In an already crowded software-as-a-service (SaaS) marketplace, new entrants are continuously emerging, driven by the need for innovation, deep specialization and affordability. But if enterprise IT doesn’t stay aware of the advancements and evolve with them, businesses will miss out on the benefits promised by the cloud. It’s essential for enterprise IT to not only keep up with the changes happening in the SaaS applications world but to also ensure the architecture is ready to take advantage of these continuous developments.

The SaaS marketplace has moved past its traditional origins, when these applications addressed a single business function for a variety of industries, typically referred to as “horizontal SaaS” (i.e., Salesforce CRM). Since then, other types have emerged, such as SaaS applications tailored for a particular industry, or “vertical SaaS” (i.e., Health Cloud). There are also niche SaaS applications that address very specific functional needs as an add-on product to complement an existing SaaS application, or “micro-SaaS products” (i.e., Clearbit).

The Market Dynamics of SaaS

From the SaaS vendor point of view, customer growth and retention are critical success factors because of the fact that platform revenues are mainly subscription/license-based. As a result, the market is driven by the following four dynamics:

  1. SaaS to PaaS transition:By enhancing their SaaS products with platform-as-a-service (PaaS) capabilities, vendors enable SaaS buyers to develop, enhance and even monetize their products, which extends customer loyalty to the platform. For example, by forging deep partnerships with networks such as Microsoft and Workday, Salesforce has become an ecosystem of ecosystems.
  1. Deep verticalization: Almost all SaaS vendors are increasingly developing solutions to address specialized functions of specific industries and orchestrate an ecosystem to address specific industry needs. When deep industry platforms such as Temenos (for banking) and Guidewire (for insurance) challenge pure-play technology platforms, they enable creative collaboration between themselves and the SaaS platform. This results in a network of platforms that benefits both vendors and customers. 
  1. Expansion and integration: SaaS platform vendors are partnering with established software giants such as Oracle and SAP, whose established security and performance standards establish trust for larger SaaS buyers, extending their use of the platform and, thus, retention.
  1. Unbundling SaaS: Micro-SaaS vendors offer customers of existing SaaS platforms very specific features or enhancements that are missing from the platform in use. Because these offerings are based on pay-as-you-go models, customers can tailor their own experiences and pay for just what they use, resulting in a superior customer experience.

Getting Ready for SaaS

On the enterprise side, CIOs need to make sure the IT architecture evolves with the dynamics of the SaaS industry. While it’s difficult to cope with the fast pace of technology, CIOs should not ignore the benefits of engaging with the SaaS evolution, such as innovation and specialization. Here are some recommendations for CIOs to follow.

  1. Stay informed about the sea of SaaS products: In the world of ultra-digitization and hyper-personalization, it’s critical to monitor the pulse of the crowded SaaS marketplace. There are still hundreds of “enablers” (those that produce complementary applications) and “disrupters” (those that dismantle traditional SaaS products and build their own marketplace). A leading Canadian financial services firm has an “Advanced SaaS Radar” team that keeps track of trending products (industry SaaS and micro SaaS) in their areas of interest (commerce cloud and finance) to continuously assess their potential fit. The team reports on a quarterly basis to the global CIO, describing the top-of the chart products, their specialty, how well they’d fit into the organization and the changes that would be required for adoption.
  1. Technological flexibility and architectural fit: It’s important to have an enterprise technology environment that’s flexible enough to allow a variety of technology products to plug-and-play seamlessly. Infrastructure (i.e., the cloud choices the business has made), applications (the architectural underpinnings ) and data (modernized data that is democratized for access) should all be set up so that the enterprise’s SaaS adoption can evolve with advancements within the industry or service line.

    The risk with the plug-and-play approach is that businesses could inadvertently adopt technologies in an ad hoc way to solve problems temporarily, resulting in performance and safety nightmares in the product adoption lifecycle. One of our clients, a U.S.-based drug manufacturer, has created a team of SaaS enterprise architects who continuously stress-test the business’s SaaS solution architecture on usage limits or breaking points, dependencies and performance against acceptable standards. This evaluation of architectural fitness enables the organization to understand its readiness if it needs to quickly implement a solution to respond to an urgent need.

  1. Addressing the skills demand: Domain (both industry and product) and technical skills are important to keep the SaaS adoption relevant. It’s critical for businesses to take a skills inventory, in terms of what they have now and what’s needed for the future. Having a talent strategy alongside the technology strategy is a must, especially with the ever-changing SaaS landscape.
  1. Knowledge management: With the advent of Agile and iterative development processes, knowledge management processes have become extremely important. When it comes to SaaS adoption and evolution, knowledge management is even more important for keeping the SaaS implementations active. For example, cloud-based SaaS products would go through multiple iterations to improve their efficiency. Without proper documentation of the SaaS adoption, it would be difficult to measure the ROI and evaluate the potential opportunities to maximize the returns.

As cloud security continues to improve, SaaS adoption will accelerate, spurring fast-paced change in enterprise IT. By remaining aware of changing trends, enterprise IT can design an open architecture that can be augmented with maturing and value-adding SaaS products. Such a “be-ready” attitude has never been more important.

This post builds on a blog that originally appeared on Forbes.com

Anbu Muppidathi

Anbu Muppidathi

Anbu Muppidathi is a member of Cognizant’s executive leadership team and is a senior leader in the company’s Digital Systems and Technology... Read more