News

IBM Joins Software as Services Market

• By Lana Gates
• May 31, 2005

In response to customer demand, IBM announced its strategy to address the software as services market. IDC forecasts the market will grow at an annual compound rate of 21 percent to $10.7 billion in 2009. The growth is largely attributed to customers’ increased desire for flexibility and the ability to access business functions remotely as a service with usage-based pricing.

“We’re seeing this growth not only in the SMB market, which I think would be expected, but we’re also seeing the same level of growth and adoption in the enterprise market as well,” notes Dave Mitchell, director of software as services at IBM. Enterprises are buying into this to remove complexity from their in-house operations, he adds.

SaS promises application vendors the ability to release far more functionality each year, rather than the typical once every six, 12 or 18 months. As a result, Mitchell says, “they can become much more responsive to customer demand,” and thus, much more competitive. Another plus, he continues, is that with SaS, they’re only managing one instance of their software. “They don’t have to support retroactive versions,” he explains,
which results in lower support costs.

IBM has integrated its SaS offerings into its core partner support structure and is aiming to help traditional ISVs move to a SaS model to access newer markets and lower support costs. This type of provider faces a number of technical challenges, Mitchell says, such as business revenue recognition, how this type of a move will impact cash flow and sales compensation, and how to work with distribution channels.

In response, IBM offers two workshops. Its “Software as Services Transformation” workshop teaches ISVs how to deliver SaS, determine the right technical model and to provide guidance and education on how to architect a SaS solution. IBM’s “Software as Services Financial Modeling Tool” workshop helps ISVs understand how a SaS investment can impact their business. “We’re looking to work with our ISVs to help them manage this change,” Mitchell points out.

Big Blue is also working with application vendors who are already doing SaS to help them become more relevant in the marketplace. “We have a growing number of application providers in the marketplace who are new, and they have designed their applications to be delivered in an on-demand software as services model from day one,” Mitchell explains.

For these customers, IBM provides marketing support and offers the “Software as Services Showcase,” an online directory where customers can search for ISV solutions available as a service. The showcase directory currently comprises more than 40 solutions from 20 ISVs but is expected to grow to tens of thousands of customers and millions of users. The showcase can be accessed at www.ibm.com/software/showcase/sas.