Success-based SaaS

The failure to understand the operational challenges associated with Software as a Service (SaaS) helps to explain why the first wave of SaaS vendors crashed and burned a few years ago. Back then, such vendors called themselves application service providers  (ASP). So what's different this time?

I'm persuaded that the Saas movement is on more stable ground thanks to the infrastructure and operational expertise of today's SaaS enablement companies. Whether the enabler is IBM, JamCracker or OpSource, it's clear that software companies and other fledgling Saas providers now have the capabilities available to them to develop, launch and operate a credible and scalable service on an on-demand basis. They no longer are forced to do it themselves.

The SaaS enablers are taking the movement far beyond the traditional ASP "managed services" operations that were associated with companies such as Corio and USinternetworking. To a great extent, the ASP movement was a horseless carriage. With a big nod to Marc Benioff and his relentless committment to the movement at SalesForce.com as well as other pioneering companies like RightNow and NetSuite, the business, pricing and delivery models for software are now truly being transformed.  

While there is no space to discuss all of the market differentiators and operational capabilities of today's SaaS enablers here, one differentiator that I find particularly important is something OpSource calls "Success-based Pricing." Rather than charge its software vendor clients on a per license or per server basis, it charges them just as they would charge their customers. It is priced based on a "pay as you go, shared success model." In other words, OpSource will share the risks and rewards with its clients, enabling them to invest their precious capital in relation to actual business growth.

This is the direction the software industry needed to move. The future of the industry will revolve around deep alignment -- shared risk and reward -- between company and client.

Mike Mankowski, SVP, Tier 1 Research, is particulary fond of OpSource, which has lined up an array of clients such as Agile Software, Kana, and Blue Martini. But what Mankowski says of this impressive SaaS enablement provider should be applied to the SaaS movement overall. Software companies, he contends, "should take a hard look" at the approach. "It could mean the difference between life and death in the software world.”