Thursday, March 09, 2006

Software as a Service - Attacking Enterprise clients from the LOB perspective?

Certain corporate needs become so large and fungible that their management is moved to centralized functions and away from the lines of business. IT (along with Real Estate, Legal and Human Resources) falls in this bucket. The result is scale and scope benefits around IT, but LOB's sometimes don't get their needs met. As an LOB, it is sometimes impossible to get the specific IT functionality you need.

For all the talk of whether SaaS will reach some glass ceiling beyond which it won't be a viable alternative for companies of a certain size, I wonder whether companies like Salesforce.com are actually targeting enterprise clients from a different angle: LOB's over IT. The anecdotal stories I hear of LOB's making purchases either with or without implicit IT approval is growing. I don't think companies like Salesforce would ever ignore the IT department, but they can approach LOB's which other Enterprise Software Companies might find difficult.

If you look at IT spend, I would have to imagine that the LOB potential could be significant considering how much money the typical LOB has for special projects. Success would assume they have offerings and pricing attractive to LOB's, but I assume Salesforce is considering this when it builds out its Appexchange.

Salesforce's marketing & sales budget (interesting to note this is how they state it, not in the traditional order - sales and marketing) was close to 55% of revenues for 2005. Seems high and I wonder how much of this was spent on collateral, webinars, etc directed at LOB's.

3 comments:

ackfoo said...

an interesting thought. SFdC can do this b/c they have relatively low infrastructure requirements of the enterprise IT function and solve a problem that is difficult for IT to address well or quickly.

That leads to a formula for who can attack this (LOB) space. They must have:
1)Low infrastructure requirements (i.e., they must not require more than minimal platform investment by IT
2) They must address a problem that is difficlut for a traditional IT approach to address well or quickly, but that is critical to the success of a LOB
3)They must market themselves as a generic tool to solve a specific problem to LOB leaders
4) Their sales model must be actionable by LOB staff on their own (i.e., complex licensing, etc. are bad)

Niel Robertson said...

I think you are spot on. One of the emerging phenomenom of the SaaS industry is that they can selling into non-IT budgets. SF.com is the classic example as they sell into Sales and marketing budgets and not to IT (as opposed to Siebel which has to sell to IT). I heard this more and more from point SaaS players who can argue 3-5K/yr from any LOB that needs their tools. There is no IT infrastructure to manage so IT does not need to be involved. A seas change is upon us i think because of this fact.

Pravin Kumar said...

Rob,

This is exactly right. A corollary to this is that the function must be non-core to the business, but usually mission critical. What I mean is that if it is core to the business, IT will usually have a lot of control and over-rule the LOB.

Spend Management (procurement and its associated functions), and payroll are two other areas that fit this model. If you look at procurement, the SaaS companies are eating the software companies lunch. So much so, that Ariba has announced that it is going on-demand.

Payroll has been SaaS since the eighties when ADP came into it's own.

Disclaimer: I am VP of Products at Ketera, an SaaS Spend Management provider.