Shifting to SaaS: The Keys to Success for On-Premise ISVs

Loraine Lawson at ITBusinessEdge wrote an interesting post this week:  Analyst Says On-Premise Vendors Struggling with Shift to SaaS.  I added a comment, which I thought I’d post here for feedback:

Hi Loraine, I enjoy your blog and agree with most of your points about the challenge for on-premise vendors attempting (or not attempting) to move to the cloud. Having worked for pure-play SaaS application vendors (Salesforce and LucidEra) and enterprise software vendors (Business Objects and now Informatica) I’ve experienced the religion on both sides of the fence. My belief is that it is possible to be successful in both camps (to mix my metaphors) but the following ingredients/steps are necessary:
  1. There must be executive level commitment to developing a SaaS/cloud business.
  2. There must be a recognition that SaaS requires both a business model shift (in terms of sales, marketing, pricing, packaging, etc.) and a significant product shift (must be multitenant, must be easy to implement and use, etc.).
  3. There must be a focus on the right metrics (ACV, TCV,  and MRR as well as sales and marketing metrics.).
  4. The right compensation model must be in place if you expect your traditional sales team to sell the SaaS solution. And if you’re selling to a different buyer or market segment, a different sales team (typically inside) is required.
  5. There must be a laser focus on customer success. A multitenant SaaS offering allows you to monitor usage, deliver frequent releases, and get to know your users in a way that’s never been possible with on-premise software. And subscription pricing requires you to ensure that adoption and ROI is high.
Salesforce.com has published a great whitepaper called “7 Habits of Highly Successful SaaS Companies” and people like Phil Wainewright have written quite a bit on this topic. The fact is, while it’s easy for the pure-play small vendors to take shots at the big (and profitable) players, there are a few who have followed the steps I mentioned and continue to execute.
When I was at a pureplay SaaS application company founded by people who lived through some of this at Siebel we delivered a presentation that hit a few of these points. I’ve linked to it below.
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