McKinsey Delivering Software as a Service Report

Delivering software as a service

This report from McKinsey was published last week about SaaS.  It's an interesting read as it goes "under the covers" on why customers would choose the SaaS route and the impact on developers moving to this model.

From the McKinsey website (registration is required):

  • Traditionally, companies buy software and then install and maintain these applications on their own machines. That model is giving way to one where companies will buy subscriptions and access services over the Internet from software developers that host their own applications.
  • Some applications will migrate to the new delivery model faster than others, but all software makers should begin to explore the economics and necessary capabilities for online delivery.
  • Revenue models for these developers will change, since software as a service delivers fees over time rather than large up-front license purchases.
  • Customer service and R&D capabilities will also need to adjust to the reality of ongoing relationships with customers rather than periodic upgrades.
This article contains the following exhibits:
  • Exhibit 1: The economics of companies that deliver software as a service differ from those of large software companies, though they are similar to those of smaller ones.
  • Exhibit 2: Applications are likely to migrate from traditional delivery to software as a service at different times for enterprise customers vs. small and midsize businesses.
  • Sidebar exhibit: Software as a service offers a reduction in total cost of ownership.

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