Mixing DNA… SaaS in the genes

No, not that kind of DNA mixing. This is the engineered variety, and it’s happening across the software industry to more than 10,000 independent software vendors. Genetically programmed to be product companies, the market now expects them to become service providers… to run their own software and deliver it as a service back to the customers.

Enterprise customers are shifting the complexity of running software back to the ISV, and expect the ISV to operate with the same best practices and deliver even better quality of service. But is it in the genes of a traditional software company to make this transition?

For most ISVs, transforming into SaaS is as challenging as changing their DNA. There are new metrics for measuring success, new expectations from the customer, and fundamentally new concepts like Service Level Agreements that were never a part of building a great product, sending an invoice, and raking in the annual maintenance revenue.

It’s more than just a new multi-tenant code base… transforming to SaaS means a change in the company culture for an ISV. The value proposition is different to customers; SaaS is demonstrated, sold and supported differently. Innovation and product updates are completely different in SaaS, and can be driven by real insight into how users actually use the software. The relationship is less about the ISV and the enterprise, and more about the SaaS vendor and the user. As bizarre as it sounds, most software has been designed to meet the “business needs”, not so much the “user’s needs”.

Which goes a long way to explaining why the tipping point toward SaaS hasn’t even arrived. Don’t misunderstand: SaaS is clearly the dominant delivery model for software. Every good software company launched in the last 18 months has included an on-demand component. And there is no denying SaaS is the future of the software industry.

But 10,000 existing ISVs, defending more than $350B in revenue have largely sat on the sidelines, resisting change and pretending to dismiss competitive pressure from upstarts with SaaS models. Sure there have been a relative few marquee names that have launched SaaS initiatives, but the software industry has a long tail, and the bottom 95% of companies (most with revenues under $30m) haven’t been “wagging” much… yet.

These smaller software companies aren’t going to sit the game out much longer, and most are already grappling with plans to transform their products to SaaS models. To get there, a change in genetic makeup is necessary. And the only way to effectively change DNA is to mix in some genes from outside the pool and give birth to something new.

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