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Survey Says Software Publishers Moving to Service Model

The majority of independent software vendors (ISVs) either offer or soon will offer software as a service (SaaS), according to a survey released today by the Software & Information Industry Association (SIIA).

Nearly half (49 percent) of the ISVs surveyed said they currently deliver products in the SaaS model. And more than a third (39 percent) of those who don't have Web-enabled products will have a product in the next year.

Potential new business appears to be the motivating factor in the move to SaaS. A whopping 89 percent of companies with current SaaS offerings cite new customers as the target market. Sixty-one percent said SaaS will open up new market segments. Of those companies planning to offer Web-enabled software within the year, 67 percents say attracting new customers is the reason.

"A clear majority of software publishers have incorporated the service model into their long-range business plans," said SIIA President Ken Wasch in a prepared statement.

Of course, if half of the respondents are offering products in the SaaS model, the other half isn't selling Internet-enabled applications. Respondents listed main three reasons for taking a wait-and-see approach:

  • Development issues (i.e., uncertainty on how to redesign current products for SasS model)
  • Security issues (i.e., how to keep customers' data safe)
  • Marketing issues (i.e., customers either aren't asking for it or have expressed resistance to it)

Respondents also cited channel conflicts with resellers, pricing uncertainty, return on investment and cash flow concerns as reason to hold off.

"We knew that a fairly significant group would say they are not interested — 'it's not my niche,'" SIIA Research Director Anne Griffith, told ASPnews. She also said that it was no surprise that there is a direct correlation between the age of the company and its move to the SaaS. The longer a company has been in business the more complicated it is for it to move to a SaaS model. "There's a big difference in impetus for some companies," Griffith said.

ASP Confusion
The majority of ISVs surveyed (53 percent) reported that they act as their own ASPs. This seems like an unusually large percentage, and according to Griffith, confusion over the term ASP may have been the culprit. "They may have been thinking, 'if I Web-enable my word processor I'm as ASP,'" Griffith told ASPnews.

"The term ASP is so imprecise. I don't think they [the respondents] meant hosting and infrastructure. Companies like Citrix and Softicity are [SIIA] members, but that's not who we surveyed," Griffith said.

The respondents also showed no clear preference to distributing SaaS. For channel partners, 47 perecent use integrators and consultants, 40 percents said they use their own sales force, 32 percent said they rely on traditional resellers and distrubutors, 31 percent use ASP or Web-based aggregators (such as Jamcracker). ISVs that deliver software as a service also reported that they are mixed on how they bill their customers. The most popular method (40 percent) was a subscription method over a contracted length of time.

No one clear application type jumped out as the killer app among respondents. However, business management software was the most likely to be offered in a SaaS model. Twenty-nine percent listed accounting, human resources or customer relationship management as the application type typically delivered. Communication products (e.g., messaging) were second with 26 percent, followed by vertical market software (24 percent), business productivity (16 percent) and personal productivity (11 percent).

Enthusiastic but Realistic
Of the companies offering SaaS products, 55 percent said the service has been in place long enough to judge to its success. Of those respondents, 51 percent said the service was extremely successful. Only 14 percent said it was less successful than expected.

However, 42 percent of companies with products said that they expect 0-25 percent of their clients to migrate to a SaaS model in next two years. And 36 percent said it will take five years for SaaS to overtake desktop or LAN-delivered applications. Twenty-one percent said it never will.

Griffith said the survey's 128 participants included both SIIA and nonSIIA members. The SIIA is a trade association with more than 1,000 members.