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No future alternative?

There’s been a shift in the way customers buy software. Has Software-as-a-Service conquered all?

Tracy Maynard, Axis Tracy Maynard, Axis
Like most sea-change events, it began with a trickle and finished with a tsunami-sized wave. The adoption of Software-as-a-Service (SaaS) as a model for purchasing enterprise applications is now so widespread that it looks like becoming the default option within a few years.

At least, that’s what the numbers tell us. Synergy Research Group reckons that the market for SaaS is growing at 32% year-on-year, and is now worth $20 billion a quarter. In a survey of 1 500 large and small firms in the UK, France and Germany conducted by OnePoll, 89% of firms were using at least one SaaS application. Last year, 74% of organisations surveyed by IDC expected to rely almost exclusively on SaaS by 2020.

Even so, the SaaS story isn’t concluded yet. Adoption rates vary wildly depending on business size and sector, and by the type of application in question. The Margin thought it timely to hold a roundtable discussion with industry luminaries to get a snapshot of SaaS in South Africa today.

Is everything Saas?

Derek Bose, Oracle Derek Bose, Oracle
Undoubtedly,  the direction of the market in South Africa is fully aligned with global trends. When Sage’s VP for enterprise in Africa and the Middle East, Matthew Kibby, raises the question ‘when was the last time you closed an enterprise deal that wasn’t SaaS?’, heads nod in sage (pardon the pun) agreement. “As a distributor, we’re absolutely seeing these trends,” says Traci Maynard, Microsoft executive at Axiz. “The smaller resellers embraced it a lot faster than the traditionally bigger sized ones. The smaller ones were a bit more agile and had customers who were happy to start moving over, while the larger resellers faced more concerns from their customers.”

Today, however, the evidence suggests that enterprise has overtaken small business as a consumer of SaaS.

Jeremy Mathews, DaxData Jeremy Mathews, DaxData
“In South Africa, everyone wants to pay on a monthly basis, that’s what we’re seeing,” says Rashad Farred, cloud business development manager at Rectron, “If a small company is in trouble, it can just give notice and cancel.”

“There’s no doubt about the economic argument for SaaS,” says Dilley Naidoo, business development director at Rifle-Shot Performance Holdings. “Avoiding big capex investments in favour of opex and monthly rental payments is a no-brainer. The challenge is technical, and we mustn’t underestimate that. In our case, we work largely with independent software vendors (ISVs) and deal directly with large enterprises. What we see is that customers are using some services as a test bed for SaaS, before bringing it into the heart of their operations. I’ve no doubt the conversation will be different in five years’ time.


SaaS = cloud, right?

Rashad Farred, Rectron Rashad Farred, Rectron
One topic raised early on was the question of clarity of communication about SaaS, and particularly as it relates to the cloud. Many analysts treat the terms SaaS and cloud application as synonymous, but, says chairperson and CEO of Progress distributor AIGS, Rick Parry, that’s not necessarily the case.

Around 85% of our revenue is now SaaS,” Parry says. “But, most of it’s on-premise. Cloud is becoming pervasive because of the extra bandwidth now available, but SaaS itself is a licensing model, not a hosting model.”

Judy le Roux, Micro focus Judy le Roux, Micro focus
“We see a lot of hybrid activity in corporates,” says Sage’s Kibby. “They want a combination of on-premise and public or public cloud, but for cloud, it’s mostly development workloads rather than production at the moment. Customers want flexibility more than anything."

This can lead to confusion, however. “Adobe Creative Cloud is a hybrid application,” says Jeremy Matthews, CEO of Adobe distributor DaxData. “It works on desktop and mobile with a whole load of back-end services in the cloud. People ask ‘do I have to run this in the browser?’, so understanding the commercial concept is very important.”

Ease of update

What customers do appreciate, Matthews continues, is always having access to the latest features, including those powered by the cloud. “The bar keeps getting raised, so now they need to create mobile apps, for example, and they need improvements to the products. You can’t use a copy of Creative Suite 6 that you bought five years ago and expect to remain competitive.”

Matthew Kibby, Sage Matthew Kibby, Sage

“The risk as a vendor or an OEM is that if you’re not relevant or up to date, you churn,” Wood says. “If you’re not at the bleeding edge – the new generation coming up is working online and in the cloud, and they see technology as a tap; if you need it, you open up the tap. If you don’t need it anymore, you turn it off. That’s what SaaS is, opening and closing the tap. If you want a slightly different flavour of the technology with more features, you turn on another tap.”

Nick Keene, business group lead for Modern Workplace at Microsoft, says that because Office 365 is now being delivered from the cloud, it enables the infusion of AI, which can help users better understand their own use “We can tell a user how they worked, how a meeting went. We can provide feedback on when attention in a meeting is lost, for example, if someone starts checking their email. We’re no longer talking to IT, we’re talking to HR and having cultural change conversations.”

However, Rifle-Shot’s Naidoo cautions that not everyone needs the latest and greatest. “Sometimes we get too fixated with technology,” Naidoo says. “You don't have to have the latest gee-whiz, and if I’m running serious businesses, I am going to get my ROI.”

AIGS' Parry gives an example of why it may continue to be important to make the distinction between SaaS and cloud.

S for service

“The second S in SaaS stands for service, and the fundamental difference is that we need to make sure we’re providing service. That’s the attraction, it’s an all-encompassing service customers are getting, which happens to be driven by software.

Dilley Naidoo, Rifleshot Performance Holdings Dilley Naidoo, Rifleshot Performance Holdings
"That's so important,” says Microsoft’s Keene. “As the channel has adopted selling cloud and SaaS from the cloud, there’s a project cost around deployment in moving the customer’s data. But after that, what is the customer doing? We continue to add value into the product, with updating feature sets, but we’re trying to get our partners to understand that once the applications are deployed, they need to engage in those consultancy services around digital transformation or security and move beyond sell and deploy towards the constant managed services.


“The biggest risk to the partner is that the customer churns. If a customer doesn’t realise the value they’re getting through the subscription model, it presents a risk to the partner. We like the channel model because the customer might have a particular perception – like my email is slow or Excel online isn’t working – and we’d love the partner to be the first port of call. Take hardware and software and services and bundle them for the customer. So, if something is slow, for example, it might not be us, it might be the network, so help them migrate from the 10Mbps ADSL line they’re trying to run and upgrade to fibre.”

Micro Focus’ Judy le Roux agrees. “Whether it’s on-premise or in the cloud, unless you continue to add value to your customer, they're not going to continue to use your product,” she says. “One of the big problems with user adoption in South Africa is internal culture and lack of training. Unless you’re there or your partners are there all day, every day to walk with the customer, someone else will be.”

While many resellers have already made this shift to a consultancy role, some difficulties remain.

Nick Reene, Microsoft Nick Reene, Microsoft
“The challenge of SaaS is that you’ll see a dip in revenues,” says Parry. “You no longer have big multimillion-rand deals, it does affect the quarterly results. But once you’ve made the switch to annuity revenue, your business is that much more valuable.”

Kibby agrees. “We’ve made the transition to a subscription-based model, and our shareholders have accepted it and our investors have accepted it. But we took a dip.”

New mindset, new model

All agree that one of the most difficult parts of the business to transform is sales, especially in distribution.


“The risk as a vendor or an OEM is that if you’re not relevant or up to date, you churn,” Wood says. “If you’re not at the bleeding edge – the new generation coming up is working online and in the cloud, and they see technology as a tap; if you need it, you open up the tap. If you don’t need it anymore, you turn it off. That’s what SaaS is, opening and closing the tap. If you want a slightly different flavour of the technology with more features, you turn on another tap.”

Nick Keene, business group lead for Modern Workplace at Microsoft, says that because Office 365 is now being delivered from the cloud, it enables the infusion of AI, which can help users better understand their own use “We can tell a user how they worked, how a meeting went. We can provide feedback on when attention in a meeting is lost, for example, if someone starts checking their email. We’re no longer talking to IT, we’re talking to HR and having cultural change conversations.”

However, Rifle-Shot’s Naidoo cautions that not everyone needs the latest and greatest. “Sometimes we get too fixated with technology,” Naidoo says. “You don't have to have the latest gee-whiz, and if I’m running serious businesses, I am going to get my ROI.”

AIGS' Parry gives an example of why it may continue to be important to make the distinction between SaaS and cloud.

S for service

“The second S in SaaS stands for service, and the fundamental difference is that we need to make sure we’re providing service. That’s the attraction, it’s an all-encompassing service customers are getting, which happens to be driven by software.

James Wood, Drive Control Corporation James Wood, Drive Control Corporation
"That's so important,” says Microsoft’s Keene. “As the channel has adopted selling cloud and SaaS from the cloud, there’s a project cost around deployment in moving the customer’s data. But after that, what is the customer doing? We continue to add value into the product, with updating feature sets, but we’re trying to get our partners to understand that once the applications are deployed, they need to engage in those consultancy services around digital transformation or security and move beyond sell and deploy towards the constant managed services.

“The biggest risk to the partner is that the customer churns. If a customer doesn’t realise the value they’re getting through the subscription model, it presents a risk to the partner. We like the channel model because the customer might have a particular perception – like my email is slow or Excel online isn’t working – and we’d love the partner to be the first port of call. Take hardware and software and services and bundle them for the customer. So, if something is slow, for example, it might not be us, it might be the network, so help them migrate from the 10Mbps ADSL line they’re trying to run and upgrade to fibre.”

Micro Focus’ Judy le Roux agrees. “Whether it’s on-premise or in the cloud, unless you continue to add value to your customer, they're not going to continue to use your product,” she says. “One of the big problems with user adoption in South Africa is internal culture and lack of training. Unless you’re there or your partners are there all day, every day to walk with the customer, someone else will be.”

While many resellers have already made this shift to a consultancy role, some difficulties remain.

“The challenge of SaaS is that you’ll see a dip in revenues,” says Parry. “You no longer have big multimillion-rand deals, it does affect the quarterly results. But once you’ve made the switch to annuity revenue, your business is that much more valuable.”

Kibby agrees. “We’ve made the transition to a subscription-based model, and our shareholders have accepted it and our investors have accepted it. But we took a dip.”

New mindset, new model

All agree that one of the most difficult parts of the business to transform is sales, especially in distribution.

"If you’ve been paying a salesperson in big lump sum commissions they don’t know how to sell subscriptions,” says Axiz’ Maynard. “It needs a different breed of salesperson, we need people from completely different industries.”

For those holdouts against SaaS, it seems the final argument is security. The scale at which SaaS providers work simply allows them to do it better.

“We see a billion authentications a day through Azure Active Directory,” says Microsoft’s Keene. “We can pick up signals and understand if and when someone becomes compromised. We can see where we need to bake security into this, not wait for someone to bolt it on.”

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