Software as a service has become the dominant force in today’s tech market, and spending on cloud-centered technology (with SaaS taking up the vast majority of that sector) is expected to grow to nearly $130 billion by 2018. Many of the tech industry’s biggest players are in the process of completing a transition to an SaaS-focused model. Among these is Oracle, which recently announced an updated suite of Cloud-hosted software products split between Platform as a Service, Infrastructure as a Service, and SaaS. But even while SaaS and other cloud-based products appear set to become the future of the industry, many companies are taking a cautious approach to the transition.
The most iconic example of non-committal potential SaaS converts is Microsoft, which made headlines for several years by hinting at the introduction of a subscription-based component to its Windows software. In December of 2014, Microsoft Chief Operating Officer Kevin Turner announced a “change” to the software giant’s plans for the future, saying, “We’ve got to monetize differently.There are additional opportunities for us to bring additional services to the product and do it in a creative way.”
Microsoft is joined by smaller businesses like IT services firms NSK and CAP Software in adopting a gradual approach to SaaS, and leaders of those companies cite three primary reasons that they think doing so is a good move for small to mid-sized companies. The main reason is that an SaaS transition moves a company from a point-of-sale revenue stream to a recurring one, leading to a revenue gap that can quickly turn fatal if a business hasn’t planned appropriately. And the most efficient SaaS models rely on customers having similar needs that can be uniformly met by a single suite of products. Lastly, sales and support teams are not always happy with a shift from one-time transactions to recurring relationships, and may require adjustment or outright replacement in a move to SaaS.
SaaS pilot programs allow a company to minimize these disruptive forces by easing their way into the market, especially when their existing product line is well-suited to a cloud-hosted, recurring billing dynamic. Given the clear long-term benefit of a business model that emphasizes value-added contracts and sticky vendor/client relationships, most say that the rough patches are well worth it in the end.
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