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Recurring Revenue: Article

The Three Stages of the Enterprise Software-as-a-Service Relationship

And what to do next

When picturing the relationship between the enterprise and the Software-as-a-Service (SaaS) business model, imagine an evolutionary process that can be divided into three main stages: “The Comfort Zone,” “The Enlightenment,” and “The Re-Assessment.” Once we examine these, we can then decide on the right course of action when choosing how to adapt to the IT demands of the enterprise.

The Comfort Zone
First let’s look at the enterprise company. Typically it may be a bit strapped for resources and possibly even struggling to find the staff to assign to some of their most mission-critical IT projects in one of their departments.

The SaaS business model is now a major trend among enterprise corporations. Most major SaaS players, such as Salesforce.com, provide some form of web-based application functionality. Also known as on-demand, these vendors charge their customers on a per-use subscription basis. It is a particularly attractive and efficient alternative to on-premise applications because it reduces the significant risks and costs of CRM implementation.

The major advantage of SaaS is that it can exist within the enterprise – similar to an ICBM missile silo within a military network – where the silo remains completely self-contained. The great thing about SaaS, from the enterprise’s perspective, is that it allows the business people to operate independently from IT, typically requiring only minimal input from them. It also makes life much easier for the CFO – allowing finance to make on-going payments rather than having to allocate and then justify a full-blown investment.

SaaS offers a “comfort zone” solution for both the business and IT departments. SaaS offers the department’s user group a fully functioning solution in quick time, while freeing IT from the worry and cost of having to implement a large on-premise IT project, or build the application in-house. A typical example of such a success is Salesforce.com, where a rapidly implemented sales force automation solution makes for happy sales staff and company executives alike. A win-win solution for all involved – for the time being. This leads us to our next stage, “The Enlightenment.”

More Stories By Avigdor Luttinger

Avigdor Luttinger leads Magic Software's industry analyst relations program and is one of the founders of the company. He headed software development during Magic Software's initial creation and then launched the company's international distribution.Avigdor holds an MBA from INSEAD in France and an MS in computer science from the University of Lyon.

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