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

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Presentation on theme: "Business Web 2.0: The Rise of Software as a Service Gavin Christensen Tyler Baldwin Niraj Zaveri Kapil Chaudhary."— Presentation transcript:

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 1950196019701980199020002006 MIT & IBM develop time- sharing on Mainframe computers Mini computer enables more users to have computing resources Ethernet connects PCs together Client-server computing becomes the predominant model for software applications The web enables hosted applications (e.g., ASPs) 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 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 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 Key Benefits 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 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? SaaS ModelTraditional Software Model Functionality Can choose best of breed Potential influence on future functionality with vendor Remote access facilitated Speed potentially limited by bandwidth, shared server setup Potential to customize to exact specifications Unlikely future influence on vendor Remote access potentially difficult Implementation Speed Fast due to low customization, low integration, and potential for gradual rollout Still need to adjust business processes Slow due to customization, integration and drain on Internal IT resources and/or consultants Integration with Legacy Systems Limited integration available Integration can be facilitated by XML or other web capabilities More thorough integration and customization can slow future maintenance and upgrades Security and Reliability Reliance on vendor Assess data center security, systems and operations Content / data control an issue Vendors must provide security or else out of business For smaller companies, vendor security could be better In-house control of security Control of content and data Must provide own security Organizational Impact Increased availability of internal IT resources Revenue center Training Cost center Need to ensure alignment of technology with business processes, staffing, etc. Total Cost of Ownership Subscription, commission, advertising, or a hybrid Typically variable model, with small setup fee and monthly payments Upgrades typically included Can change or cancel contract if solution doesn’t work Easier to budget Low implementation costs Hardware scalability Large upfront capital investment with subsequent purchases of updated versions Opportunity for long-run economies of scale High implementation costs, often including consultants High, maintenance and overhead costs with internal IT staff High switching costs Harder to budget Source: “On Demand: The Tectonic Shift in Computing.” Maynard, J., et al. CSFB. January 2006.

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

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

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” CRM Ecosystems ISVs & Customers Partners ADP HR

11 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 Hypothesis 1 Long-Tail Example: Symbiot CRM ISV Symbiot HR Symbiot Partners

12 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 Hypothesis 2: Rapid movement towards On-Demand model

13 Hypothesis 3: SaaS only at the tip of the iceberg 2004 – Initial Buzz 2005 – Initial implementation 2006 – 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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