Friday, 31 October 2008 14:35 by Sreejiraj Eluvangal
Web-based application platforms open up a new world for the software entrepreneur to conquer
Director of Academics, Devendra Pathak had a problem. Every year, hundreds of students would apply at his college, the Delhi Business School and he had to struggle to keep up with the recruitment process.
“We get applications from all corners of the country,” says he, “I had to call up the heads of each department to find out what was happening. Each department would then send their information separately. Every time I wanted an update, this had to be repeated.”
Pathak, therefore, looked for a software to help him manage recruitment at the 700-student institute. “Quite a few companies made presentations. But most wanted us to buy a whole package that contained a lot of things we did not need. However, we found one vendor who offered to give us only what we wanted. As a result, the price they offered was also very competitive compared to the others,” Pathak says.
a2zApplications, the company that Pathak chose, is a good example of how a new generation of software companies is rewriting the rules of the software industry.
a2z, like a few others in the business offers software on rent. So, instead of buying the products at one go, you pay a fixed ‘rent’ for using it. Besides, you don’t have to take the entire product on rent, only the parts you need. In Pathak’s case, for example, companies were offering to sell him an entire enterprise resource planning or ERP software whereas he just wanted something to keep track of the admissions process.-
“Our basic ERP offering starts from Rs 25,000 per month, for three users. If you were to buy and install it on your premises, you would have to shell out Rs 10 to 15 lacs immediately. Besides, you would also need to hire an ERP professional to manage the application,” points out Srikant Rao, President and CEO of Bangalore-based Affordable Business Solutions (ABS). Interestingly, Srikant competes directly with Microsoft’s business of selling such software by renting out the same software ‘in bits and pieces’. The Microsoft ERP software that Srikant ‘rents out’ is the same product that its maker sells for the full price.
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| We are mainly targeting the Rs 10 or 50 crore companies.Srikant Rao President and CEO, Affordable Business Solutions |
The challenge for us platform developers is to maintain this balance between ease of development and power.Kantanu Kundu CEO, a2zApplications |
It is still early days in the business. From a vendor perspective, Indian companies are yet to make themselves heard, examples like a2z notwithstanding. Indian SaaS companies are few and far between. Even global biggies like the customer relationship management service vendor salesforce.com first looked at India out of necessity rather than choice.
“We first looked at India because a lot of our customers from the US also had offices in India,” says Aaron Katz, VP with salesforce.com, which has 47,000 companies worldwide as its customers. “Now, we are processing about 1000 leads a month in the country.”
Hard numbers are difficult to come by in this nascent industry. According to market research firm Springboard Research, the SaaS market in India is growing at an average rate of 77%
and will reach $ 165 million (Rs 700 crore) by 2010. By that time, the Asian market will have expanded to around $ 1.16 billion (Rs 5,000 crore), comprising 15% of the total enterprise software market.
Those in the business see an even more significant impact. “Right now, people talk of the SaaS wave,” says Srikant of ABS, “but by the end of three years, 60 to 70 percent of all enterprise software sold would be as service, not as a product.”
Kiran Datar, MD of WebEx, which provides on demand, web based video-conferencing services says. “Earlier, we used to look at IT as a cost. The CIO’s department was a cost centre. Today, he has become more important. He has become a business enabler, a revenue enabler. From being just a necessity, he is now a key player in ensuring the organization’s competitiveness,” he points out.
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| The evolution of the application platform is an unprecedented opportunity for Indian entrepreneurs trying to launch their own software product.Kiran Datar MD, WebEx |
Bottom fishing
The early adopters of the technology so far have been the small businesses, typically those who have not already invested in buying software. And it’s very early days yet.
“Most of our customers are still struggling with Excel and Word,” says Kantanu Kundu, CEO of a2zApplications, who has a distinctly SMB focus to his offering. “A large number of SMEs, even those with Rs 100 crore turnover in a year don’t know what an ERP (enterprise resource planning) software is. I have seen companies with Rs 50 crore turnover doing all their accounting on complicated Excel sheets,” he adds.
He further adds, “We don’t try to educate them about ERP or ask them to install it. If it’s a college that wants to monitor its students’ progress, we provide a service that does that. We do not try to sell them something they don’t want. We charge for very specific benefits that we offer.” a2zApplication have clients from publishing houses to hospitals to educational institutes.
Srikant of ABS, the company that is both a competitor and a partner to Microsoft, says the service-based approach is very much focused on the ‘S’ part of the SME pie. “Of course, Microsoft itself is trying to sell those software as a product, so in a way, we are competing with them. But what I point out to them is that we are mainly targeting the Rs 10 or 50 crore companies. These are companies that would normally not deploy ERP software, such as the ones Microsoft, SAP and Oracle sell. At the same time, by making their products available
to these companies through the service model, we are enlarging the pie for everyone.”
The need to partner
The early success of SaaS companies has depended on their ability to provide more or less standardized offerings for managing employees, customers, suppliers, channels, production and inventory, etc. This approach, however, may also be its Achilles’ heel.
As a company grows and becomes more complicated, many of the till-now disparate activities, such as selling, may need to be integrated in real time with their other activities, such as manufacturing. In the traditional on-premise software model, the integration was achieved by patching the different pieces of software that were used to manage each of these activities. Sometimes, enterprises deployed company-wide software that had modules for each of these activities and the data was shared among all the divisions. So, for example, a sale at the retail outlet can automatically result in an order being placed with the suppliers, with hardly any human intervention.
The game changes, however, when one moves from software installed on-premise to services delivered through the Net. If, for example, a customer uses a sales management service from one vendor and an inventory management service from another SaaS vendor, there is a very high chance that the two cannot be made together to talk to each other easily. The problem is all the more acute as unlike on-premise software, individual SaaS vendors still provide just a part of the services that a medium-sized enterprise needs. The various offerings are not ‘integrated’ with each other.
This ‘integration challenge’ has two components—integration between two SaaS providers and integration between a software service and a software product, where the latter is installed on the computers of the customer. The second one has been easier to deal with, as the local or on-premise software is owned by the customer and can, therefore, be modified to facilitate data exchange with the Internet-based service. Indeed, most SaaS providers supply ready-made ‘bridges’ to most commonly found on-premise software, such as the ERP systems.
The bigger challenge and the one that is the scene of a lot of activity now is the integration between two SaaS providers.
“We are in talks with a company that provides an HR management service on Internet to integrate our offerings,” says TE Gautham, CEO of Appscale Technologies, which provides an Internet-based service for managing payrolls. “It would be easier for our clients if they did not have to feed details of number of leaves, incentives, etc. manually into our service. But we have realized that it will be a six man-month effort to tie up the two offerings at the back-end and offer a single integrated service to the customer. We may not do it unless we get a ready customer who will pay for the integration,” he adds.
An example of integration already in the bag is the case of WebEx and salesforce.com. With the click of a button, a company which has both a salesforce.com customer management account and a WebEx videoconferencing account can integrate the two services. “After a few clicks, you will see a WebEx videoconferencing button within your salesforce.com profile of your customer. Click on it and you can schedule a videoconferencing with the customer through our service,” says Kiran of WebEx.
Platforms offer new opportunities
The WebEx and salesforce.com example is an exception. Most SaaS services do not provide their users the option of integration with their other SaaS accounts. However, there is a third opportunity out there that arises from this challenge – that of extending a SaaS application. This is when the SaaS application becomes the application platform.
“Ultimately, this will be like the iPhone AppStore or Facebook applications for business,” says Kiran of WebEx, “All you have to do is write a good application, etc. And you have the whole world as your marketplace. The evolution of the application platform is an unprecedented opportunity for Indian entrepreneurs trying to launch their own software product.”
There are quite a few such platforms already, including salesforce.com’s force.com, launched a year ago and similar products by Google and Amazon.com. WebEx has also just launched an application development and delivery platform for third-party developers.
These companies provide a Web-based platform for developers to create and sell their applications that extend the base platform. In many cases, the platform providers also take care of the billing to the customer as well. In return, the ‘platforms’ charge a fixed fee for every user of an application, either from the developer or from the customer directly.
“There are already 68,000 developers who have registered with us on the platform. Nearly $ 425 million has been invested by VCs in company setups to create applications on our platform,” says Katz of salesforce.com.
Besides the obvious attraction of getting ‘hosting fees’ from the application developers or customers, the platform business also addresses the problem of integrating SaaS services. All the applications developed on a particular platform share a basic sub-structure, making it easy to integrate such services. “If you are a customer of salesforce.com’s customer management service and go to the application exchange, you will find 800 other services that are integrated in ours, including human resources management, enterprise resource management, manufacturing, etc. For example, Coda, the second biggest ERP vendor in Europe is on our platform,” adds Katz.
Besides opening up virtual marketplaces for small application developers, the platforms are also reducing the complexity of the application development. In an effort to keep the interoperability intact, the platforms do not provide the developer the freedom to go deep and change the underlying code. Instead, they provide ready-made tools, such as workflow diagrams, logic boxes, etc. with which developers have to construct their applications.
“However, the more you abstract the development interface, the higher the risk that the platform will restrict the power and flexibility of the applications developed on it. The challenge for us platform developers is to maintain this balance between ease of development and power,” Kantanu says.
“Ultimately, designing applications should be as simple as drag and drop,” he adds, “In our case, if you know how to edit HTML and JavaScript, you can construct an application for a school, for a hospital or a real-estate company. Once you do that, you can ‘sell’ the service to anyone and take a one-time fee from them for your marketing and coding efforts.”
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