Summary
SaaS is stepping front and center in the software market. Subscription managment skills will become increasingly important. Managing customer relationships within software companies will replace license management as the preminent skill. Operational excellence for ISV's in the management of software subscriptions will change the way ISV's think about distribution.
Analysis
It is clear that software as a service (SaaS) is increasingly drawing attention for software developers and investors. Last week I spoke with the found of a start-up in the field of semantic marketing. The founders of this company think SaaS is almost the de facto expectation in the marketplace. Last month while at a conference hosted by Salesforce.com a panel of five high profile VCs all expressed high interest in SaaS opportunities. In fact two, indicated that the only software investments they will look at are SaaS solutions.
Today's article in the WSJ indicates the launch of a broad test of software services that Microsoft (MSFT) will make available to small, medium and large businesses. The question of whether Microsoft can win in a SaaS world will likely be answered within the next 24-36 months. The Yahoo! acquisition is an important step for them in this effort. Adoption rates of Google (GOOG) software will be another tell-tale sign (not their advertising engine - but their software apps business). The continued growth of Salesforce.com (CRM) is one more bell weather indicator to watch.
Google is clearly pursuing an ad supported software business model. The apps are free, all supported by the generous profits of their advertising business. Salesforce.com offers only a subscription service and does not rely on advertising revenue to support the adoption of their hosted solutions.
Microsoft appears to want both. They are trying to buy Yahoo! and compete with Google in the advertising space - and they want to charge a suscription for their software applications. They are very late to the party in competing with Google, which has dominant market share and preeminant brand recognition. The subscription model favored by Salesforce.com is much more in its infancy although growing nicely. Microsoft has a better chance of winning with the subscription model than the advertising model - and it provides a more natural extension of the brand from their traditional software business. Time will tell whether they can win on both fronts.
Other companies to watch that will be impacted by the evolving SaaS industry include Digital River (DRIV) and GSI Commerce (GSIC).
