Selling Software

More vendors and integrators are offering software as a service (SaaS) to their customers. Tim Kridel finds out why.

The InfoComm 100 conference in early April 2009 was the first time Andrew Sellers heard the term software as a service (SaaS), but it probably won’t be the last, based on what he’s seeing around the industry and at his firm, U.S.-based integrator Sensory Technologies.

“We’re approaching digital signage more and more every day as a service rather than a hardware sale because we’ve come to learn that our customers really are ill-prepared to run their digital signage services on their own,” says Sellers, CTS, a principal at the firm. “They haven’t thought about content management and development.”

In a nutshell, SaaS is a form of outsourcing. Instead of buying software outright – such as for managing content for digital signage – it’s leased for a monthly or quarterly fee.

“SaaS means exactly that: You are purchasing a service, not a product,” says Rob Robinson, marketing director at Stardraw, which offers software for a variety of AV applications. “Under the SaaS model, the end user must be granted a license to access the service for the period of use.”

It’s here that definitions start to diverge. For example, some vendors define SaaS broadly, including offerings sold directly to the end user, while others draw the line at platforms available only to integrators. Another debate is over whether SaaS includes services – such as managing the end user’s signage content – or just the software itself.

“The other camp, in my opinion, doesn’t know what SaaS is all about and seems to be talking about providing a service that involves software,” Robinson says. “Wrong. In SaaS, the software is the service."

C-nario defines SaaS as leasing the software to the end user for a monthly fee, along with value-added services.

“We don't offer SaaS directly but through our partners, such as T-Systems, who offer our software to their customers, along with other operational services they provide,” says Yael Elstein, vice president of marketing. “We refer to it as a managed services provider model.”

What’s the Business Case?

Definitions aside, one reason why SaaS is becoming more common – or at least more visible – is the lousy economy, which has enterprises of every size, as well as integrators, looking for ways to cut costs or at least spread them out over a few years.

“Our design applications are sold and treated like many other capital items: an upfront purchase price, with an annual subscription that delivers added-value services, [such as] technical support, access to online services and data updates,” Robinson says.

Depending on how the SaaS offering is structured, an expired contract doesn’t necessarily mean that the vendor sends out a message to tell the software to stop working.

“If the user’s subscription expires, they cannot get data updates, although they can still use the application and previously downloaded data,” says Robinson, referring to his company’s approach.

The role that timely data plays in the user’s – in this case, the integrator’s – end product is part of the motivation for going with an SaaS model.

“There is still room and demand for traditional applications with traditional pricing models, but having said this, SaaS is the way of the future,” Robinson says. “Where the timeliness of data or content is the key value proposition, then it makes sense to recognise and price the software as a service through which timely data can be manipulated. For example, a key feature of Racktools 3.5 is the ability to design, price and order a rack enclosure. You can only do this if you are accessing the current product list and pricing.”

Besides a recurring revenue stream, SaaS also creates an ongoing relationship between the two parties. For example, an integrator could use its SaaS contract as a way to keep its foot in the door at a client, so it can identify additional sales opportunities over time. By comparison, it’s tougher to identify those opportunities if the integrator installs the hardware and software and then just moves on to the next client, with relationship ending at the invoice.

For some enterprises, SaaS can be attractive for the way that it moves software from a capital expense to an operating expense, which can have tax benefits. The regulatory environment for their industry can be another motivation. For example, in some countries, regulators allow banks to loan only what their capital reserves can cover. By making software an operating expense, SaaS means they have more money to loan and thus greater profit potential.

Of course, some software is relatively inexpensive, to the point that it doesn’t make much sense for the end user or the vendor to buy and sell it on a SaaS basis. One example is Westinghouse’s neonNow, which runs about 700.

“From the neon software point of view, it didn’t make sense to make the software a stream of payments,” says Rey Roque, vice president of marketing at Westinghouse Digital. “The next iterations of development are for larger classes of Neon software that are multi-location and multi-screen, where you have different content being served. When we release that software, then I can see more of a x dollars per month model.”

Who Wants It?

When defined as a bundle of software and services, SaaS can be a good fit for major installations, especially when the scale means it’s too much for the client to handle on its own. Sensory Technologies, for example, has a signage client that has ample in-house expertise and equipment because of the industry it’s in but simply prefers to outsource managing that content.

“Even though they have a HD production facility in California, they don’t want to spend the time,” Sellers says. “It takes too much time to manage the content, push it out and schedule it. They’re looking to give it to us to do.”

One version of Westinghouse’s PumpTop TV plays to that approach. Gas station owners can buy and operate the platform, or they can choose the version where Westinghouse manages content that’s fed to displays atop gas station pumps. That frees gas station chains from having to add staff to create and schedule content, as well as license news and weather.

“The stream of payments also includes licensing of third-party content,” Roque says.

If the enterprise already buys other products and services on a subscription basis, it might be more receptive to going the same route for its pro AV needs.

“If they’ve already got a subscription to content, like satellite programming in a bar or restaurant, looking at software that they would pay a monthly license for is much more an extension of that,” Roque says.

How do integrators benefit in those scenarios? One possibility is that by making it easier for businesses large and small to add or expand AV solutions, SaaS eliminates some barriers to adoption, thus creating more work for integrators.

Risky Deal?

Like most new concepts, SaaS has its share of sceptics. One of their biggest concerns is that the client is at the mercy of a third party.

The worst-case scenario is that the third party halts operations, such as for bankruptcy, leaving the SaaS client scrambling to find another party to manage its content. Some sceptics point to Transit Television Network, which went bankrupt earlier this year, stranding clients such as the Los Angeles County Metropolitan Transit Authority.

“These transit authorities are sitting there with screens on their buses that are black,” says Jeff Collard, president of Omnivex, a Canadian vendor whose products include signage software. “It makes the transit authority look silly. If they owned the software and were running it themselves, they wouldn’t be in that situation.”

A related concern is whether SaaS limits the value of the installation – not just for the client, but also for the integrator. For example, the client might be comfortable with a third party managing the content for lobby signage at its offices around a country, but will it balk at letting that third party tap into its databases and systems in order to serve up more sensitive content?

An example of the latter is a warehouse where orders are displayed on signage throughout the facility, eliminating the need for pickers to have or go to a computer so they can get the next ticket. That kind of system would require the third party to access the client’s order system, raising concerns about security breaches that put that information in a rival’s or hacker’s hands. Those concerns could be a deal-breaker, with the client opting instead to manage that content itself by purchasing the necessary management software and servers.

Thinking Small

For integrators, one SaaS-related concern is whether some of those offerings could cut into their business.

“Many of the value-added resellers (VARs) seemingly tend to look at the larger content providers as having the potential of taking business away from them in that they might perceive that big XYZ SaaS company may take away their chances at on-going revenue,” says Chris Connery, vice president for PC and large format commercial displays at DisplaySearch, a research firm. “Most VARs recognize that for massive roll-outs, they won’t be the ones creating and managing content, so this fear isn’t really a fear but more of an acknowledgement.”

Hence the strategy of thinking small.

“What VARs are finding now are that there are many, many smaller digital signage roll-outs that might not require as a robust a system as might be offered by the ‘big guys in software,’ which is where the proprietary software solutions from the flat panel display manufacturers come into play. These solutions allow for integrators to be able to offer a solution immediately, out-of-the-box.”

But one size doesn’t always fit all.

“The important part for the VAR to understand is to be educated on the offerings of the bigger content management software companies and offer these as a solution as the installation dictates, [and] be knowledgeable of the limited-ability of the software solutions offered by the flat panel display manufacturers,” Connery says.

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