OK, OK, before you pelt me with rotten tomatoes, let me assure you that this IS about Software-as-a-Service (SaaS), the business that we are in, and not about that much-discussed soap opera of recent years. But this particular note is about more than that. This is about what I think the next generation of software powerhouses will be – Software-as-a-Service-with-Services (affectionately code-named SaaSS by Yours Truly ). I think the current crop of SaaS companies will give way to another business model – a model more like IBM than like Microsoft. A model that brings as much money from Customization Services as from Subscription Sales. A model that therefore includes Services with SaaS. Here are some of my reasons.

• Software purchase, which used to be largely about Channel Partners, has moved to customers buying directly from Vendors themselves. Vendors use Implementation Partners to configure/customize their solution, but that’s an overhead small- and medium-sized companies are unwilling to pay for. As I’ve said elsewhere, the Vendor, the Partner and the Customer don’t necessarily have the same objectives in such a relationship. So something has to give – I think SaaS vendors will bite the bullet and just take on customization themselves.
• Over the last couple of years, Services companies have proven that their business model is solid, scalable and fairly Recession-proof. That’s kept their profitability at better-than-others and, therefore, their stock prices up. So that Silicon Valley (I mean the one in the US ) idea of Services being a four-letter word is taking a beating. Companies like IBM and Oracle, once built completely on Product Sales, now get half their revenues from Services, delivered from India and other geographies. This is something SaaS vendors will not fail to notice. Taking on Customization Services internally is a no-brainer, in that sense.
• Managing and scaling and Services teams has earlier been thought to be very complicated, but companies like Infosys, TCS and WIPRO have done that very successfully for years now. It won’t take much for a SaaS vendor to bring such skills into their own companies, building and growing teams that take on Customization Services.
• Churn is one of the biggest issues for SaaS companies, where customers walk away from their solution after using it for a few months. A customized SaaS offering very clearly fixes that. Every Rupee that the customer invests into customizing the service makes it that much tougher to walk away from. And the vendor understands that customer so much better, thanks to doing custom work, that future features will automatically align themselves with customer needs.

Does that mean “pure-SaaS” players will disappear? Not at all – today’s large SaaS vendors will find it very difficult to alter a whole mind-set across the organization. But I think that as the SaaS market matures, Services will become an integral part of vendor DNA. That’s good news not just for new kids on the block (like us!) but, most importantly, for the Customer.