Web services represent next-generation silo busters for SaaS 11 May, 2008 By Erin Bell

Ryan said that SaaS Companies need to figure out how consumable technologies like Facebook and Google can translate into the business world and offer solutions to some of the underlying issues in how SaaS companies go to market and attract customers.

The first major advantage of Web services, according to Ryan, is that they allow companies to add functionalities -- such as location-based services, integrated billing or analytics capabilities -- to an application without having to code it themselves, which can reduce programming by up to 70 per cent.

The second advantage is integration. Ryan said that composite Web-based SaaS applications will move beyond the traditional silos of HR, FP&A and Customer Service to enable integration with both other SaaS applications and traditional enterprise applications like SAP, Oracle and Quickbooks. This will allow companies to grow beyond the departmental scale into enterprise deployment.

"Obviously as companies move up into the enterprise and the bigger IT concerns come about, it has to be more than just a siloed application. I have to be able to integrate it not only with my other sales applications but with my existing legacy applications," he said.

Ryan cited a study by Forrester Research Group saying that as of February 2008, integration had surpassed security as the #1 barrier to SaaS adoption.

"Being able to present the data not just as a web-page that a customer can access, but to present the data and the infrastructure as a external web service, with a protocol that a machine can access to integrate in with those existing systems, is a pattern that most SaaS companies are realizing they have to do if they want to scale up," Ryan said.

The final advantage of Web services that Ryan outlined was that they can open up new sales channels and selling opportunities.

"Probably the biggest challenge right now from SaaS companies is that it's still primarily a direct sale," he said. "There isn't much of a channel out there in the market, and as a result, the sales and marketing costs for SaaS is prohibitively expensive."

According to panel findings, the cost of acquiring revenue is generally about $1 for every dollar of recurring revenue. "Obviously that's a humungous hurdle for the vast majority of applications. If you have a huge market and a lot of good funding you can get there, but there are a lot of applications and verticals that aren't going to have that kind of funding capability. And this is really where web services can especially re-open or open and create a channel for them," Ryan said.

Ryan said that one way companies can use web services to open up the channel is to become part of other applications. For example, customers of cellphone application Ribbit can grab the application from the Web, and every time they do, Ribbit gets revenue through the indirect sale.

Ryan said that SaaS vendors will still do a lot of direct sales and web-based marketing, but that as these applications become more mature and comprehensive for enterprises, more and more companies will start to integrate pieces of their application into other applications.

Ryan concluded, "The other side of that is really the emerging system integration, and seeing these next-generation SI's taking web services and using that as a way to create custom versions of the application or integrating it in for the enterprise. And thank goodness, it can't happen soon enough."