3 December 2008

Balaka Aggarwal says that the SaaS delivery model is ideally suited to emerging markets

Service providers in the Asia-Pacific region are looking towards mission-critical business applications to drive their software as a service offerings, says Balaka Aggarwal of Springboard Research.

Although it is hosted e-mail and CRM (customer relationship manage­ment) applications that are driving the growth of software as a service (SaaS) in the Asia-Pacific region, enterprise applications suited for local deployment will take the market to a new level in the next few years. That’s according to leading India-based analyst Balaka Aggarwal of Springboard Research, who says the unique make-up of the Indian economy creates special conditions that will make hosted enterprise applications particularly successful.

Aggarwal says that the SaaS delivery model, in which applications are delivered to users by a browser and software that doesn’t reside at the customer’s premises, is ideally suited to emerging markets such as those that characterise the Asia-Pacific region. “The primary value for customers, as far as the SaaS model is concerned, is the ease of access to the latest technology that it provides, and also the uninterrupted access to software that is available,” she says. “We have a great momentum in this market in Asia-Pacific. Primarily, this is because the SaaS model appeals to a segment of user organisations that has previously been under catered for by software providers. Many of the Asia-Pacific countries have a huge base of small and medium sized enterprises (SMEs), and traditional enterprise applications have been way out of their reach. Those companies are mostly using point solutions at the moment. They would like to use advanced software, but they don’t want – or aren’t able to – invest big money upfront to buy it. So the subscription model that is inherent in SaaS is ideal for them.”

“Lots of these companies are working in a global environment and they need to be in tune with partners elsewhere in the world,” Aggarwal continues. “Best practices are being pushed onto smaller players by their larger partners, and that’s driving uptake of SaaS. That’s why we see a huge demand for on demand enterprise resource planning (ERP) applications, especially in the manufacturing sector. Asia-Pacific manufacturers need to automate their systems and be able to show the levels of transparency global buyers demand. Companies like NetSuite are targeting these manufacturers. And Microsoft is working with a number of clusters of manufacturing companies around the region. In South India, for example, Microsoft is working with local textile manufacturers to deliver SaaS applications. But the systems are hosted locally, which is important. Connectivity is an issue in India—so if you want to use a hosted system, you often need to have it hosted nearby to ensure a reliable connection.”

Aggarwal says this clustering philosophy is a trend across the region. “Microsoft has also identified a cluster of automotive component manufacturers around Pune, in the state of Maharastra and a cluster of diamond cutting businesses in the west of India,” she says. “It is working closely with these entrepreneurs to design and develop solutions that cater to them. That’s a good way to do business, because one of the drawbacks of the hosted model is being unable to customise a solution too much – rather, you have to use what’s provided. That’s why Microsoft is trying to understand the requirements of specific communities.

Best practices are being pushed onto smaller players by their larger partners, and that’s driving uptake of SaaS

Balaka Aggarwal , Springboard Research “Another interesting phenomenon in Asia-Pacific is the existence of lots of local providers creating solutions for particular sectors on industry standard platforms,” Aggarwal goes on. “As elsewhere in the world, the bulk of usage is for more popular tools—sales force automation, collaboration, CRM of all kinds. These kinds of applications have lots of local and specific requirements. They have to be tailored to take in regulatory requirements. I have to emphasise that the market in this region is no different from the rest of the global market. If you look at revenue volumes, CRM is the number one by a distance. But you are going to see a lot of local players emerging in India and China, because these players have been able to offer similar solutions at a lower cost than global providers. CRM is a relatively new concept in Asia-Pacific. That’s why SMEs are so keen on the on demand model. It helps them to streamline internal processes—they don’t have internal CRM otherwise.”

Springboard says the SaaS market in APAC (excluding Japan) in 2007 was worth US$274 million and will register a compounded annual growth rate of 59 per cent during 2007-2011, reaching an estimated US$1.8 billion by 2011. In terms of revenue generation, the figures show that CRM continues to dominate Asia’s SaaS application market with a 42 per cent market share, followed by on-demand collaboration tools and core enterprise applications like ERP and supply chain management (SCM).

Around the world, service providers such as telcos are looking to the SaaS model as a way of expanding the range of products they can sell to their customers. Aggarwal says this is happening in Asia-Pacific, but the real drive behind SaaS is coming from a different area. “There is huge momentum behind SaaS coming from independent software vendors (ISVs),” she explains. “Particularly in India and Australia, there are lots of technologically savvy people who have the ability to develop solutions, and they are looking to SaaS delivery as the way to get their solutions deployed around the world.

“For telcos, though, it’s strange that they haven’t all participated to the extent that they should have. These companies have lots of customers to whom they could sell value added services, not just connectivity. In the Asia-Pacific region, slow connectivity is a big challenge, and partnering with telcos is a good way to overcome the speed problem. In the Indian market telcos are beginning to step into the value added services arena. One thing we notice is momentum in the contact centre space—we’ve seen a few telcos looking seriously at offering contact centre services in hosted mode. This is a big opportunity as we are seeing contact centres moving out into smaller cities and more rural areas, and they don’t want to have to invest heavily in infrastructure. The hosted contact centre model is crucial to the continuation of this trend.”

Security is another key issue. “Security will become a very big issue for the on demand market,” says Aggarwal. “To achieve good security, you have to have an agent sitting somewhere around you, although not necessarily on your premises. The agent needs to keep watching and monitoring content, but software still actually resides at the service provider.”

This article first appeared in issue seven of Microsoft Connections in Communications magazine.

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