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A Winning Combination: Software-as-Services Plus Business Consulting and Process Services
By Laurie McCabe
January 30, 2004

Intent on using technology to create high-margin businesses, few software-as-services (SaS) vendors planned on getting into labor-intensive, lower-margin business consulting and business process outsourcing services. But, as customers started asking SaS vendors for these supplemental services, vendors expanded their businesses to meet this demand.

But make no mistake about it — SaS vendors are selling their prospects on a refreshing new brand of services. Capitalizing on the SaS model, they can slash time and costs from add-on business consulting services. For instance, since SaS applications are easily accessible via a Web browser, vendors and customers can remotely collaborate to discuss best practices and tailor the application — at the business-process layer — on the fly, without involving programmers.

Of course, consulting requirements vary based on the complexity of the business process, and how much complexity the vendor can mitigate with the software itself. SaS vendors with very horizontal applications, such as Concur who provides travel and expense management, don’t need to provide a lot of extra consulting on top of what’s included in their implementation process. But, in other areas — such as talent management or customer service — additional business consulting may be vital to tailor the solution specifically to unique customer objectives.

However, unlike high-ticket, open-ended consulting engagements associated with traditional business solutions, SaS vendors favor fixed-scope, fixed-price services. Vendors see these services primarily as a means to ensure successful solution deployment, and to increase customer satisfaction and retention. Although many expect to grow consulting revenues, they intend to continue to provide these services more efficiently and cost effectively than traditional packaged software rivals.

On the business process side, SaS vendors want to automate previously manual business processes, and embed new functionality into their SaS application whenever possible. By doing so, they can squeeze costs out of these processes, integrate new functionality and deepen the breadth of services they provide to customers. But even when business functions can’t be fully automated, most SaS vendors want to offer them as part of a complete solution. And, since SaS applications are hosted and accessible via a Web browser, SaS vendors, their customers and any BPO partners can easily share visibility into and control of the service.

Of course, SaS vendors don’t need or want to provide all of these additional services themselves. Ideally, they’d like partners that can generate demand and provide non-application services to help optimize their applications. Several — including Concur, Atomz and Employease — already partner with firms that add business process services. But, most have been frustrated in attempting to create solid partnerships with business consulting firms, particularly large systems integrators. The very intent of the SaS model is to cut time and costs out of software deployment and management — putting it at odds with traditional SIs, which thrive on selling long-term or open-ended time and billing contracts. In effect, SaS vendors are commoditizing much of what traditional SIs provide — particularly on the technical front.

However, we do see pressure mounting for SIs to get into this game. IBM Global Services (IGS) — in accordance with the IBM on-demand mantra — has already established several co-marketing relationships with software-as-services vendors, including Employease, HRSmart, Intacct and Ketera. And, in October 2003, by way of a joint development effort, IBM and Siebel jointly rolled out CRM OnDemand.

SaS vendors are also striking up relationships with smaller SI firms, value-added resellers, pure business process consultants and technology firms. For instance, Salesnet launched its Business Partner Program in early 2003, designed to target three different partner types, with different tiers based on business size, volume and value-add. Salesnet is now generating about 40 percent of its new revenues from these relationships.

As customer adoption of the SaS model grows, what impact does it have on other types of solution providers? Clearly, it’s throwing traditional software vendors for a loop. Just 18 months or so after dismissing the notion that customers wanted to purchase software as a service, Siebel made its October 2003 CRM On Demand announcement, and quickly followed up by declaring its intentions to acquire UpShot to accelerate its SaS push. With declining revenues and mounting losses, Siebel realized it would have to eat its own fat-margin packaged revenues — or be eaten by a hungry crop of SaS competitors.

The SaS model creates headaches for SIs also. When a customer elects to purchase, let’s say, Employease instead of PeopleSoft, these firms are out of luck in terms of landing a big services contract. To play in the SaS world, SIs must add more value through business practice expertise, rather than by performing technical tasks that SaS applications are streamlining.

Meanwhile, as SaS vendors automate and embed previously manual processes into their software, they put pressure on conventional business process outsourcers. As customers realize that the SaS offers them the conveniences of outsourcing without sacrificing visibility and control, outsourcers will be hard-pressed to offer competitive services.

Although SaS vendors didn’t initially set out to provide business consulting and processing services, they recognize that technology alone doesn’t address all business requirements, and that these services are essential enablers to their applications services. However, as they’ve done with their software, SaS vendors will continue to align these newer services with the “faster, cheaper, easier” mantra — creating a ripple effect that other services firms can ignore only at their peril.

Do you have a comment or question about this article or the ASP industry in general? Speak out in the ASP Discussion Forum.


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