A Whitepaper for

Independent Software
Vendors (ISVs)

Migrating to a SaaS Model:

A Roadmap to Success

An Independent analysis published on behalf of Verio.

 Migrating to a SaaS Model:
White Paper A Roadmap to Success

Executive Overview
A confluence of market forces are driving organizations of all sizes to adopt a
new generation of web-based, on-demand, Software-as-a-Service (SaaS)
solutions to meet their changing business requirements.
These organizations are adopting SaaS solutions of all kinds, ranging from ‘front-
office’ applications, such as customer relationship management (CRM) systems;
to ‘back-office’ applications, such as accounting and financial systems; to
collaboration; IT management solutions; and industry-specific applications.
The rapid growth of SaaS is attracting a proliferation of new and established
independent software vendors (ISVs) seeking a share of the market. This ‘cloud
rush’ is putting greater pressure on aspiring SaaS providers to quickly develop
and deliver highly differentiated solutions at the lowest possible cost. And, it is
also forcing them to make important decisions about how to properly deliver their
services to ensure they are reliable, secure and high performing.
For most SaaS start-ups and established ISVs migrating to a SaaS model it
doesn’t make economic or business sense to build their own hosting facilities to
deliver and support their SaaS solutions.
Instead, smart SaaS vendors are teaming with proven hosting companies who
can provide a cost-effective and scalable service delivery infrastructure so the
SaaS vendor can focus on developing and marketing a differentiated solution.
The leading hosting companies provide a full lifecycle of enablement capabilities,
technical skills and strong ‘ecosystem’ of business partners to help aspiring SaaS
vendors succeed.
This whitepaper will examine today’s SaaS opportunities and challenges, and will
show how a hosting company, such as Verio, can help ISVs capitalize on the
rapidly evolving market opportunities.

© THINKstrategies, Inc., 2010 www.thinkstrategies.com p.2

 Migrating to a SaaS Model:
White Paper A Roadmap to Success

The Market Forces Driving the Growth of SaaS

A convergence of four key macro-market trends is driving companies of all sizes
to adopt SaaS solutions to support their increasingly dispersed employees, better
serve their decreasingly loyal customers and better coordinate with their
widening array of corporate partners.
These market trends include,
 Changing economic conditions
 Changing competitive forces
 Changing workplace requirements
 Changing technology requirements
The current financial crisis has impacted businesses of all sizes, causing layoffs,
tightening budgets, and forcing decision-makers to re-evaluate their capital
investments and refocus their limited resources on their core competencies.
The competitive landscape is also being reshaped by globalization and
eCommerce which have opened new market opportunities, but also lowered the
barriers to entry in nearly every industry resulting in greater competition and
lower customer loyalty.
The workplace is also being redefined by more dispersed and tech-savvy
workers who are more mobile and adept at leveraging technology to perform
their day-to-day jobs. Broadband networks and mobile technology are enabling
employees to work anywhere. But, they also need greater access to information,
traditionally hidden behind the firewall, in order to perform their jobs.
These trends are forcing organizations of all sizes to re-think how they leverage
software and technology to better support their rapidly changing business
requirements to achieve their corporate objectives.
Traditional, legacy on-premise applications and systems were not designed to
respond to these challenges. Instead, they were architected with a highly
centralized organization in mind. They have also proven to be too expensive and
cumbersome to acquire, deploy and maintain to meet organizations’ changing
needs. As a consequence, many enterprise on-premise applications have failed
to produce the return on investment (ROI) that organizations expected and have
required a higher total cost of ownership (TCO) to keep them up and running.
Because most organizations cannot afford these inefficiencies in today’s tough
environment, a growing number of organizations are adopting a widening
assortment of SaaS solutions to address varying business needs.
‘On-demand’, SaaS solutions leverage the web to give users anytime, anywhere
access to business applications. These solutions can be deployed quickly without
the upfront capital investments and ongoing support costs associated with
traditional, on-premise software. As a result, SaaS solutions offer a quicker time
to value at a lower cost of ownership.
THINKstrategies has seen a steady increase in customer interest and adoption of
on-demand SaaS solutions. Our most recent survey of over 100 mid- and large-
scale enterprises worldwide conducted in October 2008, in conjunction with

© THINKstrategies, Inc., 2010 www.thinkstrategies.com p.3

 Migrating to a SaaS Model:
White Paper A Roadmap to Success

Cutter Consortium, found 63% of the companies surveyed had adopted a SaaS
solution, nearly double the percentage in 2007! (See, Figure 1.)

Figure 1
Percent of Companies Using and Considering SaaS Solutions

Source: THINKstrategies/Cutter Consortium, 2008.

Our findings have been validated by a recent study by McKinsey & Co. and
Sandhill.com which found 74% of the CIOs they surveyed are either using or
willing to consider SaaS alternatives to meet their IT and business needs.1
Our survey also found over 90% of those already using a SaaS solution are
satisfied with the quality of the solution, plan to expand their use of SaaS and
would recommend a SaaS solution to their peers.
It is for these reasons that companies of all sizes are adopting SaaS and cloud
computing at an accelerating rate. As a result of these trends, IDC forecasts the
SaaS market will experience a 24.4% compound annual growth rate (CAGR) and
will exceed $15 billion in 2012.2 In comparison US IT spending growth will be low
single digit in 2010 and then advance at a compound annual growth rate (CAGR)
of 6% over the same forecast period, according to Business Monitor
International’s “United States Technology Report Q4.”

1
“Enterprise Software Customer Survey 2008”, McKinsey & Co. and Sandhill.com,
http://www.interop.com/downloads/mckinsey_interop_survey.pdf.
2
“Worldwide Software on Demand 2008-2012 Forecast and 2007 Vendor Shares: Moving Toward an On-
Demand World” (IDC #213197, July 2008).

© THINKstrategies, Inc., 2010 www.thinkstrategies.com p.4

 Migrating to a SaaS Model:
White Paper A Roadmap to Success

‘Cloud Rush’ Poses New Challenges for ISVs

The growing demand for SaaS solutions is attracting an increasing number of
ISVs to the market, creating a ‘cloud rush’ effect which THINKstrategies believes
will inevitably result in a shake-out and consolidation in the SaaS industry.
A clear barometer of the proliferation of players entering the market is
THINKstrategies’ SaaS Showplace (www.saas-showplace.com) which now has
over 1200 providers listed across 80 application industries and enabling solution
areas. Even in the best of times, few markets can support this many vendors.
And, today’s credit crunch is making it especially difficult for a growing number of
start-ups as well as some established vendors to survive.
The aspiring SaaS providers who do survive an inevitable industry shake-out will
be those who develop clearly differentiated solutions and deliver them in a cost-
effective and reliable fashion.
These are not easy objectives because the SaaS model changes many of the
fundamental rules of the software game. First, it puts the burden of customer
success on the shoulders of the vendor, fundamentally changing the nature of
the customer/vendor relationship. In the past, the customer was responsible for
deploying and maintaining their business applications, and the ISV simply had to
respond to technical questions and periodically issue software updates and
upgrades.
In the SaaS model, the vendor is responsible for ensuring the availability,
reliability, security and scalability of the software solution. With the pay-as-you-go
subscription pricing model, if the vendor fails to meet the customer’s
expectations, it is at risk of losing the customer. In addition to the threat of also
hurting its reputation in the market, the SaaS vendor may also be liable to pay a
penalty for failing to fulfill its obligations under a service level agreement (SLA).
The pay-as-you-go subscription pricing model poses additional financial pressure
on the SaaS vendor. The subscription pricing model allows organizations to
incrementally adopt SaaS solutions and avoid the upfront capital investments
associated with perpetual software licenses. The SaaS subscription pricing
model also means ISVs receive less upfront capital to finance the development
and delivery of their SaaS solutions. This requires SaaS companies to change
their fundamental philosophy and approach to how they architect, support, and
deliver their software application. In the on-premise model, software companies
were able to build and maintain their own IT infrastructure and had the upfront
capital needed to fund those expenses. In the SaaS model, software companies
will need to reduce their IT infrastructure costs to remain competitive. As a result
many will leverage the performance and economies of scale made available
through hosting service providers, also referred to as Cloud or Virtual IT service
providers, to achieve the scalability and reliability they need at reduced costs.
In addition, most established ISVs are migrating from an on-premise, single-
instance, packaged software architecture to a multi-tenant architecture which
makes SaaS more scalable and profitable. Re-architecting these applications
takes specialized software development skills and service delivery capabilities. It
also requires sophisticated service provisioning, monitoring, metering, hosting
capabilities, and the ability to rapidly scale.

© THINKstrategies, Inc., 2010 www.thinkstrategies.com p.5

 Migrating to a SaaS Model:
White Paper A Roadmap to Success

SaaS vendors must also demonstrate that they have sufficient security policies
and procedures in place to safeguard customers’ sensitive corporate data. These
policies and procedures must also be properly certified, a process which can cost
thousands of dollars and take months to attain SAS 70, PCI or other necessary
certifications.
Given the competitive landscape and economic climate, most ISVs cannot afford
to make these investments to simply put the right service delivery infrastructure
and proper certifications in place. Instead, they must focus their resources on
building the best SaaS solutions possible at the most competitive price to satisfy
escalating customer expectations and remain competitive.
It is for these reasons most aspiring SaaS providers are turning to proven hosting
companies to support their service delivery requirements.
These SaaS companies find that it is more advantageous for them to
leverage the technical IT expertise and economies of scale that a hosting
service provider can offer. Successful SaaS providers leverage the
strengths of an experienced hosting service provider which allows them to
remain focused on their core business of developing great software
applications while accelerating their time to market and reducing their
capital expenses.
The following section will examine the key criteria SaaS providers should use to
select the right hosting company to meet their needs.

Key Criteria for Evaluating and Selecting a Hosting Partner

When considering a hosting service provider to partner with for hosting your
SaaS solution there are many important criteria you should evaluate. Below is a
list of some of the most important criteria you should consider.
1) Financial strength and proven track record of performance – has the
company been in business at least 10 years or longer? Are they financially
stable, will they be around for the long-term?
2) Products and service offerings – does the company provide the range of
services you need to support your application and architecture requirements?
3) Technical support – does the company provide technical support and sales
engineers that can help you build the architecture environment you will need?
Will you have access to certified and highly trained IT experts to answer your
questions? Will you have direct access to 24x7x365 support? How can you
contact their technical support – chat, phone, email? What is the average
response time to technical questions?
4) Service Level Agreements (SLAs) – what are the specific service level
agreements you will receive, how will service levels be measured and how
will you be compensated if there is a breach?
5) Technology – does the provider use the latest technology, do they offer high
performance and reliability, do they have the ability to scale rapidly? Do they
own and operate their own datacenters? Are their datacenters state-of-the-art
using the latest technology and security measures? Do they do proactive
monitoring of their servers to avoid problems before they occur? When a

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 Migrating to a SaaS Model:
White Paper A Roadmap to Success

problem does occur what is their average mean time to repair? Does the
company monitor and guarantee network performance?
6) Global presence – does the company have global datacenters and sales
offices? In what countries? Does the company own and operate their own
global IP network?
All of the criteria outlined above are important in your evaluation and selection of a
service provider, but perhaps the single most important consideration will be the
hosting providers’ datacenters and underlying product technology since this will
serve as the foundation of your SaaS delivery platform.
The key elements of a reliable and cost-effective data center are:
 Hardware platform (virtualization, etc.) and rack architecture (Blades, etc.)
 Network equipment
 Physical security and intrusion detection
 Redundant power and cooling (back-up generators and power supplies)
 Redundant Internet connectivity
 Data Backup/Restore procedures
 Proactive onsite and remote monitoring, management and resource tracking
When evaluating a hosting service provider’s datacenter, below are some key
questions to consider:
 Physical location – Are they located in the markets you operate?
 Facilities – Do the facilities utilize state-of-the art cooling and redundant
power supplies in case of a power outage? Do their datacenters include
back-up generators and alternative power sources to ensure continuance
operation in case of a power failure?
 Security – Does the facility utilize multiple levels of security including security
access cards, biometrics, video surveillance, and locked server cages or
closets with individual keys? What measures and policies do they have in
place to ensure your data remains secure?
 Technology – Does the datacenter include the most current server, router,
network, and software technology to ensure the highest computing
performance?
 Network & Server Monitoring – What level of network and server
monitoring does the datacenter include? Does the datacenter take proactive
measures to diagnose potential problems before they can occur? Is there
round-the-clock monitoring with onsite staff to address any problems should
they occur?
 Recovery Time – When there is an outage, what is the datacenter policy in
getting the datacenter and servers back up? What is their mean time to
recovery (MTR)?
 Service Level Agreements (SLAs) – What service level agreements are in
place to guarantee uptime performance? How are SLAs monitored, tracked,
and reported? What is the remediation process and policy if service levels
should fall below stated SLAs?

© THINKstrategies, Inc., 2010 www.thinkstrategies.com p.7

 Migrating to a SaaS Model:
White Paper A Roadmap to Success

In addition to evaluating the right hosting provider, you will also need to
determine the right deployment architecture to support your business objectives
and your end-customers. There are multiple SaaS deployment and architecture
options to consider, including:
 Single-instance/Multi-tenancy
 Multi-instance/Single-tenancy
 Single-tenant with virtualization
Single-instance/Multi-tenancy refers to a software architecture where a single
instance of the software runs on a server, serving multiple client organizations
(tenants). With a multi-tenant architecture, a software application is designed to
virtually partition its data and configuration so that each client organization works
with a customized virtual application instance.
Multi-instance/Single-tenancy is where multiple instances of the application are
set up on either one or multiple dedicated servers to support a single client.
Single-Tenant with Virtualization because the principle of multi-tenancy is not
universally accepted or supported within the software industry, offering a single-
tenant alternative via virtualization may be a source of competitive differentiation.
Hosting vendor, Verio, has produced the following table to help ISVs understand
the tradeoffs between these architectural alternatives.
Table 1
Relative Design Complexity/Effort for Various Design Elements
(Table Key: Low = Most Desired, High = Least Desired)

Virtualized Multi- Single Tenant/

Single- Tenant App Multi-instance
Issue
Tenant App

Data Isolation Needs Low High Low

Preferred/Required Low Medium Low

Scaling Techniques

Software High Medium Low

Update/Management

Customer Medium High Low

Customization

Integration with other Medium Medium Medium

SaaS Apps

Tiered/Variable Medium Medium Medium

Pricing/Service

Tiered/Variable SLA Low High Low

Overall Efficiency Medium Low High

© THINKstrategies, Inc., 2010 www.thinkstrategies.com p.8

 Migrating to a SaaS Model:
White Paper A Roadmap to Success

Reaping the Benefits of a Positive Partner Relationship

There are a growing number of ISVs successfully migrating to a SaaS model.
Accrisoft is a good example of how an ISV can leverage a hosting company’s
service delivery infrastructure and support capabilities to achieve its SaaS
objectives.
Accrisoft
Accrisoft is a SaaS provider which provides small and medium-sized businesses
(SMBs) access to more than 80 web-based, turnkey modules including billing, e-
mail marketing, calendaring, collaboration, content management and website
design. They market the Accrisoft Freedom product through both resellers and a
direct sales force.
Accrisoft needed to find a reliable and comprehensive hosting solution that would
enable it to scale its operations economically while focusing on its primary SaaS
business.
Accrisoft selected Verio’s hosting services because of their high performance
and reliability. Verio is a leading hosting service provider that supports the needs
of SaaS ISVs by providing the highly reliable IT infrastructure they need to
confidently deliver applications to customers around the world. Verio offers SaaS
ISVs a wide range of affordable computing options to support their specific
business objectives and end-customer requirements. Accrisoft uses the full range
of Verio hosting services including its Shared offerings, Virtual Private Servers
(VPS) and Managed Private Servers (MPS).
By using Verio’s hosting services, Accrisoft has been able to successfully match
end-customers’ business requirements with the right solution to support their
needs at the most economical price, and easily upgrade customers as their
requirements grow. As a result of leveraging Verio’s hosting services, Accrisoft
has achieved the following business benefits,
 15-20% increase in new customer acquisitions and
 21% increase in annual sales revenue accomplished by leveraging the
strength and reputation of Verio and NTT Communications.
 Less than 9% customer churn rate attributable to high customer
satisfaction resulting from the consistent reliability and performance of the
Verio solutions that host the Accrisoft software services.
Accrisoft also estimates it has saved an average of $1.3 million dollars a year by
not having to maintain its own hosting operations and being able to focus on its
core SaaS business.
“Our primary focus is our customers and resellers. Verio consistently exceeds
our expectations for service and reliability which empowers us to serve our
resellers and customers with excellence,” said Jeff Kline, President and CEO for
Accrisoft.

© THINKstrategies, Inc., 2010 www.thinkstrategies.com p.9

 Migrating to a SaaS Model:
White Paper A Roadmap to Success

Summary and Conclusions

The SaaS market is growing rapidly in response to unprecedented business
challenges. The growth of SaaS is attracting an increasing number of ISVs
seeking to respond to their customers’ changing business requirements and
capitalize on this new service model.
Successfully making the transition to SaaS requires more than simply re-
architecting an ISV’s software products to reside on the Web. It also entails a
complex set of enabling technologies and service delivery capabilities in order to
provide reliable, secure and scalable SaaS solutions which meet their customers’
evolving needs.
Escalating competition in the SaaS market is forcing ISVs to leverage the
expertise and experience of proven hosting companies, such as Verio, to
accelerate their software development process, accelerate their time to market
while reducing costs, and strengthen their service delivery capabilities to remain
competitive in the market.
By teaming with leading hosting companies, like Verio, ISVs can better meet their
customers’ needs in a cost-effective fashion to ensure their long-term success.

© THINKstrategies, Inc., 2010 www.thinkstrategies.com p.10

 Migrating to a SaaS Model:
White Paper A Roadmap to Success

This independent analysis was published on behalf of Verio.

About Verio
Verio is the leading provider in delivering online business solutions to SMBs worldwide.
Distributed through its global network of OEM and viaVerio channel partners, Verio’s solutions
provide web hosting, application hosting and SaaS that enables SMBs to drive online success.
Verio is a subsidiary of NTT Communications, one of the largest companies in the world and
supports its operations with their highly reliable and scalable Global IP Network providing
customers and partners with access to business solutions in more than 200 countries. In
January 2009, Verio was named “Best Web Hosting Company 2008″ by HostReview.com. For
more information, visit: www.verio.com.

About THINKstrategies, Inc.

THINKstrategies is a strategic consulting services company formed specifically to address the
unprecedented business challenges facing IT managers, solutions providers and investors
today as the technology industry shifts toward a services orientation. The company’s mission is
to help our clients re-THINK their corporate strategies, and refocus their limited resources to
achieve their business objectives. We help enterprise decision-makers with their sourcing
strategies, IT solutions providers with their marketing strategies, and VCs with their investment
strategies. THINKstrategies is also the founder of the Software-as-a-Service Showplace
(www.saas-showplace.com) the largest and highest ranked, vendor-independent, online
directory and information resource center of SaaS solutions. For more information regarding our
unique services, visit www.thinkstrategies.com, or contact us at info@thinkstrategies.com.

© THINKstrategies, Inc., 2010 www.thinkstrategies.com p.11