The world is even more flatter in the SaaS market

Sun, Jun 1, 2008

In the past 10 years or so, offshoring countries such as India and China have utilized the tens of thousands to help US and European countries develop products in the traditional software market. As the SaaS model becomes more and more accepted by the general market, we will be seeing these countries be more focused in this market and will be spending more and more resources in this area. This article from Mint describes some of the major Indian firms taking their consultancy practice to assist ISV clients transition from their current offering to the new SaaS model.

However, as we all know, the world is flat. In the SaaS market, the world is even more flat. Even though majority of the SaaS companies today are still U.S. and European countries, we will see more and more some of the offshoring countries to take on the SaaS market. There are several reasons in why we will see this shift.

First, the “locality” advantage of the traditional software business will slowly diminish. In the traditional software business, being local has a distinct advantage because ISVs can build local relationships with the channel and customers. However, in the SaaS delivery model, these advantages aren’t as important. Most of the SaaS offerings can be demoed and trialed online, ordered online, provisioned online and migrated online. There will be less requirement for “feet on the ground.” Note that this requirement will not completely vanish, but it will over time become less important.

Second, the requirement for data center everywhere will be lessened as well. This is not to say that these companies can simply host the application in India or China and hope that the infrastructure can serve U.S. customers. However, with the rise of cloud infrastructure providers such as Amazon, Google and others, these companies can simply run their applications inside the cloud. There will be no need for them to staff locally to monitor and maintain data center infrastructures. Everything can and will be done in the cloud.

Third, there’s less “name brand recognition” in the SaaS market today given that most SaaS startups are relatively unknown, so the field is green and anyone with the right product can potentially be successful.

Four, as more and more Indian consultantcies take on projects to help ISVs transition from the traditional model to the SaaS model, these countries will build up their experience and knowledge in this delivery model. Previously, these countries have been held back somewhat due to the lack of experience and knowledge in the traditional software business. However, the greenfield effect is in play again here. These countries will be in lock step with the world in terms of SaaS experience and knowledge. In fact, if we look at China and India from the perspective that all their IT and software engineers grew up during the Internet era, they will even have less resistance in moving to the SaaS model. From that perspective, we might see these countries excel in the SaaS area over time.

It obviously does not mean that these offshoring countries will have an automatic advantage over the U.S. and European companies. As with any business, the delivery model is only a part of the equation. Some of the obstacles the offshoring countries will encounter will be in the areas of software architecture and design, security and privacy concerns, and compliance and regulatory standards issues. We will cover this in another blog later.

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