Sunday, July 02, 2006

Impact on the ISV Organization

“It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.” — Charles Darwin.

An ISV transitioning from the traditional, perpetual licensing model to the on-demand model is not simply adopting a new delivery mechanism; it is a paradigm shift that involves switching from selling a product to selling a service, and it will affect almost every silo in the company.

An enterprise software vendor that is ready for SaaS adoption is probably aware of a number of issues that have been getting a lot of attention in this space, namely:
· Technical – how to enable my software to be delivered as a service (read that as multi-tenant)
· Pricing – how do I switch from a perpetual model to a subscription one
· Operational – how do we support a 24x7 hosted environment

But do ISVs understand how switching to the SaaS model will affect almost every business unit of the organization? Are they aware of the potential pushback from different groups within the company that may make life difficult, if there is no commitment from all stakeholders to make it a success?

Following is an overview of the different silos in the organization and how they will be affected by the move. (short version of a paper I wrote)

Engineering
Not only will there be a need to modify (if not totally rewrite) the architecture, but there are a myriad of new service-ready features. Examples include:
Billing, Provisioning, Multi-level hierarchy and delegation, Service levels, Retention policy, Security, on-the fly configuration.
Engineers’ skill set may be lacking, requiring training/hiring.
Extreme programming may be required as software lifecycles are likely to shorten.

Quality Assurance
The QA practices that have so far included mostly functional testing will radically change, now that performance and high availability and end user experience will become paramount.
Testing expands from the QA lab to pre-production while different tools and skills are required and dev/test lifecycles shorten.

Operations
A new group is needed to ensure a smooth delivery of the service; responsible for the 24X7 uptime and availability. Consisting of account managers, systems, DBAs, and operations engineers, it will work closely with R&D, QA, IT, sales, professional and customer services.

Sales
The sales organization should be expecting substantial changes. This is an essay in itself, but suffice to say that switching from perpetual licenses to subscription and from a product to a service will change the rules of the game. There are two major factors.
1. The target market is now expanding to the SMB or the line of business.
2. In the recurring revenue model, the sales person cannot deploy a shoot-and-forget policy; rather the customer must be kept satisfied throughout the term of the engagement. This will also affect sales force compensation
On the other hand, sale cycles are likely to shorten, and cyber-sales will play an increasing role.

Customer Services
The CS group will need to switch to a true 24X7 mode. The knowledge set of the CSRs will need to be upgraded from set-up/configuration to domain level expertise and systems/application problem resolution.
User experienced must be positive to grow the subscription, therefore CS has a more important role than before, and perhaps higher skills (higher compensations) will be needed.

Finance
Revenue stream and revenue recognition will change dramatically with an effect on the company’s financial outlook. Financial systems capturing and forecasting deferred revenue will be needed. Billing will become more complex, dealing with metering, service level compensation and renewals and these new capabilities will need to integrate with the existing financial systems.

Professional Services
With the on-demand model, setup, installation and upgrades will no longer be the focus of PS. The post sales engineers will deliver application and domain-level expertise. Much of the traveling time and costs will be reduced.
Education services will drop part of the curriculum pertaining to installation and maintenance.

Changes are expected in yet other departments. I will just mention that Marketing, Legal, Compliance and Channels/Partners will be affected as well.

Summary
In conclusion, switching to the new model should be seen as a strategic move and not merely as a tactical one. Selling software as a service is not a delivery mode change, it should be viewed as a new business model, requiring a new skill set. An early awareness of the potential fault lines will reduce the shockwaves.
There is a need for an executive directive to seep through all the silos down to the lowest level of operation.
There is a need for an educational process across the company, and finally, there is a need for a fully committed taskforce that will include high level representatives from all business units to ensure that transition will be smooth.

1 comment:

Tali Aben said...

Thanks for the post. Totally agree with your points here. We often see business plans that are "VC compatible", giving us the right buzz words, which these days include SaaS. We'd like to think that we see beyong the buzz...