SaaS Value Chain

Saas value chain can be presented in many ways, on a broad level consists of three levels:

  1. SaaS product vendors: Product vendors consists of numerous pure play Independent Software Vendors (ISVs) and large enterprise product vendors. The initial stage of SaaS market development was dominated by niche and small players developing applications to solve various business problems but as the SaaS market expands, many prominent names of the IT industry such as Microsoft, Oracle, SAP, etc. have started developing SaaS products. Primary functions (client facing and internal) of product vendors include:

    • Product development
    • Product maintenance and new releases
    • System infrastructure
    • Managing customized business logic
    • Managing the database
    • Ensures that SLAs are followed
    • User authentication and billing services
    • Maintaining optimal server utilization
    • Ensure security of data stored
    • Provide technical support and assistance
  2. SaaS service providers: The role of service providers is to understand end-user requirements and provide custom solutions. Service providers also act as aggregators of various SaaS products. Service providers are of great importance as customers have specific requirements, further end users may have existing incompatible applications with SaaS products, etc. which need to be integrated with SaaS offering. In a nut-shell service providers are the link between the product vendors and end users. They are involved in following key activities (not limited to):

    • Drive sales: through direct sales or acting as sales agents
    • Act as SaaS product aggregators
    • Provide services: such as integration with existing applications, value added services, customization, etc.
    • Provide infrastructure
    • Provide consulting: which application is suitable, cost-benefit analysis, how to implement?
  3. Customers / end users: Traditionally the focus of SaaS vendors has always been Small and Medium Businesses (SMB) as large enterprises were slow to accept the utility and adopt it. It also because of the fact that the initial applications were very niche and were not good enough to serve varied and complex requirements of large enterprise. Lately, the focus has shifted and large enterprises have also become a focus area for the product vendors. Interestingly, a research by a reputed agency in late 2010 indicated that SMBs are now less inclined to increase their use of SaaS as compared to large enterprises.