, initial burden is typically much less witih SaaS • Remote access made simpler especially with Ajax Need fatpipe + Ajax-type applications

  7. Is Software Dead? Source: “On Demand: The Tectonic Shift in Computing.” Maynard, J., et al. CSFB. January 2006.

  8. Market Potential 34% CAGR Source: William Blair Analyst Report, 9/27/04

  9. Key Players The New Kids on the Block Software Giants The Web Giants The Outsiders

  10. Hypothesis 1: Platforms will enable the long tail • Will a dominate platform emerge? Very high stakes game which we believe that all the major players will seek to play • The following are early movers in the competition for the creating an ecosystem for Saas or “On-Demand applications” Partners ADP ISVs & Customers CRM Ecosystems HR

  11. Hypothesis 1 Long-Tail Example: Symbiot • Symbiot • What they do: Consolidating sales, supply chain management, and best practices for independent commercial Pest Control, Landscaping and Snow-Removal industry • 900 partners avg. revenue $5 MM • Business issue – need specialized financial and business, revenue management process applications focused on “Green Industry” • Solution: Built platform for HR, labor management, finance, accounts receivable etc on top of Appexchange CRM HR ISV Symbiot Symbiot Partners

  12. Hypothesis 2: Rapid movement towards On-Demand model • SaaS vendors growing at the expense of traditional software vendors • Traditional software still captures 90% of revenue but • Growth slowed in 2005 to 4.9% (double digits in the 90’s) • IDC predicts SaaS will grow 48% from 2005 to $4.9B in 2006 • Greatest in-road in CRM market: On-demand rose from 5 to 9% • Oracle, SAP, Microsoft all launching on-demand product • Companies say these are their fastest growing offerings • Oracle has over 600 engineers working to better deliver this offering • Siebel’s failure to adopt: Revenue ($1B-$487M), Stock ($100-$8) • Challenges large, traditional players face: • Operational and Cultural • Financial: Accounting practices to accommodate differing revenue streams and expectations of analyst community

  13. Hypothesis 3: SaaS only at the tip of the iceberg • 2004 – Initial Buzz2005 – Initial implementation2006 – Reaching mainstream • Hottest IT category in VC • Rocketed by 20% to $1.1B (VentureOne) • First-time investments soared to 52% to $273M • Overall software down 10% • Emergence of New Top Players: • Salesforce.com, NetSuite, RightNow, SugarCRM • Next Wave starting: • Zimbra, Vettro, Jamcracker, Rearden Commerce, Five9, DreamFactory

  14. Next Steps • Test hypotheses • Salesforce.com, Google Platform • VCs  consumer & enterprise investment opportunities in SaaS • Case Studies • Dreamfactory  tools for On-demand • Thinkfree  On demand office tools • Zimbra  On-demand enterprise email • Explore impacts/correlation with BPO

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