Filed in Cloud Industry Insights by Jeff Kaplan | July 26, 2012 12:00 pm
A combination of macro-market forces is driving companies of all sizes to adopt Software-as-a-Service (SaaS) solutions to better support their employees, serve their customers and coordinate with their business partners. These forces are also attracting a proliferation of players and creating intense competition which makes it increasingly important for SaaS vendors to focus on their core competency – creating clearly differentiated software solutions – rather than deal with the complexities of managing their own service delivery infrastructures in a highly volatile marketplace.
The key trends fueling the growth of SaaS alternatives to traditional on-premise, perpetual license-based applications are,
These trends are driving businesses of all sizes to reconsider how they acquire, deploy and utilize software applications to more cost-effectively achieve their corporate objectives.
As a result of these forces, THINKstrategies has seen a steady increase in interest and adoption of SaaS alternatives among businesses of all sizes and across nearly every industry. Our view is verified by the market size estimates and growth projections of all the major market research firms. For instance, Gartner expects global spending on SaaS to rise 17.9 percent this year and equal $14.5 billion by the end of the year and jump to $22.1 billion in 2015.
As in any fast-growth market, an industry shakeout is inevitable. Even the breadth of the SaaS market is unlikely to sustain the rapidly growing population of companies seeking to win a share of the projected revenue opportunities.
For competitive reasons alone, it is imperative that SaaS vendors focus their energies on creating and promoting highly differentiated solutions and offload their ‘non-core’ operational requirements to best-of-breed third-parties.
However, the growing acceptance of SaaS by IT, CIOs and the CXO suite has also raised the bar for SaaS vendors who now have to step up to higher security, availability and performance expectations in order to remain competitive.
In order to deliver SaaS solutions that meet these rising expectations, SaaS companies must have both the right service delivery infrastructure and operational skills to cost-effectively utilize these resources.
This means SaaS vendors must demonstrate that they can deliver highly reliable and secure solutions. This means they must be able to select, deploy and continuously adjust myriad server, storage, networking, load balancing, security and management systems to host and secure their applications. They must also have the necessary staff to continuously monitor these systems. That staff must be experienced in identifying potential problems before they occur or quickly respond to issues if they arise to ensure optimal availability and performance.
In many cases, SaaS companies must provide prospective customers with various certifications, such as SAS 70, and policy documents to verify their compliance capabilities. Attaining and maintaining these certifications can be an expensive and time-consuming effort, which can distract operational staff and executives from their primary responsibilities. Few SaaS companies can afford to dedicate their limited personnel to these tasks in today’s highly competitive and demanding marketplace.
The SaaS vendor is now responsible for ensuring the availability, reliability, security and scalability of the software solution. This also places a greater support burden on the SaaS vendor because it not only has to answer questions about its applications, but it must also respond when availability and performance issues arise. If it fails to meet its service level agreement (SLA) objectives, it is at risk of paying a penalty, and could easily lose customers and harm its reputation in the marketplace.
SaaS companies should focus on creating clearly differentiated solutions and let others worry about delivering their solutions in an economical and reliable fashion because the SaaS model changes many of the rules of the game.
The pay-as-you-go subscription pricing model not only places additional pressure on SaaS vendors to continuously improve the quality of their services, it gives SaaS vendors less capital to finance the development and delivery of their solutions. Therefore, it is essential for SaaS vendors to stay focused on their core competency of software development and marketing their solutions.
It is for these reasons smart SaaS vendors are turning to leading Infrastructure-as-a-Service (IaaS) providers to satisfy their service delivery needs.
Partnering with a proven IaaS provider enables the SaaS vendor to obtain the expertise and experience necessary to properly configure their service delivery infrastructure to meet their customers’ expectations.
The IaaS provider can more easily and quickly deploy the correct infrastructure technologies at a more economic cost.
The SaaS vendor can also leverage the IaaS provider’s security and compliance certifications, rather than expending the resources and expense to obtain their own certifications.
And an IaaS provider can better monitor and manage these resources to ensure optimal availability and performance in a scalable and cost-effective fashion. This is particularly important in an industry that is experiencing exponential growth and accelerating technological innovation. Picking an IaaS partner that offers the right combination of leading edge technology and strong technical skills, plus superior support to quickly respond to client questions and concerns, is critical to meet rising customer expectations, keep pace with today’s technological advancements and overcome growing competition.
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