RESEARCH ALERT RA-445 MARCH 19, 2008 B. GUPTILL Title
Road Research: Top Asia-Pacific ISV and SaaS Concerns
What is Happening?
One of the fastest-growing, and most challenging, IT markets is the greater Asia-Pacific region. India, China, Malaysia, Singapore, Australia and other spots are hotbeds of IT acquisition, development, and provision, from hardware and components to software, to managed services, to outsourcing and, increasingly, software-as-a-service (SaaS).
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The author invites your comments and inquiries on this Research Alert. Please contact Bruce Guptill at Bruce.Guptill@saugatech.com.
Saugatuck Managing Director Bruce Guptill spent two weeks in late February and early March this year traveling in India, Malaysia, China and Australia as part of a worldwide series of ISV-to-SaaS briefings conducted with IBM. Along with the briefings, Guptill met with 26 independent software vendors, value-added resellers, and managed services providers in a variety of oneon-one interactions and meetings. His discussions highlighted several regional differences between the Asia-Pacific region, Europe, and the U.S., and indicated that the development, deployment, and adoption of SaaS in the region is likely to lag the U.S. and Europe by as much as two to three years. These are examined in detail in Saugatuck Strategic Perspective Notes from the Road: SaaS Market Readiness & Growth in Asia-Pacific (MKT-444, 18Mar08). Key realities and concerns about SaaS among Asia-Pacific vendors and service providers include the following:
Note 1 rd
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Saugatuck 3 Annual SaaS Research Program Saugatuck will publish its newest 30-page research report on Software-as-aService on or around April nd 22 , 2008. The report is based on a worldwide web survey of over 400 senior business and IT executives, 30+ briefings with leading SaaS providers, and 15 deep-dive interviews with SaaS users. The report will update our “Three Wave” th adoption model with a 4 Wave, and explore drivers of SaaS customer satisfaction. For more information about this report, including singleuser and multi-user licensing plans and/or to pre-order a copy, please contact Chris MacGregor, Analyst and Media Liaison, at 203-454-3900, or at chris.macgregor@saugatech.com.
First-Generation Focus. While the U.S. and parts of European SaaS markets are moving rapidly into enterprise-level application suites, integrative platforms and complex marketplaces/ecosystems, the vast majority of SaaS provider development in the Asia-Pacific region is still focused on firstgeneration, low-cost, easy-to-install offerings. Selling SaaS to user enterprises focuses on industry-specific applications and process functionality (what Saugatuck refers to as Wave-I deployments). SaaS in the Asia Pacific region today tends to be developed and sold as a replacement for existing, on-premise applications software. (An in-depth examination of Saugatuck’s latest four-wave SaaS deployment and adoption model will be included in our upcoming SaaS research study, to be published in April 2008 (see Note 1) Expect Leap-frogging. However, there is an expectation among regional ISVs and SaaS providers that Asia-Pac providers, especially Indian firms, will likely leapfrog from first-generation SaaS to third-generation, complex marketplaces and ecosystems – and ultimately to “cloud computing” - faster than their Western counterparts, catching up to and surpassing many in terms of offerings and capabilities within 36 months. But this depends on a number of factors, from supply/demand to IT infrastructure and cultures. Bifurcated Customer Base. The basic business environment of the region includes a very few, very large user enterprises and a vast array of very small, disparate user companies. The opportunities for SaaS offerings tend to be oriented either toward very large, mostly industrial firms (with some very large banks, healthcare providers, and IT services firms), or very small firms with very specific business operations (e.g. small manufacturers, services
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SAUGATUCK RESEARCH ALERT firms). Selling Wave-I / First-generation SaaS into Rigid-yet-Custom IT Cultures. There still is a huge and influential presence and culture of custom IT in the region. And there are extremely strong legacy IT buying practices based on this customization and historical vendor relationships. “The way it has always been done” is the standard model for IT buying. This is a strong influence on how software and services are bought and sold. First-generation /Wave I SaaS tends to be somewhat configurable, but rarely customizable by or for users. Several fledgling SaaS providers in our discussions lamented this and wondered how they could be successful selling basic SaaS into such an environment. “How do we sell something that’s new to executives who don’t even want to know about it?” was the way the co-founders of an Australian ISV put it. Why is it Happening?
As with any geographical region, trying to label and categorize the greater Asia-Pacific region is at best an intellectual exercise. The broad and deep diversity of cultures and languages, spread over the largest physical geographic area on earth, means that there are dozens, if not hundreds, of markets to be sold into. But there are a few basic, generalizable factors driving and influencing the above factors. These include the following: Diversity, Distance and Segmentation. The combination of geographic, cultural and business factors noted above tend to keep the region somewhat behind the U.S. and Western Europe as regards the adoption of any emerging IT influence, including SaaS. This is changing somewhat, especially in India, which has become a hotbed of IT development. Relative Lack of Broadband. The widespread availability of reliable, inexpensive broadband networking services is a critical factor in SaaS deployment and adoption. Users need broadband to take advantage of SaaS; providers need broadband to speed development and to deliver service to users. With the exception of Australia and Singapore, and major metropolitan areas in India, Malaysia and China, the Asia-Pacific region lags much of the industrialized world in availability and cost of broadband networking services. Newness of SaaS. Even in data-driven Western markets, SaaS is still relatively new and emerging as a user enterprise IT portfolio component. Its adoption growth is rapid, but its presence is still a small fraction of the overall user software marketplace. In the largely manufacturing-driven Asia-Pacific markets, IT has had a very different role for most user enterprises than in the West. The evolution, development, and adoption of IT, including SaaS, differs as a result.
Market Impact
While growth rates in the Asia-Pacific region will be spectacular, remember that it is starting from a much smaller base – and that in general SaaS development, deployment and adoption across the region will lag most of the West through at least 2010. Geographical differences mean key differences in user demand and in
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SAUGATUCK RESEARCH ALERT provider needs throughout the Asia-Pacific region. There may be a worldwide market for SaaS, but understanding key local and regional differences – and timing – is still paramount for user and providers. Saugatuck expects that basic IT market conditions in the Asia-Pacific region will continue to stunt region-wide SaaS growth relative to the U.S. and Europe through at least 2010. These conditions include a relative lack of networking infrastructure, bifurcation between very large and very small user firms, an IT user culture oriented toward custom solutions, and uneven national investment in infrastructure and other resources essential to growth. But significant investments are being made. Once enough infrastructure – especially high-speed bandwidth – is in place, and a critical mass of large and mid-sized user firms emerge, Saugatuck expects the region to catch up to and even leap-frog many Western marketplaces. Ultimately, Indian, Malaysian, Chinese and Australian firms will deliver strong SaaS competition on a regional and global scale – with the internal Chinese market an especially ripe opportunity for SMEs and very large enterprises.
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RA-445 March 19, 2008 COPYRIGHT 2008