The Change from On-Premises Software to Software as a Service

While watching President Obama’s speech about health care reform last week, it was clear that there is no stopping the dynamic of change that permeates everything today, from economic turmoil to international conflicts to bankruptcies of storied companies, and now health care. While most agree that health care reform is necessary, the road to reform will likely be long and difficult.

Change is also clearly in play in enterprise computing, as the industry shifts from on-premises software to software as a service (SaaS). In a white paper published last week, “A Software-as-a-Service Primer for Independent Software Vendors,” Jeff Kaplan of THINKstrategies made it clear that the path from developing and selling on-premises software to SaaS also requires many steps.

According to Jeff Kaplan, an on-premises software company moving to SaaS must re-architect and re-package applications for the Web; restructure revenue recognition to comply with accounting standards for selling services rather than products; and re-orient R&D, sales and support staff to sell and deliver SaaS solutions that quickly meet customer expectations and keep pace with increasing competition. He further segmented these large initiatives into 15 elements of a SaaS strategy.

While on-premises software vendors work on producing SaaS products, SaaS independent software vendors creating native SaaS applications face other challenges, including the ability to survive in a market with low barriers to entry and in difficult economic times. Most SaaS companies simply cannot afford a sales force large and experienced enough for effective direct sales to enterprise customers.

Enterprise customers are also experiencing great changes. They are caught between initiatives to streamline operations and cut costs, and concerns over compliance, security, the viability of SaaS providers, and the time it will take for established on-premises software vendors to re-engineer their applications and operations to support SaaS.

The roads to economic recovery, health care reform and enterprise cloud computing will all take time and effort. How do you think the change from on-premises software to cloud-computing solutions will play out in your organization?