Well, actually, it's not in the Warehouse. SaaS WMS Solutions show Market Momentum.
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As we wrap up our WMS research, we feel the need to share some of our learnings now.
Last week seemed to be SaaS/WMS week, with lots of discussion with these players about their solutions, strategies and customers.
Contrary to the charge that “SaaS is a wait and see game,” we were fairly impressed with what we have seen. Having been in the software game a long time, the road map to a so-called complete solution is not an issue of SaaS or not. Plenty of players—in fact all players—in the software market came to market with modest offerings relative to the long-term plan.
In the last decade, we did a report On Demand Now and made some predictions on when WMS/SaaS would emerge and start gaining traction (Figure 1). Although we could not predict the 2008 financial meltdown, we did predict continued issues in the US economy relative to the Emerging Markets.
Figure 1: SaaS/ On-Demand Adoption by Sector 2004
Even then, all signs of increasing deficits, emergence of India and China as the software development/call center hubs and the manufacturing center of the world, respectively, meant downward price pressure. The continued drive of SOA, Open Source and a plethora of really good and inexpensive web development tools created a way to rapid (as in cheap) development, lower total cost to develop, and lower total cost to serve. Add in those more and more demanding customers who wanted and got a ‘price break’ on the software; it adds up, or minuses out from much lower pricing and less margin.
We did a market study at that time as well, for a large hardware OEM, and these factors—labor costs, globalization and also expectation of Emerging Markets to buy products at local currency value prices—are driving down worldwide pricing for technology.
This new world is here to stay, so we might as well get used to it, and learn a new game, and learn to win.
What makes SaaS different than On Premises? It’s all about the Services that You See.
Often the last thing to be talked about is really a key driver—for many, the key driver—of revenue and profit for the tech firm, a major component of Total Cost of Ownership for the customer, and also the source of pleasure or displeasure for customers.
In our research we asked a series of questions to all the WMS players about all the service components: maintenance and what’s included; what they charge for it; implementation services and costs, etc.
Shown here in Figure 2 is a critical area where the stark differences between SaaS/Cloud and License/On Premises can be seen.
SaaS/ On Demand
Paying for maintenance—It’s the vendor’s software, but users have to pay for ongoing quality and fixes to the vendor’s software.
No maintenance charges, per se.
“License services do not include upgrades, such as moving from version 2 to 3.”
“Maintenance agreement covers lifetime access to future versions of the product for upgrades and free product support and fixes prior to the version retirement date.”
Selling version 3? It’s included; if it happens during your agreement period, the software gets upgrade automatically.
Quality of Response
Fees vary based on response time. Escalations and priority, i.e. quicker response, cost more.
Proactive monitoring of all systems performance 7x24. We call the customer if we see a problem.
Or, 7/24 call center included.
Actual Cost of Service/Maintenance agreement– Charge per customer
Have to sign for a year or three and pay up front. Here are the specific answers we received:
"Varies by customer”
16% of license fees
18% of license fees
20% of license fees
$500 per month per site
Fixed fee per user per month
Contract period from 1 to 3 years
Often costs more than software. Ratios can be from 1:1 up to 10:1.
“Varies by customer”
Fixed price or no fee implementation. And for fixed fee often transparent flat rate, such as 3PL central told us. Or Snapfulfil, no fee for software setup. You start paying when you go live.
Drivers of Service costs
Service costs are based on statements of work which include implementation, project management, and engineering and custom development factors.
“We attempt to minimize these costs. Most of our customization services are provided through the business rules engine by our Support team.”
Figure 2 - On-Premises vs. SaaS Service Drivers
On-premises? The software is on-premises, but you don’t often see the company—you're on premises, they're not. SaaS does not portray any onsite handholding image. However, if you pay the travel, as Snapfulfil stated, they will spend time on site. In fact, Snapfulfil does spend time on site, since they implement all the required infrastructure—wireless, web/internet, voice, etc. so that they can assure that all the hardware components are working. Next View is also there, though they have a proactive partner model, preferring to focus on the software support and reliability, support a rich partner network, and avoid channel conflict by not giving the partner their fair share of the ‘deal.’
We often get a debate on the no maintenance charge. Fact is, you can’t count twice. Software development costs and the cost to service it is in the financial model, and then the SaaS firm obviously determines how they can be profitable.
When we asked about the drivers of service cost, answers varied: with the License provider, the project plan requirements naturally determine implementation. Here are some well stated responses:
Customer knowledge was one:For example: “...here are a number of factors that contribute to this aspect of a solution rollout. Resource seniority, experience, and geography are a starting point. End user / customer leadership through the design and planning phase is another. If plans are firm and requirements are well established... the project can be completed more rapidly.“
The customer’s environment was another: “The number of solutions to be integrated and the nature of the ERP are significant factors. Open, well-known ERP solutions can be straight-forward from an integration perspective, while more closed, legacy ERPs can cause significant integration costs.”
One SaaS player hands more involved implementation in the warehouse–business process, data management and such—to a partner, to drive up partners/channel relationships. So we really don’t have apples to apples comparison on such things as go live times, in a traditional sense. If your business requires consulting and integration, you need to build the time into the project, no matter who is providing it.
Another SaaS provider does the whole implementation and start up for a fixed fee (they have minimum to no warehouse presence) and another only charges for travel and the RF and other types of equipment needed in the warehouse—no charge until you go live.
Statement from SaaS firms
Only a new software provider could create and succeed at SaaS/ On Demand.
Developing the technology platform architecture into the cloud and the pure rules confirmation model is a different approach than traditional software development.
We encourage users to look at the cost of the license, implementation costs (consulting and integration), and the maintenance fees and what they get; then compare the three, including cost of cash, cash flow over the agreement period.
We asked this question:
What is your annual maintenance fee as a % of the license fee? Describe any special contract arrangements and what is included and excluded in the maintenance contract as well.
On Premises: Varies by contract (see Figure 2, above.)
On Demand: 0%
What is the cost of your software and how do you charge:
On Premises: Varies by customer by site, by users. Site charges vary, not fixed per site charge.
On Demand: We got two answers. A fixed price such as $500 per site. Or a fixed price per user.
The Cost to Service – Shoot-out at the OK Coral
The flip side of this whole ‘driver of maintenance fees’ is the cost to serve, and this is a sticky issue. As major software firms rely on service revenues to drive their growth, the SaaS stands in stark contrast.
But let’s be fair. If your operations need some clean up (you know who you are), the processes don’t work well, your workers aren’t trained well, your data is a mess, and you use a big ERP or other complex systems which new software must integrate with, you plainly need the help.
You will turn to someone, whether the software provider—License or SaaS—or consultants, to solve these problems for you. And in fairness to all, you own that problem and you should pay to fix it.
But maintenance? It’s become obvious to all who run any kind of business that supporting one rule based configurable software vs. multiple version, etc., is just plan cheaper. Again, in fairness to License players, throughout most of history, that was the option—the only option—for users. And to satisfy all those demands for special features and technical choices (integrate with SAP, integration with Baan, SSA, JDE, PeopleSoft, Oracle, QAD, Lawson, Microsoft, Epicor, the J2EE, .Net, etc., the list goes on… ), software firms did the right things—gave the customer what they wanted. But now, all that funky code is out there, with users not keeping up, keeping all that translation code, EDI mappers, old flakey hardware, etc. Again, when the user calls for help on this confusing mess, they would like someone there to help. And that someone has to earn a paycheck and be very knowledgeable. If you have bought into the code base and enhancement work, you did ask for that. So who really is accountable for that problem?
Statement from SaaS firm
Unlike our competitors that bought many solutions—both license and on-demand–our business model is easy to manage. Having two solutions that creates channel conflict right in their own company– Now, that’s a problem!
Undeniably, the technology field evolves. We all knew that the internet would change the world. It has. It is not just the ‘cloud,’ though, that is very beneficial. Off site can reduce the cost to users—no IT staff for code care and hardware care. And today’s elastic cloud assures that as you grow and need more capacity, you can just get it. The data center is monitoring that for you and will automatically do that for you. But hosting is not the core of SaaS success. (See Does Cloud Equal On Demand?) It is both the Service Oriented Architecture (SOA) (see Manhattan's migration to SOA here) code base and the rules engine/configuration approach to development and implementation. In addition, the single code base, often called multi-tenant single instance, that eschews new lines of code for each customer, uses the configuration based on rules to support the need for unique user requirements.
SaaS is an unbeatable economic model for the software firm over time. Initially their investors have to be behind these ideas. Many mature software firms got their start by developing some code based on a unique idea that their first customer bought into. I2 is such a story. The founders lived on the road in Motel 6, (shared the rooms) and drove in a van with their server to demo the product (no flying). A few believers later, they could pay a few salaries!
That model clearly won’t work with SaaS. Users are not going to sign up for SaaS for little to show for it, regardless of the ‘no risk’ situation.
The SaaS vs. On Premises Debate
Honestly, in the end, we are not debating this—yet. There will come a time when the Shoot-Out-At-the OK Corral (see High Noon YouTube here) will happen on functionality. It is already happening in general, with deal flow increasing for SaaS. A wealthy end-user company with IT staff and deep super user staffing is not afraid of owning software and the support, for sure. But small companies or remote warehouses that are part of a bigger operating network are already buying in. This trend in SaaS, of course, is happening in most tech markets. (Read more on Cloud technology).
Any technology gets its niche and grows it. Thus, with SaaS. There are various elements that have not been solved well in the software market, like billing for 3PLs (see WMS Technology: the 3PL Challenge) or Labor Management, or cold in the warehouse and many other issues. Any player who comes to the table with these in their portfolio can expect a good listening by the user base.
Also, some companies are ‘cloud shy,” reluctant to share a multi-tenant environment. So we all have to look at the ‘single instance, multi-user’ definition and nuance it a bit to ‘single code base, multi instance, multi user’ or something of this sort. A few of the SaaS players have told us that this is their response to this class of customer. Cloud is now “ok,” but not sharing of a single instance, and they will provide an instance specific to that client—but off the same code base.
Single code base is the key to keeping costs down for the SaaS provider.
As you will see in further upcoming articles, and the report, WMS SaaS is moving up the functional curve quickly. We won’t see a face-off gun battle for a few years but it’s clearly just a question of time.