A war is coming to the world of SaaS… the aggregation war. A bold statement to be sure, but one based on some fundamental truths. The notion of SaaS aggregation has been around for quite some time, with optimistic predictions that have yet to be proven out. So what is changing?
There are two sides to the SaaS aggregation war that need to be examined. First, are the trends and behavior of the business consumer. Businesses, particularly those with less than 500 employees, are now consuming a broad range of SaaS applications. A significant number of those support sales and marketing functions, collaboration, HR and of course general communications. Many of these applications, due to cost and complexity, were previously out of the reach of small firms. Now they can consume the same services as large enterprises due to the low barrier to access. There are any number of studies that show this trend of SaaS consumption is a great boon to the efficiency and productivity of small and medium enterprises. Additionally, the analysts tell us that the number of SaaS application consumed per business and per user is growing rapidly. This is great news for the cloud ISVs that deliver these services, but creates new challenges for the business consumers.
Not so many years ago, an entire category of IT solutions developed to solve the problem of Enterprise Application Integration (EAI). For those who may not remember, EAI was the idea that enterprises needed to understand what applications existed in their infrastructure, who was using them, or needed to use them and how to unify access. Now this problem has gone down-market and moved to the cloud. Small firms are beginning to have to tackle the same issues of user management, application discovery and unified identity across multiple SaaS applications. There are three scenarios to solving the problem:
1) Thousands of ISVs cooperating to build a standards-based solution.
2) Millions of SMBs deploying on-premise solutions
3) SaaS aggregation points that combine a catalog of SaaS apps with user identity/management and application subscription/management.
I’ll take number 3 please! Now we get to the second side, and where the fighting is going to take place. If we buy into the idea of SaaS aggregation points, and I do, the question becomes who is going to own those points? Most of the effort so far has been from the traditional network operators (telcos, cablecos and wireless carriers), which have produced less than spectacular results. Their advantage, and promise, is in their reach and scale. Their challenge is the level of commitment vs. their traditional business, their ability to execute a non-standard go-to-market and the limited mindshare they own in the IT services space. This is what has led to the failed optimistic predictions of the last few years.
However, we are starting to see some of these network operators learn from the last few years, adjust strategy and double-down on their investments. In addition, new entrants from the web presence, financial services, mobile device and retail sectors, among others, are changing the competitive landscape for SaaS aggregation. These type of players benefit from a high-value relationship with business customers and proven distribution strategies. What has become to clear to these companies is that the notoriously difficult to penetrate SMB market, is becoming increasingly accessible via SaaS usage. From an economic standpoint, it has also become clear that success in SaaS aggregation requires long-term commitment and willingness to operate at a loss for a number of years in order to gain share. Those companies that are expecting short-term profits or are unwilling to invest will lose. As the competitive landscape shifts and grows, the fight to win a significant share of the market will be brutal with no clear winners for several years. While the acceptance of SaaS as a valid model of software delivery is a forgone conclusion, the industry has a long way to go in optimizing efficiency and experience for the business consumer. War is coming…
by Elliot Curtis @ElliotDCurtis