Software as a Service (SaaS) is booming, given the rise in mobile and cloud technologies. Research indicates that more than half the business software acquisitions by 2014 will be cloud/ SaaS based. The latest industry projections indicate that the global spending on

SaaS applications will increase significantly over the next two years.

But this also means some evident challenges for Independent Software Vendors (ISVs) as they move ahead in their SaaS journey. For decades ISVs have focused on creating and selling software. Now, given the SaaS model, they must run it too. This implies being on top of the customer’s business and creating an ecosystem around products.

Interestingly, traditional leaders in global software markets have quickly jockeyed into position with financial engineering, providing an op-ex model to clients. They hastily invested in smaller companies offering SaaS products, so that their clients can leverage SaaS models. However, these large ISVs are now in the unenviable position of selling disparate solutions to retain clients. The end result is growing complexity, which makes it very difficult for their clients to on-board and get off just as easily– which is quite the opposite of what SaaS is meant to enable.

The SaaS model is as promising as it is challenging for ISVs. There are five key SaaS delivery related challenges before ISVs today:

• Product Evolution: ISVs are not very keen to re-engineer their products because those still contribute to the bottom line. But their clients still need to use core solutions which have been built over years; if not decades. To align themselves with evolving customer needs, ISVs need to re-engineer these products. The skills required to do that may no longer exist within the ISVs’ organization, thus hampering their ability to remain competitive.
• Customer Retention: In a SaaS delivery model, customer retention is possibly the biggest nightmare before an ISV. Customers don’t want to get locked in by an ISV. They want solutions that make it easy for them to switch products as well as migrate from a provider when necessary. This means an ISV must adhere to standards that enable a quick switch or migration. In such an environment, how can an ISV retain customers?
• Building Customer Insight: In a SaaS universe, ISVs need to track customer usage patterns and make rapid adjustments to their product. This requires building real-time analytics capabilities. However, analytics may not be their core competency. In such cases, the ISV needs assistance from an SI to develop valuable customer insights.
• Business Agility: The biggest question that ISVs face today is - 'How to become more agile' in a SaaS model for their products? How do they respond to customers quickly?
  
• Customer Experience: In the SaaS model, an ISV sells subscriptions and pay-as-you-go solutions. Therefore, revenues are tied to returning clients. A customer’s experience can spell the difference between success and failure.

ISVs are beginning to realize that selling a service is vastly different from selling a product. The lines between product, licences, implementation, integration, upgrades, support and other services are being blurred by SaaS. To address these challenges, ISVs need to partner with an SI who specializes in automation and has the tools and point solutions to deliver a service. I will talk about the role of SIs in my next blog.