Software-as-a-service (SaaS) is the hottest trend in both CRM and the small and midsize business (SMB) market in general. While SaaS appears to be a threat to software vendors with traditional perpetual-license models, it is also an opportunity for competitive advantage. The question is how independent software vendors and service providers can capitalize on this opportunity. Forrester's SaaS maturity model provides an assessment of the solutions and underpins our guidance on realistic strategy transformation for those software vendors and services providers considering a SaaS business model. Targeting the highest maturity level is not necessarily the best fit for every vendor.
Forrester classifies the maturity of SaaS solutions on six levels. We define each level according to its answer to the question of who provides what to whom (see Figure 1).
Level 0: Outsourcing is not SaaS. In outsourcing, a service provider operates a major application or a unique application landscape for a large enterprise customer. As the outsourcing company can't leverage this application for a second customer, outsourcing does not qualify as SaaS.
Level 1: Manual ASP business models target midsize companies. At level 1, a hosting provider runs packaged applications like SAP's ERP 6.0, which require significant IT skills, for multiple midsize enterprises. Usually, each client has a dedicated server running its instance of the application and is able to customize the installation in the same way as self-hosted applications.
Level 2: Industrial ASPs cut the operating costs of packaged applications to a minimum. At level 2, an ASP uses sophisticated IT management software to provide identical software packages with customer-specific configurations to many SMB customers. However, the software package is still the same software that was originally created for self-hosted deployment.
Level 3: Single-app SaaS is an alternative to traditional packaged applications. At level 3, software vendors create new generations of business applications that have SaaS capabilities built in. Web-based user interface (UI) concepts and the ability to serve a huge number of tenants with one, scaleable infrastructure are typical characteristics. Customization is restricted to configuration. Single-app SaaS adoption thus focuses on SMBs. Salesforce.com's CRM application initially entered the market at this level.
Level 4: Business-domain SaaS provides all the applications for an entire business domain. At level 4, an advanced SaaS vendor provides not only a well-defined business application but also a platform for additional business logic. This complements the original single application of the previous level with third-party packaged SaaS solutions and even custom extensions. The model even satisfies the requirements of large enterprises, which can migrate a complete business domain like "customer care" toward SaaS.
Level 5: Dynamic Business Apps-as-a-service is the visionary target. Forrester's Dynamic Business Application imperative embraces a new paradigm of application development: "design for people, build for change." At level 5, advanced SaaS vendors coming from level 4 will provide a comprehensive application and integration platform on demand, which they will prepopulate with business applications or business services. They can compose tenant-specific and even user-specific business applications on various levels. The resulting process agility will attract everyone, including large enterprise customers.