Why Cloud Delivery and SaaS Models are an Imperative for Today’s ISV
Today’s ISVs (independent software vendors) are facing a simultaneously fantastic, yet daunting, set of market conditions. There are so many opportunities to create products that deliver specific and valuable benefits to customers. Innovative providers are creating products that are disrupting entire markets and often becoming the driver of next-generation technologies. A simple example is the mobile application landscape, where some of those apps are changing the future of mobile technology itself.
At the same time, the competition among ISVs has never been fiercer, and traditional ISVs that have built their reputation with on-premises applications are understandably nervous about adopting disruptive technology that can have a profound effect on their own company—specifically, delivery using cloud services. There are still many software providers that sell only on-premises solutions to their customers, denying both themselves and their customers the additional benefits that the cloud provides.
Yet this very denial can be part of a self-defeating strategy. A recent IDC report estimated that the cloud software market will grow to $112.8 billion and account for $1 of every $4.59 spent on software by 2019¹. While that only represents less than a quarter of the total software market, it is clear that this is where the future of software lies. In its most recent report, the Software Equity Group indicated that public software as a service (SaaS) companies grew at 28.5 percent compared to just 7.3 percent for public software companies that primarily offered perpetual, on-premises software².
So why are so many traditional software companies still nervous? First, making the transition to a cloud model can pose financial challenges. When you’re selling on premises, you’re used to a model that provides large infusions of revenue and cash from perpetual license sales and annual maintenance contracts, and shifting that to a subscription model can drastically reduce the upfront cash and recognizable revenue. Some fear that customers may still be leery of software that is not running within their own purview, though that fear is no longer an issue with most organizations. Many ISVs are not ready to take on the additional technical and operational responsibility of running the applications for their customers. Lastly, some ISVs are just not ready to do what it takes to become a leader.
While we understand these reasons, a company that makes their money selling software has to embrace the future of cloud delivery if they want to take full advantage of the opportunities ahead. The cloud can expand the reach of ISVs, allowing them to easily explore new markets and new geographies. It provides a flexible, scalable platform to experiment with new products and offers a better way to understand the usage of their solution. And it enables the company to innovate more quickly, addressing competitive pressures and responding to changing customer requirements.
Cloud-based offerings not only benefit the ISV but the customer as well. Increasingly, customers seek to lower both implementation time and capital expenditures. By transitioning to software as a service offerings, customers also find they can significantly reduce the amount of time and resources they spend on hardware & software management and maintenance. As a result, customers can redeploy resources on other projects, reducing or redistributing their IT burden. Additionally, ISVs can promote the added value of the cloud’s skilled resources, scalability, and 24x7 support.
All of these benefits add up to increased sales. And, unlike traditional on-premises licensing, the revenue stream from cloud-based solutions is much more steady and predictable. Customers are happier because they pay for what they use, and the solution can quickly grow as their business grows.
Every day, we are seeing more and more organizations show their preference for cloud-based solutions, causing many to embrace SaaS providers over their traditional ISVs. It’s imperative, not only for those ISVs who want to lead but those who want to survive, that they incorporate a cloud-based offering into their product roadmap.
Of course, once the decision has been made to pursue a cloud-based offering, there’s a whole host of other considerations. More on that in a future post or take a look at our new solution brief, “Selecting a Database: The Financial Impact”.
¹ IDC, “Worldwide SaaS and Cloud Software 2015-2019 Forecast and 2014 Vendor Shares,” B. McGrath, R. Majowald, Aug 2015
² Software Equity Group, “The Software Industry Financial Report, Q2 2016,” July 2016
As Chief Marketing Officer at NuoDB, Jeff defines and executes NuoDB’s go-to-market approach and drives all aspects of corporate and product marketing to create and capitalize on market demand. Jeff draws on more than 25 years’ experience of spurring customer adoption for pioneering data management companies through targeted product and company positioning and program execution.
Follow Jeff on Twitter at @jsboehm