The Hindu Business Line : Apply a new model

While some refer to this approach as hosted Application Service Provider (ASP) version 2.0 or Web 2.0, others prefer to call it SaaS. Sumeet Sabharwal, Managing Director, Navisite India, says independent software vendors (ISVs) and enterprises, cutting across verticals, are taking to this approach as they find it suitable in terms of overall cost of ownership. Navisite specialises in SaaS and partners over 70 ISVs, providing hosting services and offering services to 1,110-plus customers across 15 data centres.

Sabharwal tells eWorld, in a chat, why this approach makes business sense. Excerpts:

SaaS is being referred to as the next wave in the making in the tech sector. How do you see this?

Competitive pressures and a rapidly changing market challenge ISVs, who have been forced to seek new models for growth. One such model is Software as a Service. This enhances an application's value proposition by providing its capabilities as a set of business services, available through a secure and reliable service-or hosting-provider, as opposed to a software licenceand set of professional services delivered to the end user.

The forces driving the change to SaaS are varied, including the changing business dynamics. Organisations want to rapidly capitalise on new technologies, methodologies and processes to conduct commercial transactions, and to broaden their market reach in the move towards globalisation.

Would small and medium enterprises be more comfortable with this option?

The companies best suited for this model are SMBs. However, even large enterprises see the value of utilising it for those applications that are used within certain departments or lines of business, because they save the need for a global IT deployment of an application not used by everyone.

SMBs typically do not have the financial and human IT resources to develop, deploy and manage complicated technology infrastructures. They seek to enter new markets and expand existing ones, which requires rapid entry and continued growth. By using outsourced SaaS services, companies can procure a computing environment that is more efficient and less expensive than creating one on their own.

Handing over the responsibilities of developing, deploying, managing and supporting applications to a service provider means that organisations are able to focus on the real technology and business issues that drive their success.

SMBs seek out technology solutions based more from a business rather than a technology perspective. The reason for this is because unlike larger companies, they do not have the technical skill set and resources to evaluate technologies from a strategic perspective.

Therefore, the purchasers of technology in these organisations are not necessarily technical people but rather employees oriented more towards the business side of the company.

These types of buyers are looking to adopt best practices via the implementation of standard software services with light customisation and integration, where necessary.

How big is the market?

The software as a service market is growing faster than the traditional packaged software application market.

IDC estimates that the market size in 2004 was $3 billion and it is growing at a compounded annual growth rate (CAGR) of 26 per cent, reaching $7.2 billion by 2008. Software as a service will be the business model of choice.

Gartner notes that "By 2008, more than 50 per cent of the software purchased will be via service (annuity), allowing vendors to enjoy a more predictable annuity revenue stream and more usage of Application Service Provider (ASP)/Managed Service Provider (MSP) hosting."

According to IDC, worldwide spending on the software as a service market reached $4.2 billion in 2004, an increase of 39 per cent over 2003. Worldwide spending will continue to increase over the next five years at a 21 per cent CAGR, reaching $10.7 billion in 2009.

Has this model moved to Indian shores?

The software market in India alone is expected to double over the next four years in packaged software spend. While piracy remains a prime concern, the growth of domestic players will create some pressure for reform. Success in these emerging markets will require ecosystem partners to innovate persistently in anti-piracy business models (such as pay-as-you-go and ad-funding) and delivery vehicles such as software as a service.

The presence of Indian companies in the software as a service arena is being felt across the board, even though some of these efforts are initially targeted at the US and Europe.

One of the more attractive aspects of this model is that these same ISVs can obtain new revenue streams by quickly repackaging their services for the domestic market.

This model offers additional benefits to ISVs that may not be readily apparent to those familiar with the traditional software sales model. One such benefit is the ability to increase licence sales through making the cost of delivering the solution both lower and more predictable than the traditional model.

What are the challenges in terms of providing services? In which verticals is this model taking root?

Software as a service players face an uphill battle for a number of reasons, including what is referred to as the 3 Ps — of Proprietary, Pricing and Piracy.

Proprietary: Trust of data security remains low amongst the Indian business community. This is improving steadily as companies look at service providers adopting global standards such as SAS70 and BS 7799.

Pricing: Software licences are sold at a drastic discount, as compared to developed markets such as North America and Europe. With increasing sophistication and complexity, the underlying software is becoming more expensive. At the same time, rapid strides in deploying a robust Internet infrastructure are reducing the price point of the underlying delivery mechanism.

Piracy: It remains an issue in India and is still a problem in the other manufacturing markets. But it is improving.

NaviSite plans to tap into this space, both from a global perspective, and India?

NaviSite's ISV enablement platform gives vendors an effective way to offer their software as a service, while reducing risk, lowering costs, and delivering the tools necessary for success. NaviSite provides the managed IT infrastructure, plus key ingredients to implement a profitable programme.

These span resources, management, backup and disaster recovery, platform tools and NaviSite's IT Management Portal-NaviView.

Today, NaviSite enables over 70 ISVs to offer software as a service.

Whether you are exploring on-demand software delivery as a new business venture or need enhanced scalability with your current infrastructure, software as a service capabilities can address specific business requirements.

Are other Indian service firms looking to this option?

For most ISVs, becoming a service provider themselves is cost-prohibitive and operationally risky since it is not their core business focus. So most opt for partnering with a service provider.

There is an increasing contingent of Indian outsourcers that are looking to service the `software as a service' market.

So far, most of the focus of these companies has been the global ISVs catering to the developed and mature North America and European markets.

However, these firms lack infrastructure and hosting capabilities, and are only able to service the software deployment aspects.

vrishi@thehindu.co.in