Software as a service, or SaaS, has finally come of age. The latest incarnation of software for rent has timed its arrival to coincide with the cloud computing wave, and is receiving appropriately grandiose accolades.
"The business case is so phenomenally great for shifting whatever you can into the cloud," says Andrew Milroy, industry director, ICT Practice Australia for Frost and Sullivan.
Vendors are rushing to put out SaaS versions of their product lines, even at the expense of cannibalising sales of their hardware and software.
The ability to pay for all the benefits of technology on a monthly basis without investing in supporting hardware or a year-long software licence is already having a profound effect on the IT industry and will inevitably permanently reshape the channel. Simply put, the savings SaaS brings over in-house solutions can be massive.
A 25-user organisation which uses a stand-alone email server that backs up to a disaster recovery site can replace it with a software service and save $25,200 over the four years of the server's life, according to an online calculator provided by Symantec.
Return of the ASPs
Many people involved in software-as-a-service will tell you that application service providers (ASPs) did it first, at least 10 years ago. However, there has been an evolution on both sides of the fence. Software has improved in quality as has its delivery mechanism and the interface to control it.
The maturation of web services and a growing pool of experienced developers has seen software become better at taking advantage of the internet. Code has been written to internet-compatible standards, programs can draw information from public sources or connect to internal data flows and software can present the data in more visually digestible and useful ways. Virtualisation technology gave application hosters massive economies of scale, easier management and allocation of cheaper resources. This has seen cost for software drop - in some cases, such as Google Apps and Gmail, all the way to zero.
Delivery has been an important element. Workable browsers have appeared on every device right down to the mobile phone. And now it is possible to access data anywhere, whether it is in a spreadsheet, a database or document. Virtualisation and improvements in streaming have also made in-roads in overcoming limited bandwidth.
One major attraction of software-as-a-service is that many products can be configured, activated and deactivated by the user on the fly. In the past the customer had to call the ASP and ring through the changes. This greater flexibility and control means the end user is more likely to get exactly the type of service they want. That translates into greater productivity through improved business processes, higher customer satisfaction, lower cost - or potentially all three.
And on the other side of the fence there has been a gradual increase in consumer awareness. Hosted applications, in particular hosted email, make a lot of sense given the complexity of saving, backing up and archiving emails.
And Google's success in the consumer market with Gmail has stood on the shoulders of Hotmail, Yahoo and other free web-based email services to best demonstrate their low-cost appeal to business.
Salesforce.com broke down barriers around data confidentiality while proving that complicated and critical applications such as customer-relationship management (CRM) could be run through a browser just as well as on a local server. The long list of reasons for avoiding ASPs has been whittled away.
Businesses must now start asking themselves why they wouldn't rent instead of buying their IT.
Security on a string
Security has been one of the longest standing areas in the SaaS market. Another product sold by ASPs before 2000, it has evolved into one of the most mature and widely adopted SaaS products.
While companies of all sizes are interested in security SaaS, small and medium business is an easy sell, says Jeremy Hulse, Asia-Pacific vice-president of M86. "Customers in SMB can't run these systems [in-house] any more. Even anti-spam and anti-virus, they don't have the admin skills to set up filtering," he says. Enterprise customers are talking about using or have started trialling security as a service because they believe they can shift rudimentary functions into the cloud without breaching security requirements, says Hulse.
"There's a level of acceptance where everybody undertstands that SaaS is going to offer them better value," says Hulse.
In terms of hosted security, email messaging is still quite small. I wouldn't put the stake in the ground and say it's taking over appliances at the time. Marina Beale, security analyst, IDC
From a global perspective it won't be until 2012 that the SaaS market will overtake appliances, says Beale.
Message Labs, the acquired company behind Symantec Hosted Services, was one of the first to enter hosted email security 10 years ago and has been represented in Australia for the past six years. It has accumulated 3800 customers from SMB to enterprise. The brand is well known and Symantec has capitalised on that reputation.
"As people come out of multi-year agreements with competitors we are being invited to every single table to discuss cloud security," says Keith Buckley, sales director at Symantec Hosted Services Australia and New Zealand.
Buckley says he has seen a "genuine shift in mentality in the customer base and a real interest in wanting to know more" about SaaS. Buckley says data-centre sprawl has been pushing IT costs one way and the global financial crisis has been pushing IT budgets in the opposite direction. Consequently, customers are looking to do things more efficiently, he says. "Outsourcing software and renting it as they need it allows people to focus on business-critical activities."
Symantec refuses to reveal how many resellers were accredited to sell its Hosted Services. However, it did say that 30 percent of Hosted Services resellers were enrolled in the top-level Certified Partner program, mainly for big outsourcers such as EDS, Telstra and IBM; 30 percent in the Authorised Reseller program including Datacom, Dimension Data and Data#3; and 40 percent in the entry-level Associate program, mostly SMB resellers and consultants.
One of the benefits of moving to a SaaS model is that a customer gets a guaranteed outcome with a service contract, says Websense's Andy Lake, general manager of SaaS security, Asia Pacific. Neither Websense nor Symantec have paid out on an SLA, for breach of security or service downtime.
Websense's email service is guaranteed for 99.999 percent uptime, to catch 99 percent spam and 100 percent of viruses, and with email delivered within 60 seconds and reporting and logs available within five minutes of request.
Web and messaging security have spearheaded this success, although security vendors are slowly adding extra features to their SaaS portfolios. In fact, there is little that won't soon be available as a service.
Data loss prevention, which stops employees inadvertently or otherwise sending delicate corporate information beyond the firewall, is one of the latest to make the jump for vendor WebSense. This includes end point protection, print and file, PCI compliance, dictionaries, and so on. Email compliance is already part of its SaaS product and web compliance is moving to the cloud this year, says Lake.
All eyes on Microsoft
Microsoft also has a cloud security play called Frontline. Like Google's Postini, it is not as well known as the security vendors' services, but it shows that security could become one element in a SaaS bundle.
However, it's not security that Microsoft is best known for. The big question is how hard will Microsoft push the online version of its Office productivity suite?
Microsoft first dipped its toe in the water with its less valuable applications. Sharepoint, Exchange Online, Live Meeting and Communications Server comprise the Business Productivity Online Suite (BPOS), which has been available in Australia for some time.
The Microsoft Office cash cow is still in beta under the name Office Web Applications (OWA). It includes all the favourites - Word, Powerpoint, Excel, OneNote and Outlook. Testers can access OWA through signing up for a SkyDrive account, which is Microsoft's 25GB hosted storage account. Microsoft has split its online products into several categories. The Live brand targets consumers; Online covers SMBs; and Azure is for IT professionals and developers.
The gradual transition to online is understandable as Microsoft is in a tricky position. Because SaaS can cut out the potential for a hardware sale, it can permanently change the value proposition between vendor and reseller. While this is true for all vendors and their channels, no other vendor has as big a channel as Microsoft.
Many resellers have made a living by selling licences and hardware for Windows servers, with all the consulting, installation, configuration and maintenance that entails. However, hosted email removes the need to have an Exchange server at all.
Instead of receiving a cut of the licence sale, BPOS resellers are paid through a referral system. SaaS resellers will receive a 12 percent commission in the first year and a 6 percent trailing commission "for the life of the customer while you stay their named reseller", says Gianpaolo Carraro, Microsoft Australia's "platform evangelist" for SaaS.
The upside of referrals is that it takes less IT skills to sell than IT hardware, which means a reseller might not need as high a skill set among its sales staff. The downside is that the reseller can no longer claim sole ownership of the customer.
If a customer dumps the reseller as the named provider of the SaaS service, the contract shifts to a direct relationship with Microsoft.
Several managed services providers have decided that this possibility is too great a threat to their business model and have opted instead to provide the services themselves. NSW MSP Netforce acquired a company that had sold DSL services under a referral basis for a telco, but one day the recurring revenues just stopped.
"Everything's really good when you're doing well, but as soon as you look at something else or have less focus on it, all of a sudden those commissions disappear because someone decides to cancel the contract," says Scott Atkinson, Netforce's director. "When you're paying a decent sales person six figures and over why would I want to develop someone else's revenue stream? It's just ludicrous. There are a lot of people in vendor-land who just don't get that."
Another flaw in the SaaS channel model is that a reseller has limited options in customising the service for its clients' businesses, and no control over uptime. The perceived value of the reseller in the customer relationship can rely too heavily on the vendor.
"If someone's hosted service goes down for however long and we end up being at the bottom of the queue because we only buy three of them, or it goes to an overseas call centre, I don't really see a lot of local support there," says Atkinson.
Netforce retains technicians and hardware to provide security and other software services to its customers through its own data centres. If a problem occurs, Netforce can give the customer detailed reasons as to how it has happened and confidence that it was being resolved immediately.
Another sore spot is new competition. Telstra's T-Suite, a platform that sells a range of SaaS products including Microsoft and Symantec, will target companies of all sizes right down to SMBs.
Carraro says the prospect of Telstra's direct sales teams targeting SMB customers is no cause for concern. "I think it's like any new channel entrant," he says, and denies the competition will severely impact the channel.
"Otherwise we wouldn't have done it. Partners are at the absolute centre of what we do so we wouldn't do things that would compromise the deep relationships we have.
"I would imagine that the majority of [customers] would go through the partner because that relationship already exists. It's just a natural evolution to the relationship to expand that to productivity online with software," he says.
Read on for Office as a service and when not use SaaS.
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