Catching the Long Tail via SaaS

It was mentioned in one of today's sessions at the 12th ICT Professionals' Congress that an enterprise would have to invest from about 1 to 5 million pesos for an ERP implementation. System, rather. And roughly 12 to 25% would be the cost for maintaining such -- that is, if the enterprise wants to receive upgrades to make sure that the system still serves its purpose. Wow, that's a fairly big amount. Not for the large-sized organizations maybe, but for the small to medium-sized businesses. Add to that hardware and manpower costs needed to support the system.

A fellow participant was telling me just how frustrating managing applications can be. He says that oftentimes, "when we upgrade, hardware requirements change ... that actually means we'll have to acquire a more robust platform to run the application." Further, he cites that upgrades don't happen overnight, leading to days -- weeks lost due to assembling the right specs and just getting the upgraded system up and running.

This isn't something new, really. We can't blame the software vendors for putting such a high price on the apps they're selling. Why? Let's build a story about a software vendor who builds supply chain management applications. Contrary to out-of-the-box software alternatives, SCM apps tend to be custom-tailored to meet the needs of the customer. This would require on-site visits, installation and even a dedicated staff to manage the application. (Add to that dedicated hardware to run the application.) Now, how much will this SCM app be sold then? Of course, the price has to be at least the total cost of providing all of the above mentioned things.

In other words, software vendors have to make money in the end.

Oh, don't small and medium-sized enterprises want to make money, too? At the very least maybe they'd want to save on capex, streamline processes by taking advantage of technology, to name a few.

About some ten years ago, we began to see changes in the way software was distributed. This method, which has become one of the hottest buzzwords in the industry, called Software as a Service (SaaS), has steadily began to open up bigger markets both in the supply and demand-side of things. It used to be that software apps (especially line of business applications) were only available to companies who had large budgets and the appropriate skill sets needed to support the applications. In the case of the software vendors -- well there are a lot of things -- but one worthy thing to note is that they always had to deal with high costs of revenue.

SaaS has opened a bigger market for innovators around the world. Chris Andersen, who popularized the concept of the Long Tail, explains that online retailers such as Ebay are uniquely positioned to fill a huge demand which brick-and-mortar stores cannot serve cost-effectively. The same applies for Software as a Service vendors.

SaaS enables software vendors to offer solutions at a much lower cost than vendors who sell software licenses. In addition, SaaS greatly reduces IT complexities closely associated with software installation and maintenance. They get, "bigger revenues through smaller sales," as Kevin Laws puts it.

Tomorrow at the Congress, Morph Labs will present on the evolution (or revolution, as some would say) of how software is delivered. We will also kick around with related topics such as Platform as a Service, open source and the much speculated business of the Web. Hope you can join us!