What goes around comes around. SaaS providers are under pressure to provide more flexible and adaoptive service offerings to stay ahead in the market.
Software-as-a-service is simply software that is owned, delivered, and managed remotely by one or more providers. The software is often designed on a common set of code or data definitions, which is generally consumed in a one-to-many model.
The business model is structured either on the basis of pay for use or subscription based and has severely disrupted traditional lifetime software licensing models. PwC predicts that over the next two years the growth of SaaS will be at a rate of about 21.3 per cent. However, changes to SaaS business models are expected as it matures which will affect both vendors and users.
Technology continues to evolve at a pace and even disruptive business models like SaaS cannot sit still. One of the main drivers for change expected in SaaS is that user businesses will come to learn more about the cost nature of SaaS models. As a result, they are likely to become more proactive in their approach to licensing model costs and in negotiating out some of the inefficiencies. Consequently, there will be an increase in software license optimisation and new models will have to be adapted by vendors to accommodate savvy customers.
Similarly, vendor companies will be aware that, so far, their SaaS models have been dependent on a single pricing mechanism or single licensing mechanisms. Thus, in order to maximise revenues software companies will have to alter and apply a range of licensing strategies. In line with this, SaaS models will have to be better managed as they move from single mechanisms to a multiplicity of diverse licensing mechanisms.
Meanwhile, app stores will have to extend to beyond simply providing access to company apps. SaaS models will also have to provide the ability to manage application usage, the reclaiming of unused applications and the minimising of waste.
Furthermore, software audits, particularly the BSA, are expected to increase as traditional software companies identify software license breaches to maximise revenues. The impact will not be concentrated but will affect companies large and small. In 2014, 21 per cent of software licensing audits produced about $1 million in fees for software vendors.
Data security is also becoming an ever more significant concern within the industry and as a result there will be a direct impact on data integration in SaaS models. Models will have to be adjusted and the issue will have to be adequately addressed at a network level.
SaaS software models will also have to adapt to the competition as more innovative vendors develop tools that improve their core features. Companies will thus need to increase their core offerings to enable customers to interact more with SaaS, both to drive fees in per-use based models and to ensure customer retention.
In the next 12 to 18 months there are going to be key changes to SaaS models that will require vendors to provide more competitive pricing and greater service flexibility. Meanwhile, software users will face more challenges through software licensing audits and their IT teams will be put under intense pressure with roll-outs and application readiness.
Due to the scope of the potential changes, software enhancement cycles may start to overwhelm user’s IT teams. This may affect their ability to compete in their own markets where they are dependent on the ability of IT teams to test new software appropriately before rollouts. As a result, the ability to upgrade and manage SaaS may impact competitive advantage. The companies that are best able to adapt and stay efficient on both sides will be the most competitive.