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Software as a Service:
A Bright Spot in a Bleak Landscape
This article is from the Spring 2009 issue of Hospitality Upgrade magazine.To view more articles covering technology for the hospitality industry please visit the Hospitality Upgrade Web site or to request a free publication please call (678) 802-5307 or e-mail.
By Scott Alvis

Is there some positive news today? 
ADRs and occupancy are searching for a bottom, and technology spending reductions are pummeling vendors.   Despite these dismal conditions, there is one segment of our market that will see strong growth this year�the software-as-a-service (SaaS) vendors. 

Software as  a service, sometimes called on-demand software, is software which is accessed over the Internet and offered at a monthly subscription or transaction fee.  This is in contrast to the traditional software model where customers purchase a license, install the application on their own hardware, and pay recurring maintenance fees.   All that�s required to implement and utilize a SaaS solution is a browser.  

The benefits of the SaaS model are widely understood and generally accepted.  Customers benefit from not having to pay large upfront fees, purchase hardware or concern themselves with infrastructure.  Implementation risk and cost is reduced and because SaaS companies operate on a single instance of their platform; all users receive automatic upgrades and can benefit from the quarterly or monthly release cycle that typically accompanies this model. A recent Gartner survey found that nine out of 10 companies plan to grow their use of SaaS in the next year, and more than one-third of respondents (37 percent) plan to replace on-premises software with SaaS to drive down total cost of ownership (TCO).

This is why the vast majority of software-related venture capital is flowing to SaaS companies.   The valuation multiples on these businesses remain strong, even in today�s market.  Salesforce.com, the mother of all SaaS businesses, has a market cap of $3.4 billion now, with year-over-year revenue growth over 40 percent reported for the third quarter of 2008.  Its toll free number echoes its SaaS mantra, 1-800-NO-SOFTWARE.

The SaaS model has taken hold in large horizontal application markets such as business intelligence (BI) and customer relationship management (CRM), and is rapidly taking hold across industry vertical applications as well. We see many hospitality offerings in this model today�including PMS, CRS, CRM and RMS vendors among others.  Like most new technologies, SaaS began with the least demanding users in the market�independent properties and small groups �and has moved up market to the larger groups and chains as the technology has matured. 

As hoteliers evaluate technology vendors, it will be wise to partner with vendors that support SaaS solutions.  Many legacy vendors are moving to the SaaS model, but often struggle with the different technology set, longer term ROI due to low monthly subscription fees versus larger upfront license fees, and the required level of service and support.  A relationship with a strong SaaS vendor will offer multiple strategic benefits beyond reduced cost and faster development speed. 

1.) Market understanding and responsiveness: With a single instance of the software hosted centrally, SaaS vendors have great visibility into how customers are using the product.  This provides a fundamental advantage in customer understanding that marketers and developers can leverage. 

2.)  Strategic vendor choice: Because SaaS technology evolved after the advent of the online space, it interfaces easily with other applications.  This ability to easily integrate with other vendor solutions makes the desired best-of-breed approach viable.  Ease of integration provides SaaS vendors with a fundamental advantage in their ability to partner (if their management team has this mindset).

3.) Service:  SaaS vendors are forced to focus on service.  As the service in the acronym suggests, they are not selling software and support but rather an end-to-end service.  Observations of our market suggest that customer satisfaction levels with SaaS vendors are much higher than with traditional vendors.

As technology vendors consider future investments in their platforms and operations, many are moving to the SaaS model.  
Vendors also receive many benefits including:
1.)  Reduced complexity and cost:  The benefits of having a single version of centrally hosted software cannot be overstated.  Development and support personnel�s productivity skyrockets when they don�t have to wrestle with multiple versions, multiple platforms and all the associated complexities. 

2.) Operational efficiency: CRM solutions like Salesforce.com offer vendors the opportunity to utilize a third-party SaaS solution to enable the workflow of their operations.  This can streamline the flow of customer information across sales, implementation and support, significantly improve customer service, and enable tracking and reporting to continuously improve operations.   

3.) More predictable revenue streams:  Ongoing monthly subscription fees substantially smooth out the revenue line and eliminate the lumpiness and sales-led hunting mentality driven by license fee models.

Over the next several years more application technology will move to the software-as-a-service model, as it is shows advantages on both cost and performance versus traditional software models.   It offers the ability for organizations to clear away many of the obstacles for their teams so they can focus relentlessly on delivering great service.  Having a technology model that reduces your costs, accelerates time to market, and energizes your team is hard to beat. 

Scott AlvisScott Alvis resides in the Dallas/Ft. Worth area and previously served as president and general manager at SynXis, as well as senior vice president of strategy at Sabre Holdings.  He can be reached at [email protected].


� Hospitality Upgrade, 2009. No reproduction or transmission without written permission.



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Contact:


Geneva Rinehart 
Managing Editor 
Hospitality Upgrade magazine 
and the Hospitality Upgrade.com website
http://www.hospitalityupgrade.com/
[email protected]

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