SaaS: IBM helps drive $10 billion Software as a Service opportunity

Will 30% of new business software be delivered via a SaaS model by 2010? IBM is doing everything it can to help make the industry prediction a reality, an IBM PartnerWorld reality in particular.
Written by Donna Bogatin, Contributor
Will 30% of new business software be delivered via a SaaS model by 2010? IBM is doing everything it can to help make the industry prediction a reality, an IBM PartnerWorld reality in particular.

Dave Mitchell, IBM, Program Director, Software as a Service, has a message for Independent Software Vendors (ISVs) and he delivered it personally to the New York software community last evening: “Regardless of your state of adoption, IBM can help you enable, deliver, and market your SaaS solutions.”

Keynoting at the New York Software Industry Association March meeting, Mitchell evangelized Software as a Service, underscoring “SaaS is helping fuel innovation.”

Mitchell put forth key “customer drivers” which are driving the SaaS opportunity to a $10 billion global one by 2009 by meeting the “challenges of complex, heterogeneous environments”:

Lower TCO for applications,
Scalablity without new infrastructure costs,
Shifting of  risks of software acquisition,
Access to latest infrastructure technology.

Fifty-five percent of IBM PartnerWorld members are considering offering SaaS, Mitchell noted.

SMBs were among the first to adopt SaaS as a cost-reduction and resource optimization strategy, Mitchell said. Now, SaaS is being deployed at the department level within the enterprise and poised to accelerate transformative, enterprise-wide adoption of SaaS as an integration platform.

The IBM SaaS model “elevator pitch” to ISVs:

Application functionality is delivered through a subscription model over the Internet; The subscription pricing model and low upfront investment helps ISVs enter new markets and access new customer sets. The customer does not take ownership of the software, but instead rents a total solution that is delivered remotely. The application provider defines the IT architecture of the service and is responsible for the deployment, operation, and maintenance of the IT infrastructure; typically operating a single instance of the application and managing all upgrades. ISVs will no longer need to support multiple platforms and versions, which can help to dramatically reduce support costs. ISVs can also bring out new features and functionality as desired, improving ability to compete.

The IBM PartnerWorld SaaS support for ISVs:  

  • Leadership in service reliability, security, service-oriented architecture (SOA), open source, and open standards;
  • World class, competitively-priced managed hosting services based on open industry standards; and
  • Access to global markets and sales and marketing support.

IBM currently works with more that 100 application providers who deliver their solutions in the SaaS model. “Whether you are a small company just starting out, an established SaaS provider, or an ISV featuring a licensed product today and interested in moving to the hosted application model, IBM can help,” Mitchell offered.

IBM defines SaaS adoption by stages:

SaaS Curious
Application delivery by license model today, but interested in learning about the benefits of application hosting.

SaaS Aspiring
Planning for a move to the SaaS model, evaluating managed hosting providers to help run infrastructure.

SaaS Startup
New company launching with the SaaS model, seeking market development assistance.

Saas Established
Delivering solutions in a hosted application model, exploring demand generation tools.

SaaS Expanding
SaaS market expansion, enhancing scalability and performance.

The ultimate IBM PartnerWorld ISV SaaS adoption level? Qualification for the “Software as a Service Specialty,” available by IBM invitation only.

IBM may be extending more and more invitations; Mitchell underscored “VC dollars are going into SaaS providers, rather than the traditional model.” Investors are attracted to the ongoing revenue streams and development efficiencies that SaaS offers.

The IBM Venture Capital Group is attracted to SaaS. Drew Clark, Director of Strategy, is charged with “communicating IBM's strategic imperatives to the venture community.” In an “On the Radar” report last year, SaaS was on the radar:

As IBM talks with SaaS companies—both "net-native" and traditional ISVs "playing the transition game"—we are starting to see some common threads. One that struck a particular chord with us is this: what if IBM were to facilitate or create a SaaS ecosystem to help dozens or hundreds of SaaS companies increase their sales while reducing their cost of sales? Could IBM provide an open, Web-based framework for aggregating their Web-as-platform services into a loosely-coupled marketplace offering?

At the end of the day, this is really about creating a Web 2.0-style community in the market; a place for dialog between SaaS ISVs, VARs, SIs and customers to collaborate, innovate, and generally make money along this new value network, much like a continuous supply chain linked to a demand chain. 

An “on-demand” chain!  

ALSO: "IBM VC Group propels ‘Innovation Ecosystem’: Exclusive interview with IBM Strategy Director" and "Social Capital Theory Meets Web 2.0, by Donna Bogatin"

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