Chicago Software Licensing Lawyer & Attorney : Sam Conforti Law Firm : Master Service Agreements, Negotiations, Outsourcing : Cook County, Illinois

 

The SaaS story remains the same, but now the approach must shift.  SaaS is cheaper to implement and the enterprise can avoid the upfront capital expenditures for hardware.  Since it is a service, the pricing is based on per seat use and so there is no initial cash outlay for the software suite.  You pay for what you use.  In this current economic crisis enterprises are ripe for a way to lower costs and so the approach the SaaS vendor should take needs to adjust to the times and the SaaS vendor must highlight the advantages in their marketing approach.  Demian Entrekin, founder and Chief Technology Officer of Innotas, has written an Op Ed piece for SandHill entitled 10 Predictions for Software as a Service.  In it he cites a Gartner study that predicts the $6.4 billion in SaaS sales for 2008 will grow to over $14.8 billion by 2012.  In his article Entrekin discusses the 10 key trends that the SaaS vendor should consider in order to expand their market share by encouraging acceptance of their application.  I will provide a brief synopsis of these trends below, but I strongly suggest his article to my readers for the full story.

10 Key Trends to Growth and Acceptance:

1.     Sell the product features:  Abandon the traditional approach of selling the whole product and emphasis the individual product features that address the individual business processes desired.

 

2.     The application is seamless:  SaaS is not restricted to the enterprise and more directed toward user networks.  This should lead to easier adoption.

 

3.     Have an Elevator Speech:  Just when marketing yourself for a job, one needs to be able to sell oneself in the first few moments of the interview, Entrekin suggests the SaaS Vendor be able to demonstrate added value in the first minutes of meeting the prospect.

 

4.     A Deming Approach:  W. Edwards Deming would emphasis “the ability to support a reliable, scale-able service at a low cost.”

 

5.     Emphasis Tier 1 Support:  Stress the capability of your Tier 1 Support and suggest the enterprise eschew the need for high priced consultants to answer what become high priced questions.

 

6.     Product Alliances are key to growth:  Make alliances with other SaaS vendors as a means to growing market share.

 

7.     Video rules the day:  Use video for training and support.  It is cheaper and much more interesting than the traditional text tools.

 

8.     Consider a full service Hosting Provider:  This is the point of most interest to me.  Entrekin points out that the SaaS Vendor obtains the same leverage from an outsourcer that they provide to their own customers.  This has the added benefit of leading to aggregation of applications and partnerships.

 

9.     Grid Computing:  SaaS vendors should build their applications so they are “cloud compatible”.  It remains to be seen if grid computing becomes cost efficient, but the SaaS vendor should be ready to take advantage if such is the case.

 

10.  Your approach can shift from the technology hurdles to a marketing strategy: Entrekin believes the hurdles getting the application to market are slowly but surely being overcome and now is the time to shift to a viable marketing strategy.

 

 

 

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Software vendors can increase their revenues during this prolonged recession.  How do these vendors make lemonade out of this lemon of a global economy?  They must look to their installed customer base.  Mike Smerklo, President & CEO of ServiceSource, has written an OpEd piece for SandHill entitled Delivering Predictable Revenue Streams.  ServiceSource is in the Service Performance Management business which aims to increase their clients’ service revenues by increasing the number of customers on maintenance and increasing the dollars spent on maintenance.

In economic downturns, such as we are now experiencing, customers defer new product purchases.  Although this is not a positive for software sales, it does increase the value that can be placed on enhanced maintenance and support services.  Software companies must continue to invest for the next generation of products, but enhanced maintenance today can drive revenue and provide the reliability that customers need.

Smerklo cites a Gartner study that the potential market for maintenance and support is over $180 billion annually and that only $150 billion is spent on maintenance every year.  It is easy to see that there is another $30 billion in potential maintenance and support not being tapped.  He increases our lexicon from the more familiar term “market share” to a new term he labels “service share”.  This is the total maintenance revenues available from the installed base.  And he lays out for us a complete 4 part service management strategy as follows:

1.     Technology Platform:  The vendor’s CRM must measure transaction data on the maintenance side down to the granular level.

2.     Business intelligence:  The analytical capabilities of the vendor must be able to show what the customers are buying and why some are saying no.

3.     Customer contact:  Must have the ability to help the customer extract the most out of their solutions.  This will enhance the relationship and could pay dividends down the road on renewals and purchases of new product.

4.     Benchmark against the competition:  Need to know your specific service metrics in comparison to the industry overall.

The Service Performance Management alternatives are as follows:

1.     Do Nothing:  All focus on product revenue and market share can come back to bite you especially on renewals.

2.     Build your own service management platform:  This could be costly.

3.     Partner with a Service Management Performance provider:  They have the expertise and the capabilities to manage on a global basis.

 

 

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Mobile Device Management:  Strategies for Smart Phones and PDAs

It is estimated that by the year 2011 there will be over 82 million mobile devices in the workforce.  IT departments will be tasked with providing controls over the deployment of these devices.  A good mobile device management strategy is essential to ensure that risks and costs are in control.  The payback will be increased productivity.  Lisa Phifer, vice president of Core Competence Inc., a consulting firm specializing in network security and management technology, has put together a checklist of such strategies in her whitepaper Mobile Management Checklist: 6 Essential Steps that will guide you through the entire lifecycle of such devices, from activation to retirement.

 

Previously cell phones and PDA’s were not considered deserving of IT management.  Their capabilities were limited and employees did not utilize them sufficiently to call for a Mobile Device Management (“MDM”) policy.  With the new and more powerful devices, IT is being called upon to develop and manage the smartphones of the workforce.  Phifer has provided a checklist for such a strategy.  Admittedly not all the items in this checklist are needed for every IT department and some items are slight variations of desktop management, but other items are unique to the MDM strategy.  The following is a summary of that checklist.

·         Mobile Asset Inventory: includes

·         classifications

·         maintenance

·         physical tracking

·         database integration.

·         Mobile Device Provisioning:

·         which platforms must you support

·         how will you register devices

·         how do you install the MDM on the device

·         how to configure and override factory installed defaults

·         Mobile Software Distribution:

·         which applications to bundle

·         do you push or pull software to the device

·         Mobile Security Management:

·         user authentication

·         password enforcement

·         device wipe – ability to delete data or hard reset device

·         Mobile Data Protection:  consideration must be given to

·         encryption

·         backup & restore

·         data tracking (i.e. and audit trail)

·         Monitoring and Help Desk Support:  among other things this includes

·         self-help

·         diagnostics

·         remote control

 

 

Phifer’s whitepaper contains a further detailed discussion of this checklist and developing and managing a MDM strategy.  It is well worth the time to read her discussion and suggestions.  She concludes her paper with the following:

 

“Gartner predicts that more than 70% of enterprises will implement converged management and security policies for corporate-owned and non-corporate mobile devices by 2012. Mobile devices are already proliferating at a rapid pace, both in terms of platform and ownership. The sooner you develop a mobile device management strategy to deal with this daunting but inevitable scenario, the better life will be for both your employees and your IT staff.”

 

 

 

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Global stock markets are falling.  The price of a barrel of oil broke the $70/barrel mark on its way to $60 and maybe $50.  The $700 billion bailout (or rescue) package of Wall Street hasn’t seemed to take hold.  The Fed has opened up its discount window to all sorts of entities.  And yet amid all the financial tumult, Gartner sees IT spending for the coming year as slowing, but not stopping.

Richard Adhikari reports for Internet.News.com from the Gartner Symposium/ITxpo in Orlando, Florida in his article entitled Gartner: IT Spending Will Grow, Just Slowly.  He quotes Gartner’s global head of research, Peter Sondergaard:

"In a worst-case scenario, our research indicates an IT spending increase of 2.3 percent in 2009, down from our earlier projection of 5.8 percent"

What makes Sondergaard so sure the growth, albeit slowed, will continue into 2009?  He cites three factors:

·         There is usually a 2 quarter lag in decreases in IT spending vis-à-vis the economy.

·         The shift to a multi-year approach to IT projects makes a cut implausible.

·         Top management’s realization that IT can help transform their business.

Sondergaard sees developing countries worst hit, with Europe posting negative growth, and the US and Japan as flat for 2009.

It seems that the need for IT will be a stabilizing factor in these turbulent times.  AFCOM is an association which is related to the datacenter industry.  Their study supports Gartner’s conclusion that IT spending will hold and might even increase in 2009.  Why?  Well, if the data center goes down, the whole business might go as well.  Read the whole story Datacenter Dollars Seen as Steady Spend.  The salient points in the datacenter industry to keep in mind for 2009 are these:

·         The downturn in the economy will spur a major growth in greening efforts because they have a payoff in savings.

·         The impact of datacenter budget cuts will reduce overall efficiency of operations in the entire company. When budgets are cut, new technologies don't come into play. Firms need to expand or adopt new technologies and won't be able to.

·         The downturn may spur increases in purchases when companies realize increases in their datacenter's effectiveness affects their company's survival.

·         A company's ability to survive in this economy is more than ever before dependent on the datacenter's performance.

 

 

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It is important to note that Oracle does not have the familiar 12/31 year end, but rather a 5/31 fiscal year end.  Ahead of their conference “Oracle OpenWorld 2008” held in San Francisco this year, Oracle released a wave of glowing financial successes for its first quarter for 2009.

·         Net Income increased 28% to $1.1 Billion

·         Revenues increased 18% to $5.3 Billion

The second quarter is more in question.

·         Non-GAAP revenues could fluctuate anywhere between a 12-15% increase or drop as low as only a 9% increase due to currency fluctuations

·         Non-GAAP EPS should be around 26¢ due to earnings split between higher and lower tax jurisdictions.

The forecast for new software license revenues are also susceptible to the fluctuating currency markets with estimates at 5% - 15% without fluctuations and 2% to 12% if fluctuations are taken into account.  Kenneth Chin, and analyst for Gartner, focused on this broad range and stated:

"Foreign currency had a plus seven percent impact on earnings this quarter, and they see a minus three percent impact for the next quarter, which can be fairly significant.  There's nothing to say that, if the dollar moves more quickly and becomes stronger, that the negative impact wouldn't hit five percent or more."

Fifty percent (50%) of Oracle’s business is license revenue and maintenance fees.  The fastest growing part of their business is middleware.  Larry Ellison, Oracle CEO, is confident that they have or soon will replace IBM in this market space.  For a more complete commentary on the second quarter’s outlook and beyond see Richard Adhikari’s article Oracle Sees Tougher Days Ahead. 

With a broader portfolio of software products to bring to the market the emphasis this week at the San Francisco conference will be on the $8.5 billion purchase of BEA.  The BEA middleware products “are key to Oracle's service oriented architecture (“SOA”) strategy.”

Oracle’s next major release will be 11g, expected by the end of the 2009 fiscal year.  BEA will be an integral part of its latest Web and SOA platforms release. 

Also of note is Oracle’s Green Program and its virtualization initiative.  To read the details on the tremendous increase in savings on these two programs and the Integration of the BEA software products into Oracle’s latest offerings see Oracle's Big Show will be BEA's Coming Out Party.

  

 

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InternetNews reports that Gartner predicts outsourcing will grow by more than 8% this year to approximately $441 billion. The trend in this continued use of outsourcing seems to be moving away from large vendors to more of the smaller vendors with specialized products or services that can meet a company’s particular needs. Gartner’s survey results indicate a recent change in company’s strategies and priorities vis-à-vis outsourcing. There has been a decidedly huge increase in the percentage of companies from 2005 to today that have established a disciplined process in their approach to determine if they will outsource.

"[We're] seeing our clients set up internal processes and applications to create a service model for other internal organizations to leverage," Hemant Ramachandra, managing director of BearingPoint's Technology Solutions unit, wrote in an e-mail to InternetNews.com. "This can be software-as-a-service or even application as a service. Setting up the right governance structure is critical to ensure that outsourcing is leveraged appropriately."

In 2007 IBM increased its market share for IT outsourcing to 8.1%. EDS was second with a 5.3% increase followed by a 3.3% increase for ADP.

In know what you’re thinking. Woe is me. All of our jobs are going overseas. This is the initial knee-jerk reaction when one hears about outsourcing and its inevitable increased use. But this does not have to be the only truth. As our economy evolves and adapts to the changes in our society and new needs arise, the way we work and the makeup of our workforce will necessarily evolve as well. The largest increases in new businesses in the US are in small business and a large percentage of those new small businesses are home based. New companies will also need to be created to meet the changing model from ASP to the new approach of Web-based Software as a Service (“SaaS”), which allows businesses access to software functionality for a more cost effective monthly fee instead of the cost of the application’s license fee and the upfront cost of more hardware. Who these new companies will employ is yet to be determined.

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