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Public sector is turning to SaaS while SAP and Oracle dither
Companies using SaaS models of delivery are attracting a good deal of interest from the public sector. Here's why
UNIT4, which is better known in the UK trading under the CODA, FinancialForce.com and Agresso brands put in a strong performance in the first half of this year. What makes this result interesting is that:
- They appear to be defying the much discussed downward trend in public sector IT spending
- SaaS/subscription revenues climbed a very healthy 53 percent
Normally, this kind of thing would not be worthy of note but UNIT4 represents an exception worth exploring that leads us to look at broader issues. Over the last couple of years, UNIT4 has been on something of a stealth march to transition its business away from a pure licence model to one that embraces the subscription fee approach favoured by SaaS/cloud companies. While bigger companies like SAP and Oracle dither and waver on this topic, UNIT4 has no such qualms. In its press release, the company said:
Despite the strong SaaS / subscription revenues – which puts pressure on product sales – product revenue still grew 21.8 percent to a total of €36.3 million (H1 2010: €29.8 million.
Part of the reason for this good cheer is the fact UNIT4 has spotted a gap in the market that it is prepared to fill. While spending generally in public sector IT may be declining, UNIT4 has developed a shared services model where it hosts for multiple local authorities.
Not only does this spread the cost from the LA's point of view but it also provides UNIT4 with an opportunity to increase revenue from a larger pool of customers. How successful the company is in growing revenue based on this strategy and transitioning to a full SaaS/cloud model remains to be seen.
Very few vendors (and I count Ariba in this very small club) have managed it without feeling the icy wind of stock market rejection. FinancialForce.com set some very aggressive targets for 2011.
From my soundings inside the company, things are going well, in large part because it acquired a professional services business in the US that is driving sales of a more process complete solution. It also helps that FinancialForce.com benefits from the halo effect of building off the Salesforce.com's Force.com platform. That is not without its challenges but it does not prevent the company from continuing to attract good customer names.
Contrary to popular opinion, there is a more general rising of the SaaS/cloud business applications tide. Workday for example got plenty of positive coverage earlier in the week when it announced release 14 of its software. Its fans really like what Workday is doing. How often do you hear that said of enterprise software?
In the last year, Workday has transitioned from being an HCM pure player to one which can legitimately claim ERP status.
In recent times I have been digging about inside its financials solution and while there are some obvious holes that need back-filling, Workday represents a solid competitor for upper mid-sized businesses with great differentiating features like embedded analytics that only sit in the finance office but which can be proliferated out to line of business managers.
Why the attraction for these styles of solution when customers must find that on-premise competitors are offering solutions that are functionally richer? Part of the answer comes in the cost model which unquestionably favours SaaS/cloud when compared to the capital cost commitment needed for an on-premise solution. But that's pretty much table stakes. If what I am seeing is an indicator, buyers fall into two categories:
- Early adopters willing to take a punt on new solutions where they trust the vendor's release cadence to bring them what they need, even if they have to wait
- Organisations in some sort of severe pain where they need a new solution that can deliver fast value.
Curiously, this second group is most likely to be laggardly and less keen on IT spending but once they see where the benefits are to be had, they're 'all in' pretty quickly. The newer breed of solutions are bringing something to the table with which on-premise vendors truly struggle - business agility.
This sounds like a cliche but UNIT4, which arguably started the trend some years ago, developed a way for businesses to readily change their structures without it leading to massive disruption. Financialforce.com claims that its customers can be up and running in a matter of days.
I recently sat through a Workday demonstration where the business structure was changed in a matter of minutes. You simply can't do that with an SAP or Oracle system. That's important for customers that are experiencing change, who are active in M&A or which are structurally unstable for one reason or another. It should not therefore surprise that public sector is picking up on this alternative way of doing things.
Disclosure: FinancialForce.com and Workday are product advisory clients.