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January 25, 2009


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John F. Martin

Thanks for the comment and insights on why ISVs are reluctant to switch, Jeff! There's another key reason that makes switching difficult and also allows SaaS companies to deliver more innovation, which I'll address in my next post.

Jeff Kaplan

Great analysis! When it comes right down to it, there are three primary reasons why on-premise software vendors are generally reluctant to move to a SaaS model: fear of potential product cannibalization, sales channel conflicts and cultural/operational barriers to success. However, a growing number of established ISV are recognizing that they have no other choice and must confront these challenges. In some cases, this will lead to some bastardization of the SaaS principles. But, it will also bring a new level of competition to the SaaS market.

John F. Martin

Mike and Peter, thanks very much for your comments and thoughts. It will be interesting to see how on-premise vendors try to make the move to SaaS. I agree the faster the better - for the reasons in your comments, the most likely approach to succeed is "all new customers after date X must be on SaaS."

Peter Cohen, SaaS Marketing Strategy Advisors

Thanks for the insightful analysis. There are, of course, other good examples of this resistance to innovation in the computing market. In the glory days of the minicomputer market, Ken Olsen of Digital Equipment referred to the PC as a "toy."

I'd suggest that the on-premise vendors may be making the move toward SaaS more difficult for themselves by trying to offer both options at the same time. They're thinking about SaaS simply as a different delivery mechanism, not as an entirely new business model which requires changes across the entire organization. As anyone who's waded across a fast-running stream knows, you're OK on one side or the other, but standing in the middle or trying to straddle both banks is very difficult.

Mike Dunham

Good write up - a couple of things that make the case stronger:

Infrastructure for a SaaS offering don't need to lead demand by a great deal if the instructure itself is cloud based and can both expand and contract to meet demand.

Subscriptions doen't have to be deferred, they should lead usage or be transacation-based, but it is certainly right to say that it is a big change for ISVs tied to a version upgrade cycle and big cash licenses. Premise-based ISV skills too are very hard to align with SaaS. Along with the economy, companies of all sorts need to operate lean and mean. The question for a lot of ISVs is - can we afford to run a development cycle for the next version and then lose sales to a SaaS alternative?

Unfortunately, for most the quesiton will be pushed aside and as you point out, the advantage will go to break out innovators. There will be a lot of thrash over the next couple years.

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