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The current slowdown has pushed a large number of enterprises to look at more cost-effective IT models such as SaaS (software as a service). According to a Springboard Research January 2009 report, the Indian SaaS market was pegged at Rs 251 crore in FY 09, and is expected to reach Rs 488 crore by 2010. Growing at a CAGR of 76%, it is expected to touch Rs 1,208 crore by 2011. And SaaS-based ERP and CRM applications are likely to see highest demand, said Springboard. In fact, the research house said the Asia-Pacific SaaS ERP market is expected to expand to a $193 mn market by 2012, from just $35 mn last year.

Growth Drivers
It is tough to give a definite break-up of the SaaS market in India as it is still at a nascent stage. Also, there are just a handful of large players such as Salesforce, SAP, IBM and Oracle, each having a different SaaS strategy. According to Balaka Barua Aggarwal, a senior research analyst with Springboard Research, growth in the SaaS market has been synonymous with the uptake of CRM and ERP. In markets like India, there is immense interest in applications such as ERP as on-premise application penetration is still very poor in the country. SaaS or on-demand applications are viewed as a low cost alternative to spending on traditional licensed software that requires large upfront capital expenditure. With investments starting as low as $200 per month per user, on-demand ERP has seen high uptake, says Aggarwal.

Furthermore, hosted or subscription models allow companies to do away with the burden of hiring, training, and retaining talent to manage IT infrastructure, saving both cost and time. Since ERP applications obviously become the first choice while building the IT set up for any enterprise, hosted ERP is amongst the leading applications which is available on the software services model, says Moorthy Uppaluri, general manager-DPE, Microsoft India. IDC also predicts that the ERP market will maintain a CAGR of 18% over the period 2006-10, with the SMB segment accounting for 47% of its growth.

Currently, growth for SaaS is largely driven by the mid-sized companies compared to large enterprises, and makes up a major chunk of the market for on-demand players. SaaS and cloud computing is enabling a new class of entrepreneurs who are all looking for easy to use, reliable and scalable applications that enable good business growth, says Andrew Knot, VP, marketing, Salesforce.

In terms of verticals, the IT and ITeS sector is using a large number of SaaS applications, especially SaaS-based collaboration tools used for project management applications. There has also been a sudden spurt in demand from the manufacturing vertical as manufacturing companies are gradually streamlining processes and have been compelled by customers to automate systems. This has led them to adopt low cost, on-demand IT tools. In addition, telecom and financial services have also adopted SaaS in a big way. Another important area is the applications in the contact center space. A number of telecom companies are adopting SaaS based solutions for voice mail, IVR, etc, for their contact centers. Players such as Sify, Tata Teleservices, etc, offer contact center solutions and managed services on a SaaS based model to bundle more value for customers. While banking and insurance sectors have not yet moved to an on-demand model due to compliance issues, the market has been opening up here for non-mission critical applications. In such areas, traditional software will continue to be deployed along with on-demand applications and co-exist. Experts opine that there will be a lot of uptake of on-demand HR applications, accounting tools, collaboration tools, project management tools and e-learning tools as they do not involve major security concerns.

CyberMedia Research                   DQ Estimates

By 2011, the SaaS market in India is expected to grow threefold at a CAGR of 76%

Barriers to Growth
According to Dr Ponani Gopalakrishnan, vice president, IBM India Software Labs, the barriers to the uptake on SaaS in India have been mostly similar to the barriers in other parts of the world. These include trust in the service provider, service levels, service portfolio, customizability of service offerings, perception of loss of control in the minds of customer or CIOs and privacy concerns in the minds of users. In limited cases, there are barriers imposed by broadband penetration, especially for SMEs. Also, pricing and business models are still evolving. On the other hand, Geraldine McBride, president, SAP Asia Pacific Japan, believes that low awareness has been the single biggest challenge to SaaS adoption. SaaS providers must direct a sustained effort to educate the market about the benefits SaaS can provide to end users, McBride opines. Another major deterrent to the uptake of SaaS is in the case of businesses that need a high level of customization as every on-demand application is envisaged as a multi-tenancy delivery model.

Despite these woes, the Springboard study indicates that companies are satisfied with SaaS tools, given their lower costs and ease of use.

Aggarwal says that the enthusiasm for SaaS is expected to continue, despite the general belief that cloud-based services are not secure and companies are hesitant to put up mission-critical data on hosted servers. Data security and safety concerns are no longer seen as deterrents to SaaS with on-demand software providers going an extra mile to ensure a secure business model.

Vendor Strategies
On vendor positioning in the SaaS market, the emphasis is shifting from providing a standalone application to providing the collective value of applications as a platform.

With 78% y-o-y growth in India, Salesforce has been the front runner in SaaS, and is responsible for popularizing the model. It has moved from being just a CRM provider to hosting its AppExchange platform, which is a marketplace for business applications that enables developers to instantly engage with Salesforce.coms 55,000 plus customers. Over the last few years, Salesforce has built out an amazing cloud-based platform strategy, and introduced Force.com, delivering Platform-as-a-Service technology. Indian companies like CRM Orbit and Theikos, small start-ups and major global technology leaders like CODA, Fujitsu, Adobe, and Skype are all building applications on this platform. While it is still formulating a developer strategy in India, 88% of its market constitutes SMBs and mid-market companies. Other large players, such as Citrix online and Cisco Webex have also been delivering their niche applications through on-demand platform based model.

Hardware providers like IBM and Sun Microsystems are also doing good business supplying physical infrastructure powering the cloud behind platforms. IBM has embarked on a cloud strategy and has launched the IBM Smart Business cloud portfolio, which is meant to help customers turn complex business processes into simple services. We recently announced the IBM Cloudburst offering which is a bundle of HW, SW and services focused at creating a quick on-ramp for cloud computing adoption for both production and pre-production workloads. IBM has also announced its collaboration offering, LotusLive, that has been built from the ground up around a Web 2.0-based social computing paradigm, available in SaaS delivery model, says Dr Gopalakrishnan.

The next category of players include application vendors such as Microsoft, Oracle and SAP who are aware that there is a huge market for SaaS but at the same time cannot abandon their traditional licensing model which is still a huge revenue earner for them. Hence, they are in the process of balancing their on-demand strategy and their traditional positioning. Microsoft has clearly stated that it will continue on a software plus services strategy. The future of software delivery will reside in a combination of on premise software and software as a service, which we commonly name as S+S (software & service). While enterprises will be open to shifting most of their applications on the cloud, there will still be a bunch of mission critical applications which will reside on the client desktop, says Moorthy. Microsoft also recently announced the launch of Windows Azure, a cloud-based service platform, to help developers build the next generation of applications that will span from the cloud to the enterprise data center and deliver compelling new experiences across the PC, web and phone. Another recent announcement by Microsoft is the launch of Business Productivity Online Suitea set of Microsofts hosted messaging and collaboration solutions.

SAP and Oracle initially explored SaaS as a precedence to migrating custom-ers onto their traditional licensing model. However, of late, Oracle has shown serious focus towards articulating its SaaS strategy. Oracle has introduced offerings like CRM On-Demand for its customers, and has more than 2,200 customers for on-demand, and these are a mix of mid-sized business and enterprise customers. Oracle is investing heavily in bringing collaborative tools and social networking into Oracle CRM On-Demand and other applications, to increase the productivity of users, says Surya Bhardwaj, vice president, applications, Oracle India. In addition, it has an Oracle Platform for SaaS which includes Oracle Database, Oracle Fusion Middleware, Oracle Enterprise Manager, and Oracle VM, that provides ISVs a single, integrated platform for both on-premise and cloud-based deployments.

SAP has also been observing that a large number of its enterprise customers are selectively adopting the on-demand delivery model to complement their existing on premise landscapes. SAP is supporting this hybrid approach by tightly integrating its applications for the on-premise and on-demand deployment models to ensure integrity across processes, data, user interface, and application behavior. SAP BusinessObjects OnDemand business intelligence offerings expand on the benefits of the on-premise business intelligence solutions for large enterprises. In addition, SAP has also introduced Business ByDesign that offers one integrated solution for small and midsize companies at reduced operating cost.

While these players have been in the market for some time, newer players such as Tata Communications are now gradually entering the on-demand space. Tata Communications entered the hosted CRM space about seven months ago, and is witnessing a huge growth from the mid-market and SMB segments. It is also seeing a great deal of traction in on-demand offerings such as managed messaging and hosted contact center solutions. It now plans on launching hosted SRMS, electronic content management and hosted dealer management systems on a SaaS model.

Outlook
According to IDC, spending on cloud services is expected to grow over five times that of traditional on-premises IT. The increased pressure on companies to reduce costs in the current economic environment will also give a fillip to further adoption of cloud computing and software-as-a-service models by enterprises. Gartners recent report states that 25% of new business software will be delivered as a service in 2011. Technology adopters will forgo capital expenditure, and 40% of their IT infrastructure will be purchased as a service. Gartner also predicts that 40% of the SMBs will use SaaS based back office applications in 2011. So going by these estimates, SaaS has a very defined and promising future in the India market.

Priya Kekre
priyak@cybermedia.co.in

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