Sunday, April 15, 2007

IT services in a SaaS world

Chris Barbin makes the case for a new kind of systems integrator, uniquely focused on implementation and support of software-as-a-service (SaaS) solutions. In his article on, he writes about these "Services 2.0" providers that are "dramatically altering the system integrator (SI) landscape."
This new breed of specialized firms fully embrace SaaS with complementary business and technology consulting, productized intellectual property, and support services via flexible social networks will be disruptive to traditional Global Systems Integrators (GSI)- such as Accenture, IBM, Cap Gemini, and Infosys – who are just as addicted as the ISVs themselves to revenue streams based on the on-premise install base.
Now, Barbin is CEO of Appirio, which just happens to be an implementation services provider for SaaS vendor, so it's not as if he is a neutral observer. Nevertheless, his argument is persuasive. Large global implementations of major on-premise systems such as SAP and Oracle, supported by large global service providers, such as IBM, Accenture, Cap Gemini, Infosys, and others, are notoriously expensive, difficult, time-consuming, and risky. If SaaS solutions, such as, Omniture, and SuccessFactors offer to diminish the pain associated with on-premise solutions, then by extension, there must be a service-provider approach that diminishes the pain of the traditional implementation effort.

Drivers of Services 2.0
Although SaaS as an viable alternative to on-premise software has been around for at least seven to ten years, it is only recently that this new breed of service providers have sprung up to provide an alternative to the traditional system integration approach.
For early adopters of SaaS ISVs like, initial services requirements were limited to basic configuration, end user training and minor customizations. In the last few years, services requirements have become more substantial because the increased flexibility of platforms like Salesforce have allowed enterprises to move from single-department SaaS "experiments" to global rollouts of thousands of users.
In other words, as platforms such as's have become more powerful, allowing customization and easy integration with third-party solutions, the opportunity for additional value-added services has grown. These include creation of "mash-ups" that combine SaaS-system functionality with Web 2.0 services, such as Google Maps and other web-services in unique combinations. The sheer scale of some implementations, reaching tens of thousands of seats, has also increased the need for extensive system integration services around SaaS.

Customers benefit greatly from the combination of SaaS with Services 2.0: faster implementation, more customized solutions, and much lower costs. Barbin says,
The pendulum has swung from the early ERP days ($10-$15 for every dollar in licenses), to the SMB days of SaaS (10 cents for every dollar in subscription) - and will settle for enterprise customers at $2-4 for every dollar of subscription license revenue.
Threat to the Big System Integrators?
Barbin makes the case that the large IT service providers will not be able to make the transition to Services 2.0. "The reliance on mega-transactions, considerable corporate overhead, and inability to move quickly will hamper these firms’ ability to lead in the Services 2.0 world," he writes. "These firms are fully dependent upon the services revenue generated their customers’ lock-in on on-premise software."

In this respect, Services 2.0 is a disruptive innovation to the big system integration firms, just as SaaS is disruptive to the major on-premise software providers. I doubt it will be the death of IBM, Accenture, and Infosys, but watch for growth in system integrator deals to be elsewhere in the coming years.

Related posts
Major ERP vendors battle for SaaS mindshare to allow customization of its hosted service's AppExchange proving its viability for developers
Computer Economics: The Business Case for Software as a Service
SAP and opposing application platforms

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