1050RA Worldwide Channel Preference for SaaS, Revisited

What is Happening?  Acquisition of SaaS and other Cloud-based IT and business services has always differed across the globe, due to factors such as relative market maturity, average business size, and state of the economy. We first pointed this out in 570RA A Slice of SaaS: Worldwide Channel Preferences Show Mainstream Trends 04Mar2009.

Since that time, the differences have become more pronounced, with initial preference shifting rapidly over the past few years to more broad types/groups of sources.

But the most interesting shift has been the huge change in Asia/Pacific sourcing preferences, which is unmatched by European or US-based enterprises. The difference is quite striking, as can be seen in the Saugatuck heatmap shown in Figure 1. The chart numbers indicate the percentage of survey respondents selecting each option; multiple selections were allowed.

Figure 1: Global SaaS Sourcing Changes Over Time: Asia, Europe, and North America

Source: Saugatuck Technology Inc. 2010 and 2012 global SaaS/Cloud usage surveys; n = 546 and n=228 respectively

The red boxes down the far right side make it clear: Suddenly, enterprises in the Asia/Pacific region are purchasing or planning to purchase SaaS from all sources, rather than the few favored elsewhere. We see some limited, similar shifts among US- and European-based enterprises as they also broaden their SaaS/Cloud sourcing horizons, but nowhere near the scale evidenced by the Asia/Pac enterprise executives polled

Why is it Happening?  In most cases, the likelihood of using indirect sources is increasing over time. The heatmap color-coding clearly indicates some shift downward in sourcing from IT Consultancies across all regions, and the same for Business Consultancies in North America and Europe.

Industry-specific VARs have been growing in importance across all regions, particularly this year, as have Managed/Hosted Services providers. Cloud Platform Providers have also proven of interest, and reflects a trend toward consolidation of SaaS acquisition in single suppliers to aid in integration and implementation issues. This is important to smaller businesses, which somewhat explains the strong showing of Managed/Hosted Services Providers, VARs and System Integrators, and Cloud Platform Providers. In general, growth of choice is indicative of greater maturity in the industry, and reflects the current phase of development focusing upon integration, and management issues.

But the Asian figures remain quite different, point to a much greater variety in sourcing in the Asia Pacific region. As we pointed out in the past week, Asia is going through a period of rapid development backed by growing economies and heightened investment (1049MKT, The Emerging Asian Cloud: Growing Swiftly and Different from the West, 30March2012). Sourcing differences here reflect the growth of multiple regional/local alternatives, and the eagerness of large local firms to take advantage of regional understanding and invest their own funds in the fastest-growing global sector. Investment from Japan is flowing to mainland China and Korea; from Singapore to Hong Kong; from Hong Kong to mainland China, and so forth. Local suppliers can better explain their products to local customers, understand their business practices, and can buffer them from distant multinational entities.

For Europe and North America, growing differentiation in SaaS sourcing is a sign of market maturation. As we pointed out earlier this year, many businesses are now well into the era of integration that started with Wave II: Integrated Business Solutions, and Wave III: Workflow-Enabled Business Transformation (1029MKT, Saugatuck’s SaaS Research Agenda for 2012 and Beyond, 24Feb2012). This requires multiple solutions, with some responsibility for interoperability. A single suite of applications may suffice for a time, but there is a growing interest in alternatives that might be provided by VARs, telcos, or aggregated Cloud Platform vendors. Sourcing direct from the service provider remains dominant, but alternatives are growing stronger.

In Asia, the situation is muddled by the investment climate, smaller businesses, and local concerns. They are generally somewhat behind the US and Europe in Cloud maturity, but way ahead in diversity of sourcing. At the moment, this is because — while global services have track records and strong brands — when all is equal, Asia prefers local. So there are significant opportunities for bundling global services through a local presences — a factor not lost upon either local or international enterprises.

Finally, as we pointed out back in December 2010, the region’s overall approach to IT, including SaaS and all things Cloud, is to invest widely and heavily (828RA, Cloud IT in AsiaPac: Pedal to the Metal and Passing the West, 20Dec2010). To paraphrase a Steppenwolf tune from the 1960s, Asia/Pac firms are firing all of their guns at once and exploding into space. They have the business need and the capital to invest powerfully in IT, and they are doing just that in order to maintain and even accelerate any business advantage they can develop. They’re starting from farther behind in than most regions in the IT arms race, but they are sparing little expense in the effort to forge ahead – and that means they acquire IT from as many useful sources as is possible.

Market Impact  The key market impact lies in the continued mainstreaming of SaaS, as we pointed out two years ago in 570RA A Slice of SaaS: Worldwide Channel Preferences Show Mainstream Trends, 04Mar2009.

Providers will increasingly rely upon channel partners to sell, integrate, manage, and service their offerings.

We can expect to see greater diversification among service aggregators, as emerging requirements get sorted out. The telcos, for example, are only just getting started and will likely take a much larger role as mobile applications become more important to SaaS.

For the US and Europe, emerging from the doldrums will likely result in greater variety in sourcing, somewhat mirroring the Asian trend (although somewhat less intense). As for the Asian sourcing picture, it will be interesting to track the types of aggregation models that emerge from the current interest in developing all variations.

Another area of impact for diversification of sourcing is in leveling the playing field between SMEs and LEs. Local aggregation and implementation makes it possible to take advantage of enterprise-class SaaS services without the need for extensive integration or expertise. The aggregator can handle all of the complexities while providing access to market-leading services. As this model catches on, LEs are also being drawn to it on the basis of cost savings, particularly as it gathers momentum and proves successful.

Ultimately, the natural evolution of SaaS is toward a model that provides the same level of integration, safeguards and governance that are expected in the enterprise IT environment. But it will all be happening in the Cloud. We are now moving rapidly into a stage of development where this will become increasingly evident. In 2012 to 2014, we expect to see greater sourcing diversification in North America and Europe, with some influence possible from developing models in Asia (particularly in the sector catering to SMEs). Opportunities will open for new concepts of services provision, with niches in familiar areas of market focus such as vertical industry, business size, IT expertise, special IT requirements, etcetera. The movement toward providing a complete IT solution will require changes across a wide range of current supplier practices, including the opening of new opportunities, new alliances, and new incentives for collaboration.

Note 1: Saugatuck’s 6th Annual SaaS Survey

Since 2006, Saugatuck has surveyed more than 7,500 SaaS user executives; interviewed more than 1,600 IT, Finance and C-level business executives regarding their SaaS buying and use; and been briefed more than 700 times by SaaS providers. 

In February 2012, Saugatuck completed its sixth annual SaaS/Cloud Business Solutions global survey program. This year’s program includes data from more than 200 executive-level participants with all sizes of firms across all industry types. The survey program is being complemented with in-depth user executive interviews, and briefings with SaaS providers, from traditional IT Master Brands to leading-edge Cloud Business Solution and platform providers. 

The data report for this year’s survey has been published for Saugatuck CRS clients and is available to them by clicking here. An abridged version of the report is available to registered Research Alert readers by clicking here. Additional reports and Strategic Perspectives using the research and analysis from this program are in development, and will be published over the coming weeks and months.

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