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How critical is M&A to software vendor growth today?

More important than it was 3 years ago

Less important than it was 3 years ago

It has been and will always be a key growth tactic

Move Over SaaS, Make Room for AbSD

By Rob Meinhardt, Co-Founder and CEO, KACE

There’s a new kid in town sharing the spotlight with SaaS. AbSD (Appliance-based Software Delivery) offers a similar, disruptive approach for delivering core business applications. This new model of software delivery offers many of the same benefits as SaaS models and a few additional benefits that create an advantage for certain types of applications.

Rise of SaaS Originally Fueled by Mid-Market Buyers
SaaS application delivery models first emerged in the late ’90s. And, by now, the story is well known. The cost and complexity of installing traditional software-based enterprise applications had spiraled out of control. Siebel, SAP, Oracle and others represented the old-guard approach. Upstart organizations like Salesforce.com, Eloqua, NetSuite, LucidEra and others struck out at the very core of these models by offering hosted software models.

The capabilities of these SaaS offerings remain substantially similar to their client/server predecessors. CRM systems manage customer relationships whether delivered by SaaS or client/server. A parallel statement could be made for ERP or BI offerings.

Instead of offering new features in the traditional sense, SaaS models focused on ease-of-use, rapid time to deployment, centralized and automatic application maintenance and data backup. In addition, most SaaS offerings price on a subscription basis, which helps new customers avoid large upfront costs.

The benefits offered by SaaS hit a nerve with businesses that couldn’t afford or spend the time to deploy monolithic, traditional software systems. The early growth came from mid-market companies and, over time, these mid-sized enterprises voted with their budgets on a large scale. And, of course, now SaaS is widely accepted as the premiere software delivery model for companies of all sizes.

AbSD Finds Its Place Alongside SaaS
Appliance-based Software Delivery has crept on the scene over the last decade. The characteristics of an appliance-based software product include many of the same qualities found in SaaS:
  • Easy installation and configuration
  • Web-based interface
  • Automatic application data feeds, maintenance, and upgrades
  • Automatic data recovery and backup
In addition, AbSD offers several characteristics not found in SaaS:
  • Dedicated, high-performance hardware for a single application and customer
  • Secure, on-premise deployment architecture
  • Traditional upfront purchase or subscription license or hybrid

Early examples can be found in the consumer space. TiVo, for example, is simply a Linux-based appliance dedicated to the application of digital video recording. The box is extremely easy to set up, it’s easy to use and it mixes on-premise capabilities with data feeds (i.e. programming guides) served up from a central location. Moreover, there’s a mixed purchase model; some upfront fees with a modest on-going subscription.

In some cases, AbSD in-roads have come in direct competition with SaaS. For example, SugarCRM offers a SugarCube appliance product that offers Salesforce.com-like functionality in a box, which makes a lot of sense for some customers. They can get a reliable, secure, on-premise solution at a cost that’s comparable or less than a similar SaaS offering.

In other situations, AbSD has made inroads where SaaS doesn’t make sense because of security considerations or architectural reasons, and therefore, traditional software-only vendors remain entrenched. Companies like KACE in systems management, Cast Iron Systems in application integration, and IronPort in messaging are proving that AbSD can be extremely attractive to customers for three key reasons:

  • Incumbent solutions are too difficult or time consuming to implement
  • Security and reliability concerns are too great to risk an off-premise SaaS solution
  • Alternatives are too expensive to purchase and implement
Bellweather Adoption of AbSD within Mid-sized Enterprise
As it turns out, the mid-sized enterprise has proven to be fertile ground for this new paradigm once again. The information technology staff within a typical mid-sized business wears many hats, and therefore, responds well to solutions that offer good business value with an emphasis on fast time to production, affordability and ease-of-use.

In the mid-sized segment, businesses have historically under invested in heavy weight enterprise infrastructure. Now, AbSD removes the time, cost, and complexity barriers. And customers are buying it. From where the customer sits, appliance means secure, reliable, all-in-one, automatically maintained and updated, and affordable – it’s all part of the appliance allure.

You know you’re getting through to the market when venture capitalists are beginning to see it. When my phone rings, I’m hearing more potential investors saying things like “We’ve invested and won with SaaS companies; now we see that appliance-based models offer the same value proposition and open up potential in segments unreachable by SaaS.”

Indeed, move over SaaS, make room for AbSD.

Rob Meinhardt is Co-Founder and Chief Executive Officer of KACE Networks, Inc., the leading systems management appliance company. Prior to co-founding KACE, he worked for 2 years as a principal with R.B. Webber & Company (RBW), a strategic management-consulting firm. During his tenure at R.B Webber, Rob worked on strategic marketing projects for startup and public technology companies such as Bordeware, Critical Path, Attensity, Avotus, Iteration Software and Kasenna. In addition, he completed due diligence efforts in support of R.B. Webber's sister venture capital fund, TEFII. Before R.B. Webber, Rob served as Vice President of Marketing for AvantGo. During his four years with the company, AvantGo’s revenues grew from zero to nearly $30M on an annualized basis. Prior to AvantGo, Rob served as a Marketing Advisor and occasional investor in several high-technology companies, including Sybase, Commerce One, Sagent, Persistence, Chiron, FedEx Ecommerce Division and others. For article feedback, contact Rob at rob@kace.com 

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