Opportunities abound for Independent Software Vendors (ISVs). Exiting 2018, Gartner pegged the worldwide enterprise application software market at US$ 211.9 billion, with an annual growth rate of almost 11 percent. According to Gartner, much of that growth is attributed to cloud application services — software as a service — with projected 2019 SaaS revenues to exceed US$ 85 billion, or 17.8 percent growth.
Despite the positive market dynamics, ISVs face many challenges. Many of these are sales-related. ISVs can rack up high sales costs, as they’re often engaged in long, resource-intensive sales cycles. And even before those cycles begin, ISVs can experience difficulties capturing and qualifying leads.
ISVs who develop and sell premise-based solutions face additional hurdles. Applications development is costly and can require a substantial infrastructure investment upfront, well before sales and revenue begin to build. Further, software enhancements and customer-requested modifications can also be slow and costly.
ISV Growth Strategies
Regardless of whether their solutions are on-premise or cloud-based (or both!), most ISVs are pursuing similar outcomes to grow their businesses:
- Greater solution scale. Software vendors strive to add more features and value to their products and want those solutions to have the ability to scale to meet the requirements of small and large customers alike.
- Geographic reach. ISVs are constantly looking to expand into new markets, new verticals, and new geographic territories, with an ultimate goal of generating more sales.
- A broad channel partner base. Many ISVs recognize that cultivating a network of channel partners is the fastest and most effective way to capture new customers and grow sale revenues.
- Best in class marketing. Building brand awareness, creating effective customer and channel programs, and cultivating customer loyalty — these are all benefits that top-notch marketing can deliver for ISVs.
Customers Driving Demand for SaaS
Perhaps the most significant challenge for ISVs is the growing customer adoption of SaaS, and how customer expectations are changing as a result. Cloud-based application services offer many potential customer benefits:
- Low cost of entry and capital costs. Customers pay only for what they need, with no requirement to buy hardware on which to run applications.
- Transparent, predictable costs. ‘Pay as you go’ SaaS models provide more linear pricing and are simpler for customers to budget and forecast.
- Ease of implementation. Vendors supply the APIs and implement the software online with minimal customer resources required.
- Speed. Applications can be rolled out across an organization in a fraction of the time it takes to implement a premise-based solution.
- Scalability. Cloud-based applications can expand quickly based on customer requirements, and also be scaled downwards based on seasonality or other business circumstances.
- The vendor manages performance, security, and upgrades. Customers can right-size their IT investments and focus more resources on their core businesses.
As customers become more familiar with the benefits of SaaS solutions, they’ve come to expect similar results from all of their applications providers, whether cloud-based or not. This creates a dilemma for many ISVs, who may be heavily invested in legacy, premises-based solutions. How should they approach the cloud?
ISVs Are Meeting The Cloud Challenge…
Software vendors are carefully evaluating the pros and cons of moving their applications to the cloud. — they are weighing the challenges against the evolving needs and expectations of their customers. Even though the premise-based model is serving many well today, most ISVs understand the need to look beyond that legacy model.
Cloud-based SaaS does offer several compelling benefits for ISVs:
- Recurring revenues. Replacing the ‘perpetual license’ with a software subscription provides predictable, ongoing revenue for software vendors. The subscription model also promotes an ongoing adoption engagement to help customers use features and gain maximum value from their application — and ultimately grow the installed base.
- Lower development costs. Creating cloud-based software requires less infrastructure and capital outlay compared to traditional solutions.
- Faster time to market. ISVs can typically develop software much faster in a cloud-based environment. Enhancements and upgrades can also be more cost-effective, faster, and easier to complete.
- Improved competitiveness. Migrating to the cloud puts ISVs on an equal footing with existing or emerging competitors. Many ISVs feel compelled to move to the cloud to meet customer demands for consumption-based, SaaS solutions, or risk losing those customers.
…But Are Aware of The Risks
ISVs evaluating the cloud are looking at both sides of the coin. While acknowledging the potential benefits of cloud adoption, they’re all too aware of the challenges:
- Limited knowledge and experience. Even the best cloud migrations experience some turbulence, and ISVs with a limited cloud background will benefit from expert guidance and support.
- Lack of resources and infrastructure. Many ISVs will need to hire new talent with different skills to develop new SaaS solutions. As well, solution vendors looking to host their own solutions will require a high-performing, secure infrastructure — often at a significant capital expense.
- Educating sales staff. Selling subscription-based, SaaS solutions require different selling activities than positioning traditional capital-based software transactions. Sales teams will need extensive training to position new SaaS offers, often to new stakeholders in their accounts.
- Realigning marketing initiatives. Moving from premise-based to cloud solutions can require a significant marketing makeover — everything from branding to collateral.
Is ‘Partnering For Cloud’ The Winning Formula For ISVs?
Many ISVs looking at moving to a SaaS model will evaluate external cloud providers as an alternative to building their own hosted cloud infrastructure. And many of those providers offer excellent performance, security, reliability, and attractive business terms.
But ISVs are encouraged to push the envelope further, look beyond simply hosting, and explore partnerships that provide a broader suite of services and support. This approach can help ensure their business success as they transition to the cloud. Some of these value-added services can include:
- Access to a wide-ranging ecosystem of high-performing partners selling in target geographies and verticals.
- A range of hosting options and world-class technical solutions
- Marketing support to help create demand, drive leads and close business
- Extensive training for sales and technical resources
- Billing and operations support
Choosing a partner that provides solutions explicitly designed for ISVs and offers a full complement of hosting, technical, sales, and business support allows ISVs to focus on what they do best — create innovative software solutions to delight their customers.