One of the things that troubles me when I think about SaaS Hosting and how traditional hosts can move into this market is what does the pricing model look like -- that is, how much should we charge each SaaS ISV?
In SaaS Hosting, the ISV is off-loading a majority, if not all, of their infrastructure needs to the hosting partner. In some cases, they may also utilize on-behalf-of services such as billing, support, provisioning, and other unique services the hosting provider has experience with that the SaaS ISV does not. Each of these things has some type of cost associated with it to the hosting company, therefore this cost should be passed onto the ISV with some margin on top so we make a little money off of our SaaS Hosting Platform.
For larger ISVs that are moving into the SaaS space, the pricing is usually done via some type of up-front professional services contract to get the system online and then reoccurring revenue once the application is up and being sold. But, my concern is how do you address the other ISVs out there who may not have the capital for a professional services contract or no existing revenue stream to draw off of to fund their SaaS initiative? Should these ISVs be ignored and told to go it alone? The risk I see here as a hoster is that I may be missing out on that "next-big-idea" that I can get a slice of if I were to host that ISV's application and incubate them for a period of time.
This is where an argument could be made for a standardized, shared infrastructure that small to medium sized SaaS applications can live within while they grow. The hosting company would determine a flat, monthly rate based upon the amount of resources used during the start-up phase of the application and charge that to the ISV. Once the ISV has reached a certain point, they would shift into a revenue sharing price structure where the host receives x percent per hosted seat.
Another question I have is, should hosts give away some of their services initially to bring on some of the smaller ISVs? If this is done, what type of profiling process should be done to determine if the ISV might be a possible win? There'll be some risk in here, but there could also be a home run if the hosting company is smart enough to recognize a solid idea and work with the ISV to bring that idea to market.
Thoughts?
OpSource (http://www.opsource.net) offers exactly what you're describing. They offer SaaS deployment consulting, phased delivery of application infrastructure, a testing environment for ISVs who are reading to scale up, a call center that serve both application owners and their customers, and even a SaaS ecosystem where ISVs can connect with each other as well as investors and enablement partners. This package is available under what they call "success-based pricing"; billing is based on customer-defined units of application delivery.
I thought this sounds amazing - until I spoke to a customer who complained that OpSource doesn't have on-demand infrastructure; hardware is deployed only with customer commitment. He is looking for instant scalable with utility pricing. Consulting and managed services are a must - but he doesn't want to pay OpSource for handling his customer's trouble tickets. It seems application developers have rather high expectations from their hosting partners...
BTW, SaaS hosting providers will be competing to an unknown extent with Salesforce.com, which plans to offer an "iTunes-like" store for 3rd party SaaS apps. eWeek describes AppStore as turnkey outsourcing of sales/marketing/billing; I'm wondering if hosting will be part of the mix. After all, can you imagine iTunes not hosting the songs it sells?
Soon the ISVs will be empowered by the availability of options for hosting their applications by themselves through a platform provider with no vendor lockin . Even now, there are a lot of companies developing platforms which help the ISVs to 'Plug and Play' their application without much revamping their existing code base. So it matter of time that such services will come into the market.
Thanks,
Arun.PC
Agreed. OpSource is certainly the pioneer and offers a multitude of services, but as you said there's no on-demand infrastructure. It seems that if a hosting company wants to make a good play into the SaaS hosting market, some time could be spent building a shared, SaaS hosting platform that would allow the ISV to publish their application into the environment with little to no interaction from the SaaS host; they could interact as much as they want or not at all. The point is, they could publish their application up to the system within a known and standard framework and have it up and running.
I think there'll need to be some work from both the ISV and the hoster to meet in the middle so to speak about what's expected. Hosters should also become more like ISVs, so they understand the complexity and needs a bit more.
Just my 2 cents :)
-matt