Rick Telberg

What’s SaaS and Why Should You Care

Will CPAs be ready as vendors drive toward “software as a service” delivery system?

September 17, 2007
by Rick Telberg/At Large

Internet-based delivery of business applications software may finally be reaching the tipping point for CPAs. But are CPAs ready to accept and capitalize on the new “next wave” in software?

The foothold now being gained by the Web-based delivery platform referred to as Software-as-a-Service, or “SaaS”, could set the stage for finance and accounting software vendors to reach out in force to the CPA community as the vendors build or redefine their sales channels.

Because you’re reading this online, you’re probably at least somewhat familiar with SaaS. So you know that with SaaS, end-users essentially lease their applications software, which is Web-hosted. The vendor/host handles all maintenance and upgrades. As a result, you, the end-user save on IT maintenance costs and the hassles of upgrading. You’re also able to connect to the applications anywhere online, just like accessing your e-mail.

Internet-based software delivery became known in the accounting profession in the late 1990s when a number of accounting software vendors, both start-ups and established names like Great Plains, launched Web-hosted delivery systems and assumed the role of application service provider. Those application service providers (ASPs) faced typical start-up problems along with CPA concerns about security and downtime. Bandwidth was a problem, too, because slow connections made it difficult for Web-based software to match the efficiency of traditional software run and maintained in-office.

The ASP launch morphed into today’s SaaS movement, which also includes other applications, such as customer relationship management (CRM), and the full range of enterprise resource planning applications. It has become a force to be reckoned with. According to a new McKinsey & Co. report, “It’s now time for traditional companies to pay attention, for they risk losing their privileged position to attackers that offer applications in this new way.”

To be sure, the most evident signs of SaaS market acceptance have been on the investment side. A McKinsey index of SaaS companies outperformed the overall software company index (excluding Microsoft) by more than 13 percent from 2002 through last year. Also, McKinsey’s review of venture capital investments found that revenues rose to $485 million in 2005 from $295 million in 2002 for companies whose main business is delivering SaaS.

On the end-user side, McKinsey cites an IDC study that projects that 10 percent of the market for enterprise software will migrate to pure SaaS by 2009. McKinsey says that its own analyses of the end-user market have found that SaaS “is a growing priority for CIOs.” Separately, Gartner Group has projected that SaaS will account for 25 percent of all business software revenue in 2011, which is up from about five percent in 2005.

McKinsey’s report claims that now that SaaS has established itself, business app vendors will be forced to move en masse to the delivery platform and, along the way, develop new ways to sell and service their end-users.

That could very well mean those vendors, particularly those peddling their SaaS offerings to the small- and mid-sized business market, will be redefining their dealer channels. As a 2006 InfoWorld report on the emerging SaaS market noted, “SaaS will morph from a technology play into a channel play,” dominated by value-added resellers and business process outsourcing organizations.

Back in the 1980s and early 1990s, accounting software vendors rolling out their newfangled systems all courted the CPA community with great gusto, as did the ASP vendors in the late 1990s. Let’s keep our eyes open for a similar push by vendors moving to SaaS.

Indeed, the McKinsey report also notes that the marketing of SaaS will require extra understanding of end-users’ operational needs and preferences. It notes that longtime end-users of packaged software may be so comfortable with their current setup that they will switch only if the software vendor makes it free — or at least painless. Perhaps this is where the CPA value added reseller (VAR) can step in to help the end-user determine if the switch is cost effective, among other things.

Moreover, as SaaS gets further embedded in software’s mainstream, end-users will extend its use into areas that could benefit from a CPA’s oversight. McKinsey predicts a “next wave” of SaaS that will broaden its use from end-users’ internal operations to their transactions with suppliers and their own end-user customers.

COMMENTS: Questions, rants or raves? Write Rick Telberg.

Copyright © 2007 Bay Street Group LLC: All Rights Reserved: Used by Permission.

About Rick Telberg

Rick Telberg is editor at large/director of online content.

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Disclaimer: Any views expressed in this article do not necessarily reflect the views of the AICPA or CPA2Biz. Official AICPA positions are determined through certain specific committee procedures, due process and deliberation.