Software as a Service is one of the big trends in software today. Just ask the analysts:

• Gartner predicts SaaS revenue to reach $16B by 2013
• IDC predicted 40% growth of SaaS in 2009 because of the economic downturn (zero capex, pay-by-the-drink pricing)

Anyway you slice it, SaaS is a big opportunity. As the SaaS market explodes, some software companies find themselves scrambling to figure out how to ride the wave. Many ISVs, facing declining margins and competitive price pressure from SaaS pure-plays, are thinking they need to make the shift. But the transition from packaged software to SaaS is fraught with complex architectural, delivery and support considerations that are very different than a traditional license business model. If you are planning to adopt a SaaS model, consider the following before plowing ahead:

1. Be clear on the business drivers. What are the specific results you are trying to achieve? Beat back the competition? Increase margins? All the other kids are doing it? Once you define your business objectives you can align your architectural and personnel decisions with them.
2. Recognize the architectural trade-offs in performance v. time to market. SaaS or On Demand means different things to different people. Is the application just accessible over the web, multi-instance, or truly multi-tenant? Your choices will significantly impact customer experience, the leverage you get from your infrastructure and the support structure you?ll need to put in place.
3. Understand the impact on your organization. The delivery and support organization needed for a SaaS model is very different. You have operational issues to manage SLAs for network and application uptime and responsibility for maintaining customer data. In what ways will your organization need to adapt?
4. Be explicit about how you intend to execute. Michael Lombardi from the National Football Post has a great saying: “Don’t confuse hope for a plan”.  Developing your new SaaS product requires you to make R&D resource allocation decisions to ramp up the new offering that could impact support for current customers.  Do you have a clear set of priorities to work from?  Do you have a plan on how you’re going to support the customers who are providing you with current revenue?  How quickly do you want your current customers to adopt your on-demand platform and what incentives are you going to give them to get them to move on your schedule…without them explicitly knowing it?  How do you manage this dual development path without blowing your budget?

SaaS represents tremendous promise. A well thought out transition plan and effective execution will ensure that you capitalize on this important trend.

I was catching up on my Facebook posts and read IDC analyst Michael Fauscette’s latest blog post where he wonders whether the emergence of the tech mega-vendor driven economy mean the end of innovation?  Mike makes some excellent points in the article, discussing the roles of continous and discontinous innovation, but there were a few things that I think I’d like to amplify and some that he missed out on that I’d like to add.

1. I agree that many large companies struggle with developing innovations and that most companies focus on feature/function improvements that are just a function of corporate inertia.  But I also think that this discounts a very important problem: many software companies don’t have a good innovation management process. This is the probably the single biggest reason for failure to deliver impactful innovations and the most underrated aspects from an organizational perspective. If you don’t have a working funnel to evaluate new ideas and winnow them down to the few that get prototyped and implemented, you are left with a situation where you are hoping that the best ideas (or any ideas of merit) actually make it to your customers.  Worse yet, you lose the ability to track value of ideas generated and implemented, calculate an iROI (Innovation Return on Investment) are build institutional knowledge of what works and what doesn’t to inform future investment decisions. BTW, at Symphony Services we have another way of evaluating the return on innovations from a revenue perspective called the Vitality Index, as opposed to looking at cost driven evaluations like R&D  as a % of sales, # of patents, etc..
2. I also think we need to explicitly recognize that while start ups are usually the source of many of the discontinous innovations, many start ups are founded by employees who worked at bigger companies, and came up with good ideas that were not acted upon by the big companies in which they worked. So they leave, create their own company and try to bring them to market.  Even some of the most progressive companies like Google, who promote the fact that they want their employees to spend 20% of their work time on coming up with new ideas, leave thousands of “inventions” (it’s not an innovation unless it generates revenue or reduces expenses) on the table each year (sometimes for good reason) and people still leave to develop their own ideas.  This is actually a very beneficial thing in my view and keep a healthy innovation ecosystem alive and well.
3. Michael also points out that due to the premise of delivering better, more predictable returns for their shareholders, the big mega-vendors don’t make the investments in R&D to generate these new innovations.  I don’t think that’s actually true.  Microsoft spends billions, but seems to get very little in return.  Many times I guess they’re just spending on the wrong things.   For the large companies, I think it’s generally cheaper — and easier — to let others invest in new ideas and then just acquire the companies that are successful.