SaaS

CSFs for SW Vendors’ Transformation to SaaS

Dr. June Sung Park, KAIST | SEMAT, Inc.

Copyright © 2017. Dr. June Sung Park. All rights reserved.

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 TABLE OF CONTENT

SaaS Industry Overview

SaaS Business Revenue Generation

SaaS Business Cost Efficiency

SaaS Business Success Factors

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 SAAS INDUSTRY OVERVIEW

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 SAAS INDUSTRY MATURITY
Hype Cycle

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 SAAS INDUSTRY FINANCIAL PERFORMANCE
Revenue

Median annual growth rate of revenue was 27.9% while that for on-premise software was 6.1%
in 4Q 2016.

On-Premise SW SaaS

Software Equity Group, The Software Industry Financial Report: Q4 2016

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 SAAS INDUSTRY FINANCIAL PERFORMANCE
Profit

Median EBITDA margin for SaaS was -4.1% while that for software product was 16.4% in 4Q
2016.

On-Premise SW SaaS

Software Equity Group, The Software Industry Financial Report: Q4 2016

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 SAAS BUSINESS REVENUE GENERATION

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 REVENUE OF SAAS BUSINESS
Standardization and Mass Customization

Provide standard features in a single codebase to mass customers.

DO NOT change the source code for individual customers.
Provide mass customization for enterprise SaaS, without changing the source code.
DO NOT transform an on-premise packaged application to SaaS if you must support
customization, but are not capable of developing a product with mass customization
architecture.

Custom Production Mass Production Mass Customization Car Sharing

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 REVENUE OF SAAS BUSINESS
Standardization and Mass Customization

Mass Customization Capabilities

UI
Business Process
Business Logic
Data Model
Business Intelligence
Mass Customization Architecture
Parameter Configuration
Open API
Process Orchestration
Custom Metadata

9| http://www.netsuite.com/portal/platform/developer.shtml
 REVENUE OF SAAS BUSINESS
Demand-Side Economies of Scale

Create a mass market with a strong value proposition.

SaaS market for every application is already full of competitors.
Validate value proposition of your product with an MVP (minimum viable product).
Look for killer applications based on social, mobile, analytics and IoT.
Craft compelling user stories.
Follow Customer Development Process and Lean Startup Process to fail fast, fail cheap and fail often.
Generate revenue with near-zero marginal acquisition cost.
Build a nexus of relevant web traffic through links from search result, search ads, banner ads, websites,
blogs, feeds, widgets, bookmarks, toolbars, …….
Use free marketing tactics, e.g., customer journey map, automated lead nurturing, SEO, blogging, social
marketing, video, newsletter, case studies, interactive demos, product trial, ………
No advertising, no marketing campaigns, no sales calls, no manual order processing, ……..

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 SAAS BUSINESS COST EFFICIENCY

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 COST OF SAAS BUSINESS
Multitenant Architecture

Let all customers share a single instance. Salesforce.com:

Develop SaaS in multitenant architecture 16 production instances
using PaaS. 30+ major upgrades/year
Develop mass customization architecture 8 DBAs
that applies custom metadata at run time. 70,000 customers
17,500 web sites
18,800,000 customer customizations
OpSource CEO Treb Ryan says a multitenant 312,000 custom UIs
application (as compared to a single-tenant) can 309,000 custom workflow rules
reduce a SaaS provider’s cost of goods sold (COGS) 680,000 customer objects
from 40 % to less than 10 % since the cost of on- 81,000,000 lines of Apex code
boarding a new customer approaches to zero, 100M API calls/day
and upgrading is done on a single instance of the
13,500 custom applications
application.
800+ partner applications
Mobile app developed in 4 person-days
https://www.morpheusdata.com/blog/2017-01-25-why-multi- On-demand application developed in 3 weeks
tenant-application-architecture-matters-in-2017

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 COST OF SAAS BUSINESS
SaaS Architecture

Minimize CapEx.
Maximally use clouds including PaaS, IaaS, CMP for service development and enterprise SaaS for
internal business management.
Apply customer development process and agile software development process.
Bootstrap to fund your business.

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 COST OF SAAS BUSINESS
Value Chain Analysis

Minimize OpEx.
Reengineer business processes.
Maximally automate service business and operations including pricing, SLA, order management,
provisioning, monitoring, metering, billing, etc.
Maximally provide self-service interfaces for service level agreement, contract, subscription, customer
support, etc.

Select Validate Reengineer

Select PaaS & Develop
Customer Value Business Setup CMP
IaaS Product
Segment Proposition Process

Monitor & Support Develop &

Do Web Get Provision
Optimize Customer, Release an
Marketing Subscription Service
Operation Meter & Bill Upgrade

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 SAAS BUSINESS SUCCESS FACTORS

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 SAAS BUSINESS SUCCESS FACTORS
Ecosystem

Develop SaaS based on global leading PaaS, IaaS and CMP (BMC, HP, Cisco, Dell, EMC, Scalr).
Many vendors provide some combination of SaaS, PaaS, IaaS and CMP: IaaS+CMP (OpenStack,
VMWare), PaaS+CMP (Cloud Foundry, Red Hat), PaaS+IaaS (AWS) or SaaS+PaaS (Salesforce,
NetSuite), SaaS+PaaS+IaaS+CMP (Microsoft, Google, Oracle, IBM).
SaaS vendors should globally share infrastructure, development & operations platforms,
operation support services, business support services, developers and expertise.
Specialize in a niche solution and collaborate with complementors to provide “whole product
solution” to customers.

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 SAAS BUSINESS SUCCESS FACTORS
PaaS/IaaS/CMP Selection Criteria

Elastic, on-demand allocation and deallocation of shared resources for elastic scaling
Rapid response and optimized cost controls
Logical tenant isolation in a physically shared context
Catalog of standardized service options, self-service provisioning, configuration, monitoring and
management
High availability and disaster recovery procedures
Tracking of resource use, costing and billing
Management and control of security, privacy and compliance.
Nested multitenancy (subtenancy) for tenants of SaaS vendors including subtenant security,
tracking, billing and version control
Global, continuous and ubiquitous accessibility
Test non-functional qualities before selecting the vendor.
Gartner, Platform as a Service: Definition, Taxonomy and Vendor Landscape, 2014
Gartner, Magic Quadrant for Enterprise Application Platform as a Service—Worldwide, 2016.
17| Gartner, The Key Trends in PaaS, 2017.
 SAAS BUSINESS SUCCESS FACTORS
Business Development

Establish the business model before starting product development.

Reengineer business processes.
Make sure you have enough competencies to run the new business.

Business Web
Process Marketing
Platforms and Product Customer
Complementors Value
Proposition
Competencies CSB ?

Cost Revenue

18| Business Model Canvas (http://www.businessmodelgeneration.com/; https://strategyzer.com/)

 SAAS BUSINESS SUCCESS FACTORS
Product Development

Adopt iterative customer development process.

Adopt agile software development process.
Scrum requires world-class product manager and software engineers.
Look at extended Scrum such as SAFe, DAD, LeSS, etc. to assemble an agile process
that fits your capability level.

Customer Customer Customer Company

Discovery Validation Creation Building

Steven Blank, The Four Steps to the Epiphany-Successful Strategies for Products that Win, 2006.
Eric Ries, The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses, 2011.
Steve Blank, “Why the Lean Start-Up Changes Everything,” Harvard Business Review, May 2013.

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 SAAS BUSINESS SUCCESS FACTORS
Software Engineering

Enhance your software engineering

capabilities before starting development.
Requirement engineering using BPA, OOAD
and SOA practices and tools
Service-oriented architecture design
Incremental build and integration test
PaaS, IaaS and CMP skills
Exploit your ecosystem in product
development.
Adopt SOA so as to connect with
complementors, sell APIs and allow customers
to plug & play diverse SaaS including yours.
Build a developer community to add
functionalities.
Use crowd sourcing for product improvement.
Build a user community that provides product
feedback and shares product knowledge. Gartner, IT Market Clock for Application Development, 2013
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 June.park@kaist.ac.kr https://www.linkedin.com/in/june-sung-park-a66683/

https://twitter.com/junesungpark https://www.facebook.com/JP.Institute.of.Software/

THANK YOU
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