Software as a service (SaaS) is defined as a model of software deployment where an application is licensed for use as a service provided to customers on demand.

The ongoing economic slowdown has made SaaS synonymous with opportunity. According to a report by Jamcracker, a Santa Clara-based supplier and distributor of on-demand services, the market opportunity for SaaS is estimated to be more than $140 million (Rs 700 crore) by 2010 with the potential of scaling up even higher. However, a report by Springboard Research values the Indian market for SaaS at $27 million in 2007, which is expected to grow to $165 million by 2011.

The benefits of this on-demand service include rapid return of investment (pay as you go) as opposed to capital expenditure system, low cost of ownership, improved security and availability, and better scalability as it is easier to adopt and expand the implementation.

Praveen Sengar, senior manager, IDC India observed that with increasing credit crunch enterprises will curb their upfront spending  on IT and will opt for an installment-based spending. He said, “Today, around 2 per cent of all enterprises might be keen at SaaS, but the unique feature of part-by-part payment that comes with SaaS, will drive its demand and adoption to 25 per cent of the total enterprises.” Broadband infrastructure and higher adoption of the Internet are poised to play important roles in the SaaS adoption in small and medium-sized enterprises (SMEs). Sharing the viewpoint, Gartner said in a report that approximately 5 per cent of business software revenue in 2005 represented SaaS. However, by 2011, around 25 per cent of new business software will be delivered as SaaS, according to the report.

Observing this opportunity, many software companies have started offering SaaS to their clientele. Almost all the IT companies like IBM, Wipro, Seagate, Symantec, Trend Micro, Microsoft, and HP have joined the bandwagon, with McAfee being the latest to join the list.

Until now, majority of the deals have been targeted towards large enterprises, while small and medium businesses (SMBs) that are becoming aggressive in IT implementation are probable buyers. According to a recent Gartner report, small, medium and large businesses alike are realizing the business benefits of SaaS and are actively considering its deployment.

However, apart from the vendors, SaaS is also a good opportunity for the channels. It helps them to add value to their portfolio and escalate from box-pushers to service providers. According to the Jamcracker report, SaaS offering vendors can become a part of the IT organization of their customers. This stands true for the SMB segment as well. There is no proper IT team available and the customers look up to the vendors for turn-key projects.

However, the channels need to be well prepared to tap the potential vendor segment. Resellers will need to align with new SaaS customers and try to develop rapport and demonstrate the benefits of SaaS, the foremost being the short-term return of investment.

With this, the ground for SaaS offering is set—the channels are geared for deploying SaaS and customers are ready for buying it. However, the major element behind every successful deal is partner training and knowledge. This is where vendors play a key role. Almost all the vendors have a separate partner program for their channels.

At present, major projects of SaaS are on enterprise resource management (ERP), including customer relationship management (CRM), supply chain management (SCM), and sales automation. According to the Springboard Research report, 45 per cent of the SaaS market in India will be for CRM in the next couple of years. Other potential markets that are opening up include email and collaboration software, information security and marketing tools (managed enterprise data management).

With opportunity come risks and challenges. For vendors, the main challenge is the lack of awareness coupled with apprehension regarding the success of SaaS. Since channels do not own the software, there are concerns about immediate redressal of faults, especially in an emergency.

Secondly, SaaS is at a nascent stage in the country and is yet to prove its value for the partners. Since the service has not gained in the market, the margins in this business are around 5 to 10 per cent, which is still lesser than the common expectation of around 25 per cent. However, with increasing adoption, SaaS is expected to reach a level where the demand will determine the price of the offering, making the whole implementation worth the effort.X

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