This McKinsey Quarterly article is right on point as to this emerging business model. See, http://atomai.blogspot.com/2008/03/software-as-service-overview.html. The three areas that software vendors must pay attention in this area are:
- Adjust the Revenue Model – Although initial sales costs are higher, a SaaS model target small and medium size businesses which are the driving force of revenues and profits during an economic recession. See, Tools During Economic Recession: Forecasting & Business Analytics; and Preparing Your Company For Recession.
- Build a Platform – Do not take too long to recognize SaaS as a profit center otherwise you could make the Microsoft mistake of not recognizing the Internet as a powerful media and advertisement generating revenue center. The catch up business model has proven to be an inefficient way to growth a business.
- Improve Internal Capabilities – “The biggest capability gap for software companies embracing the new model is in the operational and customer service skills necessary to deliver software online. The operational challenge is to host the software rather than shrink-wrap and ship it. Companies will have to develop capabilities to handle massive data center operations, systems and network monitoring, and billing.”Companies with a mature internet presence like Google, Microsoft, and Yahoo, have an advantage over smaller software vendors that do not the internal capabilities. On the other hand, the major companies must improve their decision making by making adjustments to those capabilities.
Business analytics allows companies to improve their internal capabilities efficiently. See, Explaining the Value of Business Analytics: Clarifying driving factors in a decision support system. Adjusting the revenue model is going to require executive management to allocate investment in a SaaS model. See, Enterprise Analytics: A Business Decision. The role of IT is to build an Internet-driven platform that supports real-time analytics. See, HP Delivers Real-time Business Information with Enhanced Neoview Capabilities.
A SaaS model is fundamentally based on the principle that every person in an enterprise can contribute to improve revenues and profits by making small incremental changes in their areas of responsibilities. See, Kaizen and Analytics: The Power of Each Employee to See Data. The next frontier of SaaS will be business analytics using mobile devices. See, Mobile Devices and Business Analytics.
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