Tuesday, September 9, 2008

Strategic value propsition for SaaS and IT Service Providers

This post gives a high-level description of a strategic value proposition for IT Service providers working with SaaS and network service providers in the enterprise space, and introduces the concept of an enterprise online interaction platform that leverages the power of Web 2.0 technology to accelerate usage of SaaS in the enterprise.

IT Services providers should engage at the highest level with networked IT service providers in strategic partnerships with a single shared objective to increase penetration (orders) and usage (revenue) of SaaS delivered to enterprise segment customers.

The resulting operating model should leverage the customer intimacy IT Service providers enjoy with their enterprise segment customers in order to accelerate the adoption of SaaS by new customers, and also to increase usage of SaaS already deployed for existing customers.

SaaS is now a mature delivery model...
Over the past 10 years or so, the Software as a Service (SaaS) delivery model has evolved through different generations:
  • Generation 1: hosted application service provider (ASP) model characterised by inflexible software vendor licensing and rigidly packaged 'one size fits all' functionality.
  • Generation 2: 'pure-play' web-based applications developed 'ground-up' to provide more flexibly packaged departmental functionality such a CRM, ERP, Financials and HR (e.g. SalesForce.Com, Plexus, NetSuite, and WebEx)
  • Generation 3: 'hybid-SaaS' applications such as Force.Com (SalesForce.Com today), RightNow, and SAP (MySap/NetWeaver) characterised by application programming interfaces (APIs), complex ecosystems of ISVs, consultancies, and emerging partnerships that offer faster deployment, and support extended customizations and integration requirements for enterprise IT and business users.
The SaaS community has clearly converged on agreement that the best way to accelerate adoption of SaaS is to view it from the end user's perspective — it's their needs that must be satisfied by the SaaS vendor's chosen delivery model.

Network service providers are transforming their businesses...
Over a similar period, incumbent European networked service providers have been heavily involved in the evolution of SaaS, or 'networked IT', and SaaS is now an established component of their business strategy and product portfolios. Network service providers have accelerated their investment in next generation networks and supporting infrastructure and are part-way through strategic transformation to become next generation network service providers. The return they will realise from their investments in these vast data service delivery capabilities is dependent upon the volume of data they can route across this next generation infrastructure. The cost of delivering a traditional voice service is reduced by up to 90% when that service is migrated from legacy circuit-switched infrastructure to the next generation network infrastructure – so it's clear that the required data volumes will not be achieved without the addition of new data services and an increase in usage of existing data services.

The end of the on-premise software gravy train…
Large traditional IT Services companies have dominated enterprise IT for decades. These companies have grown rich on profits from the armies of their consultants needed to implement, integrate, customise, maintain and operate monolithic on-site enterprise software applications and hardware. These IT Services companies have been slow to recognise and adapt to the tectonic shift taking place in the software industry around SaaS. Hooked to the economics of on-premise software deployment, large IT Services companies are finding it difficult to adapt their business models and organisations to the new paradigm; they have not invested in new capabilities needed to keep pace with the evolution of SaaS. There is now evidence that the largest enterprises are beginning to move from small departmental SaaS ‘experiments’ to wide scale adoption of SaaS across departments, divisions and business units involving thousands of end-users. Traditional IT Services companies risk being slowly disenfranchised in the enterprise by smaller and more agile ‘customer-centric’ competitors focussed on the provision of ‘IT Services 2.0’.
‘IT Services 2.0’ providers use the enabling power of Web 2.0 technology to put more emphasis on the customer and end-users, at the core of innovation. The application of Web 2.0 technology to SaaS and IT Services accelerates innovation, and focuses application development and deployment to increase adoption and customer satisfaction in the enterprise. IT Services 2.0 use the power of Web 2.0 to enhance the customer experience using mash-ups, social networking, knowledge sharing and collaboration functionality, to encourage interaction amongst service users by stimulating the development of highly-valuable managed communities and knowledge networks. This is a highly desirable ‘premium position’ in the value-chain that is close to customers and intimate with end-users.

The opportunity...
A significant opportunity exists for IT Services providers to add value for enterprise customers by partnering with SaaS and network services providers in order to develop solutions around an 'online interaction platform' that can leverage the power of Web 2.0 to accelerate usage and adoption of SaaS. When I use the word “platform”, I don’t mean a stack of hardware and software in a data centre, I mean a proposition that is focussed on leveraging the value of networks and communities in order to stimulate innovation and accelerate usage of SaaS by enterprise end-users and drive revenue for network services providers.
Software and hardware will be required, but success will be almost completely dependent upon the IT Service providers' ability to leverage their customer intimacy in order to make the enterprise online interaction platform work. Currently no IT Services players have established dominant positions in this space, though the large enterprise software vendors have been quick to address the opportunity. Microsoft in particular is promoting a comprehensive suite of communication, collaboration, knowledge sharing and business intelligence tools with the combined functionality required to provide online interaction platforms for future IT Services 2.0. The key to unlocking value from this functionality is the intimacy and trust that IT Service providers enjoy with their enterprise customers, and the knowledge and experience they possess of their enterprise customers' business objectives, processes and culture.

What are the next steps...
IT Service providers need to act to secure their position in the value chain through adoption of IT Services 2.0 tools, technologies, and processes. The enterprise SaaS online interaction platform is strategic and has high growth potential for IT Service providers with a focus on the telecoms and media industry, though the IT Services industry generally is still unsure about the economics of IT Services 2.0, and it is unclear how to make money! All said and done, the strategic nature of the proposition means that efforts should be continued in order to quantify the value proposition for the enterprise online interaction platform through experience gained working with SaaS and network service providers on targetted and focussed activities to develop and deploy individual components of the platform.

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