| I hate it when a market matures. Sure, the profits | | | | that sell bits on CD keep 31%, almost three times as |
| are more predictable, but the excitement evaporates. | | | | much. |
| Kinda like getting married. | | | | So why would Microsoft be at all interested in SaaS? |
| As a marketable technology concept, SaaS has | | | | Microsoft rakes in a lot of money from software, |
| matured. This is evidenced by several factors, from | | | | upgrades and technical support services. Given that |
| adoption rates by enterprises, and by seeing | | | | the average cost of goods sold and SG&A |
| companies with the most to loose from SaaS | | | | expenses are so much higher for SaaS than |
| competition joining the fray. The giddy days of SaaS | | | | Microsoft's existing business model, it would seem |
| are soon behind us, but reduced profits ahead. | | | | suicidal to adopt SaaS. |
| The good news is that enterprise customers have | | | | "The industry will change," is what Allison Watson, |
| shaken their SaaS jitters and are adopting services at | | | | the corporate vice president of Microsoft's worldwide |
| a fair clip. A recent survey of CIOs showed some | | | | partner group, said in a recent interview. Microsoft is |
| interesting numbers: | | | | old and cagey enough to spot trends, and know |
| 10-15% of IT budgets are spent on SaaS | | | | when to not fight them. SaaS will dominate in some |
| 86% are using SaaS non-experimentally either for | | | | markets, and CRM is the top achiever ( 36% |
| department point solutions or corporate wide | | | | enterprises that have deployed SaaS deployed |
| An average of six SaaS solutions are in use in an | | | | SaaS-based CRM applications ). added 253,000 new |
| enterprise | | | | seats in 2006, and Microsoft had far fewer with their |
| 73% of the CIOs plan on expanding use of SaaS | | | | Dynamic CRM product ( some estimates claim that |
| This bodes well for software companies who bet the | | | | Microsoft owns a mere 1.4% of the total CRM |
| farm on SaaS. Adoption and satisfaction rates are | | | | license sales ). Thus, Microsoft is entering the SaaS |
| high and growing, which drops the barrier to adoption. | | | | market and targeting the low end, with a long-term |
| SaaS will soon be given equal consideration in all | | | | plan of up-selling SaaS accounts to software licenses. |
| project planning within IT. | | | | Microsoft's changing strategies avoid treating |
| And all a pure play SaaS software company has to | | | | software as a zero-sum game. They see when they |
| do is make less money. | | | | are being cut out of a market, and drive to adapt -- |
| The McKinsey Quarterly reported that SaaS | | | | to claim or recapture market share. Knowing the |
| software vendors do not make as much as | | | | lifetime value of a customer, they are willing to suffer |
| traditional software firms. This may be a side effect | | | | lower margins in a highly competitive market to gain |
| of being a relatively new offering, and that SaaS | | | | customers, and begin the insidious processes of |
| start-ups face significant SG&A costs (49% of | | | | creating interdependencies between Microsoft |
| revenues compare to 35% for a traditional and | | | | products, and raising customer switching costs. |
| established software concern). But the net effect is | | | | SaaS is now officially here to stay, so you had best |
| that today a SaaS software company keeps about | | | | think through SaaS as an offering. It may be on your |
| 13% of their revenues as profits (EBITDA), and folks | | | | customer's requirements list. |