Today's SaaS environment in the B2B segment

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Today's SaaS environment in the B2B segment

Jan. 24, 2007

The capability of remotely accessing the multitude of available software resident on a central server has its roots in what was once called client/server technology. However, even client/server systems had their beginnings in vast and complex mainframe systems with remote (read dumb) terminals.

Overall, there are significant differences in each of those two platforms, but the big advantages and even the business models themselves share the same ideology.

The appearance and eventual rise of the personal computer, the Local Area Network and the network server itself further reduced the overall cost of most computer systems. Furthermore, the ability for even the smallest companies to host their own business class applications was also seen very favorably.

EDI (electronic data interchange) solutions then jumped onboard the enterprise server trend, installing applications inside the corporate firewall, using digital connections to B2B partners. Today, businesses that utilize EDI to drive inbound sales find they can't do without the speed and efficiency their EDI systems deliver.

At the same time, they also face mounting costs because of the growing demand for connections with their trading partners who are located all over the globe. Additionally, these companies are adapting to the growing trends pushing functions back further from the customer by asking their suppliers to perform some of the tasks the receiving company has done in the past.

The overall complexity of splitting single shipments into multiple deliveries, applying different labels to the different packages and even repackaging bulk shipments into smaller packages drives the need to get data and the right instructions to the correct destination and on time!

Moving the right information to multiple locations can certainly be accomplished within the EDI model. However, the availability of a variety of technologies has given B2B players a chance to look beyond the traditional model of locally-installed software and applications with discrete connections to each trading partner, toward a more efficient and simpler design.

The growing trend that fuels the popularity of SaaS (Software as a Service) is based on several factors.

As Jeffrey Kaplan, managing director of THINK-Strategies in Wellesley, MA. puts it, "there are two major reasons that SaaS has become a desirable option for companies of all sizes."

"Traditional software users have been enormously dissatisfied with the results of their deployments. They have seldom achieved the objectives they hoped for. Up to fifty percent of these major deployments either failed, ended up costing a lot more or offered less functionality than they had hoped for."

"As a whole, most software installations are cumbersome, requiring ongoing support, updates and technical support. Businesses have realized that while their company relies on the information in their databases, they aren't in the business of building and managing IT systems that enable their businesses to grow and prosper.

Another not-so-subtle shift has been taking place in the consumer world. As Kaplan says, "consumers have seen the marketplace deliver tremendous changes recently. Companies like Amazon.com, iTunes, eBay, Google and even YouTube have demonstrated that it's possible to make highly sophisticated applications responsive and simple to use. Of course these same consumers live in the corporate world and wonder why, if these kinds of advances can be made for consumer applications, are they not being delivered as corporate applications."

Evidently, consumer applications generally operate on a different business model than do enterprise applications. Most derive their funding either from subscriptions or from advertising revenues, while corporate applications are typically purchased.

However, reversing that revenue model can produce benefits for both the corporate customer and for the software vendor.

Kaplan added "there is a macro trend showing up now. In the past, IT assets were considered to be competitive assets, but now most are considered as commodities, so companies are looking for their least expensive options, and this has lead them to look at outsourcing vendors."

Kaplan continued by saying "outsourced applications are finding their own lowest cost options to be in delivering SaaS based applications. Companies delivering SaaS applications find the revenue model an answer to their old dilemma of a continuing source of revenue. Historically, software companies that sold their software charged annual maintenance fees."

"But in order to increase their income, businesses needed to correctly identify and then offer additional features and functions for which they could charge their customers. After a few years, users realized they had more features than they required and the upgrade cycle lost its value proposition for them," said Kaplan.

Today, the SaaS model provides continuing revenue for the provider, consistent expenditure, reduced administration and overall access to additional features and benefits for the user organization.

Kaplan pointed out to another growing trend, "the multivendor API ecosystem is evolving. Companies that provide SaaS applications encourage both their customers and other SaaS providers to coordinate their efforts." Businesses like Salesforce.com provide APIs (application programming interfaces) that allow their B2B partners to connect their software directly to one another."

Kaplan also said "Salesforce.com's AppExchange lists more than 400 integrated functions that can be used to expand the functionality of their system. Integration is going beyond simple connectivity. Partners are providing common look and feel to their user interfaces, so the transition from one application to another is fully transparent to the user. This greatly reduces the learning curve for users and makes the integration a simple process."

The change from locally-installed business applications with remote connections to network-based systems goes beyond just reducing expenses improving reliability. Kaplan points out, "the added functionality that SaaS systems are able to provide go far beyond traditional applications."

Precisely because these systems are location independent and available in real time from anywhere on the globe, they open up a wide range of possibilities for sharing time-critical information. "This has allowed the supply-side of the B2B segment to evolve in a new generation of business-oriented, user friendly applications that are addressing an assortment of corporate requirements. In the case of EDI, specifically the globalization of business.

Overall, the greater use of Internet connectivity has proven a perfect way to address the issues we face in doing business around the world.

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