Transformation of business: shift to the subscription economy

Software as a Service, a form of cloud computing service model of software users. SaaS subscription model: key features, market drivers and constraints. Impact of SaaS subscription services business in the economy and society in Russia and abroad.

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23.10.2016
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Content

Introduction

Chapter 1. Market evolution

1.1.Transformation of business: shift to the subscription economy

1.2 Subscription based economy model overview: characteristics and functions

Chapter 2. Subscription Models applied in SaaS businesses

2.1 SaaS Subscription model: key features, market drivers and deterrents

2.2 SaaS in Russia: trends, problems and opportunities

2.3 The impact of SaaS subscription services on the economy and the society

Chapter 3. Real scenarios of SaaS infrastructures and applications

3.1 SaaS Subscription businesses: comparison of foreign and Russian cases

3.2 SaaS Subscription model in (ADD)

3.3 Success strategies to attract and retain subscribers

Conclusion

References

Application 1

Application 2

Application 3

Application 4

Application 5

Application 6

Introduction

The situation on the market is constantly changing. The nowadays consumers are more attentive and look for newer, more convenient and easier ways of accessing goods and services. There is a common idea of the right now need, which means that a product cannot be delivered later. It should come at the right moment to satisfy a spontaneous and transitory wish. But, at the same time, as it is known that the wish is transitory, there is a need to be able to stop using this product as fast as it is not useful anymore (Hutzler, August). They do not necessarily want to buy a product that can became very quickly old-fashioned or dysfunctional. In the report prepared by The Economist Intelligence Unit in 2014, it is said that 80 percent of customers are demanding new consumption models including subscribing, sharing, and leasing?--?anything except actually buying a product outright (Tzuo, The subscription economy: a business transformation, 2015), in other words, that are the models that mainly respect an idea of temporary acquisition.

This means that businesses need to handle customer loyalty, pricing, and selling strategies in a very different way to keep their successful relationship with their consumers alive. Since consumers are trending towards a hassle-free shopping experience, more and more companies, looking for new growth opportunities, are changing their business strategies from a pay-per-product model to a subscription based model. Indeed, this subscription model is not new - for instance magazines and newspapers have been selling subscriptions for few centuries (Warrillow J., 2014). But, more recently, new sorts of industries have adopted the idea of intensifying the subscription based model selling strategy. The year 2007 was called by experts a focal milestone in the global shift from the traditional economy to the subscription economy (Zuora). Since then, over all the industries, this change happens more evidently in the software industry with the transition from a per-pay-use license model to the SaaS subscription model (Longanecker, 2015).

This paper is focused on the software-as-a-service (SaaS) as its success is becoming largely noticeable around the globe. Over the past few years, commercial cloud computing (SaaS is a part of this phenomenon) has been rapidly increasing in gaining market share (Darrow, 2011), making new possibilities available for both software vendors and consumers. These changes happen with a sustained attention of the traditional perpetual software markets: without deep knowledge about cloud computing, new business and revenue models, strategies of attracting and retaining consumers, they risk to lose their weight in this new business reality. In the research Global and Russian SaaS-Solutions Markets in B2B Segment presented by J'son & Partners Consulting in July, 2015 it is said that In accordance with IDC forecasts, 27.8% of global corporate apps will be based on SaaS model by 2018, it will generate $50.8 bln revenue in comparison with $22.6 bln and market share of 16.6% in 2013 (Consulting, J'son & Partners, 2015).

SaaS subscription model is a global trend which could not stayed without attention in the Russian business landscape. Experts from Paralleles estimate that the share of SaaS in the cloud solutions sales in Russia reached about 70% and in the segment of small and medium businesses almost 90% over the last few years. Another analysis provided by iKS-Consulting estimates the pace of growth of SaaS market to be around 25% in 2015-2018. The SaaS market is growing despite the fact that the Russian IT industry is generally stagnating (CNews Analytic, 2015).

Problem statement

The leading players of the Russian software market express different opinions about perspectives of SaaS subscription model in Russia. While the smallest part of the software companies managed already to find and take their unique market niche and are successfully expanding their businesses now, the biggest part of suppliers demonstrates much modest growth of their SaaS services. But in this new realities, it is becoming important to understand how SaaS subscription model works and more challenging, how it is changing relationships between companies and consumers to use profits of basing a business on SaaS model.

Field of study

Subscription economy in Russia

Object of the research

SaaS subscription model

Objective

Derive particular strategies of attracting and retaining subscribers of SaaS platforms with the subscription business model.

Tasks

To achieve this objective, the following tasks are formulated:

1. Analyze theoretical and methodological aspects of the subscription economy;

2. Define features of the SaaS subscription business model;

3. Prepare and interpret a database of the cases of the Russian and foreign SaaS solutions for business with subscription business model;

4. Check hypothesis of the study that the subscription model, applied in a software company suit better clients' needs but it can distract clients if implemented carelessly.

Methodology

Structure-functional analyzes

Methods

General methods: Literature review, researching academic articles related to subscription economy and SaaS industry with focus on the subscription model and Russian SaaS market.

Empirical method: Case study

Research question

Will shifting from the traditional licensed model to the subscription model in the software business help attract new customers and turn old clients into subscribers?

The hypothesis of the study

Hypothesis: Hence customers have very specific needs but do not want to pay for a customized solution for their problems, the subscription model, applied in a software company, will suit better clients' needs.

Delimitations of the study

This paper studies a very specific kind of companies that implement the subscription model which are the software-as-a-service (SaaS) companies. The SaaS business model, in general, is quite well examined field in the literature. Nevertheless, it is still possible to find less explored issue such as the SaaS as a part of the subscription economy. Moreover, we will focus on studying SaaS subscription model applied by the Russian providers of the software solutions mainly for business purposes. This study is an attempt to bring new ideas into chosen issue, mainly concerned with the implication of this model into the Russian business landscape.

Professional significance

The research organizes and explains the basic theoretical concepts, practical tools and strategies of attracting and retaining subscribers in the subscription models applied in SaaS businesses.

Definitions of key terms

Subscription economy

This term describes the business process of offering subscriptions to consumers. It was not popular in consumer marketing until recently, yet there is an opinion that subscription concept is nothing new - for example, in publishing it goes back to 17th century. The term describes a new business landscape in which the traditional pay-per-product (or service) companies are moving toward the subscription-based business model. For some companies, their entire business relies on the subscription business model. Here can be named such companies as Netflix, Spotify, Zipcar, and all SaaS companies (Tzuo, The subscription economy: a business transformation, 2015).

SaaS Subscription model

A business model where a customer gets an access to the product or service after paying a subscription price. The model was pioneered in publishing few centuries ago - at least at 17th century, but is now used by many businesses in different industries (Longanecker, 2015). To clarify grammatical side of using the term the SaaS subscription model, we should notice that in our research, the terms the SaaS subscription model (sg.) and the SaaS subscription models (pl.) are equal and substitutable. But, being more precise, the term the SaaS subscription model (sg.) is used as a name of a general phenomenon in economics while the SaaS subscription models (pl.) phrase encompasses variable types of the SaaS subscriptions which is based on the classification which suggests two core SaaS subscription models:

1. Monthly Subscription Model: In the Monthly subscription model a client is charged and pays each month via credit card of automatic e-payments. An electronic license agreement does not include any fee or penalty for cancelation of the subscription at any time.

2. Term Subscription Model: In the Term subscription model a client pays for a certain period of time (mainly 3, 6 or 12 months). The subscription agreement frequently includes fees for cancellation during the term.

Software-as-a-service (SaaS)

A model of licensing and delivering software in which vendors or service providers, instead of selling it to companies, make it available to customers over the internet on rental base using cloud-computing technology.

Freemium

Freemium (from 'Free' and 'Premium') is considered to be a pricing and marketing strategy which can be applied in either the monthly or term subscription models when a core product is given for free to a large group of users and premium products are sold to a smaller fraction of this user base (Froberg, n.d.).

The current research paper Subscription Model applied in SaaS Subscription businesses: characteristics, functions, strategies to attract and retain subscribers consists of an introduction, three chapters, conclusion, references and applications.

Literature review

The paper is based on a deep review of the business and IT books and articles taken from professional sites. We also used information from professional forums and online versions of business newspapers which covered the chosen issue.

Understanding how firms do business is the first step to understand how a marketing strategy can affect a company's future. Business models have been widely explored in literature and it is increasingly suggested that business model innovation is a key to business success (Lev-Ram, 2014). Indeed, a business model is a concept that embodies architecture of a business with the aim of creating value for customers (Teece, 2010). In his work Teece says that business model articulates how the company will convert resources and capabilities into economic value. The business model follows the context where the company is inserted. To accomplish a revision of the business models, we put attention on the research A literature and practice review to develop sustainable business model archetypes (Bocken, N.M.P., Short, S.W., Rana, P.,&Evans, S., 2014) where the authors give in-depth observation of the theoretical base of this subject. According to this paper, a business model is a conceptual tool to help understand how a firm does business and can be used for analysis, comparison and performance assessment, management, communication, and innovation.

Business models have been defined and categorized in many different ways. It is possible to think in two main business models, the traditional model and the internet based one (Rappa, 2008). In this paper we focus our attention on the internet subscription based model applied in SaaS.

Studying the SaaS (Software-as-a-Service) business model is one of the most recent trends in the contest of business models analyses. A research Saas (software as a service)-infrastructures and applications in real scenarios (de Miranda, 2010) gives a profound review of the origins of the SaaS business model. Miranda says that the SaaS business model became a successor of the ASP (Application Service Provider) business model, which in its turn appeared to deliver software to a broader market share. As a new business model, the SaaS emerged to fix ASP's disadvantages and covet its opportunities.

As the author emphasized, in contrary to ASP, SaaS clients don't have to buy the software solution and then pay the provider to host it, but rather just pay for the usage of the service. Moreover, the clients get better assess the costs since the payment model is based on a monthly/annually fee. Another advanced feature described by Miranda is that SaaS provides makes stronger protection of intellectual property, which results can be seen in the cases of revenue stream or the proprietors of the software solutions.

One of the most significant articles for us focusing on SaaS phenomenon became an article Software as a Service (SaaS): An Enterprise Perspective written by the Microsoft Corporation's authors (Carraro G., Chong F., 2006) in the period when it was not yet trendy to study it. They addressed SaaS from the perspective of the enterprise consumer. The authors write that SaaS application access is frequently sold using a subscription model, with customers paying an ongoing fee to use the application. Fee structures vary from application to application; some providers charge a flat rate for unlimited access to some or all of the application's features, while others charge varying rates that are based on usage. That makes clearly reasonable for them that the subscription model in comparison to the one-time licensing model is expected to take advantage of the benefits of centralization through a single-instance, multi-tenant architecture, and to provide a feature-rich experience competitive with comparable On-Premise applications.

From the PwC report (PricewaterhouseCooper, 2007) where the key findings about the current software industry environment were provided it became well-defined that consumer behavior had changed a lot recently and that vendors now are reevaluating their software pricing and delivery models to accommodate this change. In this research prepared nine years ago there was also already noted a process of shifting from up-front paying to periodic payments. Nevertheless, it took a long time for this trend to become widely discussed and studied which resulted in high relevance of this issue in last two years among software vendors.

The most interesting part of the PwC report is the forecast given up to 2016. They predicted the spread of the SOA (service-oriented architecture) among both vendors and consumers: as for enterprise consumers, it gives them full control over the value they leverage from their software, meanwhile the vendors get an opportunity to integrate their applications in real life for customers and other vendors. All this forms a stable service-delivery environment where customers have traded vendor subscriptions and infrastructure lock-in for true agility and customization.

Referring to the book The Automatic Customer: Creating a Subscription Business in Any Industry (Warrillow J., 2015), the lifeblood of the business is repeat customers, or, how he is calling them in the book, automatic customers. According to John Warrillow, companies that know how to find and keep subscribers, get the huge opportunities offered by the emerging subscription economy. He claims and proves in his work that automatic customers are the key to increasing cash flow, igniting growth, and boosting the value of your company. The author shows that subscriptions are not limited to technology or media businesses. Companies in almost all the industries, from start-ups to the global corporations can implement subscriptions models into their business to gain more. Warrillow provides a breakdown of nine different types of subscription models for winning automatic customers and illustrates them all with instructive examples. His blueprint included the following:

1. Membership website model;

2. All you can eat library model;

3. Private club model;

4. Front of the line model;

5. The consumables model;

6. Surprise box model;

7. Simplifier model;

8. Network model;

9. Peace of mind model.

The ideas given in the book are universe and can be applied in any kind of industry. We used this list to specify subscription models which could be useful and profitable for SaaS businesses.

A big step in exploring the core difference of the subscription economy from the traditional one was made by the Anne Janzer in her book Subscription Marketing (Janzer, 2015). In this book she shared all her knowledge accelerated with more than 20 years of experience working with the high tech businesses. The main point described and explained by the author in this book is of a high significance for subscription marketing. She suggests a new label - value nurturing - to identify the process of helping the customer realize value from your solution. She shows that value nurturing is the fourth important level of relationships between a company and a customer. The traditional customer journey looks the following way: firstly, finding prospects (lead generation), secondly, convincing them of the potential value of the company's solution (lead nurturing) and then making the prospect a customer (conversion). Janzer adds that the marketing responsibility extends beyond conversion to customer value nurturing. This renewed attention on sustaining long-term relations with customers by bringing value nurturing to their experience instead of focusing on lead generation and conversion is the prime responsibility of the subscription-based companies who want to help customers make a smart economic decision.

Chapter 1. Market evolution

1.1 Transformation of business: shift to the subscription economy

Experts say that 2007 became a year when a new trend started spreading all over the world: that was so called once-in-a-century transformation in the way business is transacted. From that time on different companies have started offering an option of subscribing to services instead of just buying products. That first happened with the big companies like Amazing and Netflix, but soon other industries added such an option to their services. In PwC report (PricewaterhouseCooper, 2007) where the key findings about the current software industry environment are provided it becomes well-defined that consumer behavior has changed a lot recently and that vendors now are reevaluating their software pricing and delivery models to accommodate this change. In this research prepared nine years ago there was already noted such a trend as shifting from up-front paying to periodic payments. This trend now is considered to be the hallmark of the 21st century (Tzuo, The subscription economy: a business transformation, 2015).

It took a long time for businesses to make this shift from the product-centric pay-per-product transaction model to a model with the long-term relationships with recurring revenue happen. Experts say that this process started as a consequence of the wide spread of web 2.0 and the development of online platforms (Kaplan Andreas M. and Michael Haenlein, 2010).

Thus, in the Internet age a phenomenon of people-to-people exchanges through technologies appeared enabling a new kind of economy. That was a born of the sharing economy. It was a new and alternative socio-economic system where buying things was not already the only way to consume things.

In the research The Sharing Economy: Why People Participate in Collaborative Consumption (Hamari, J., Sjklint, M.&Ukkonen, A, 2015) it is said that the sharing economy should be considered through the lens of information technologies since this phenomenon emerges from a number of technological developments that have simplified sharing of both physical and nonphysical goods and services through the availability of various information systems on the Internet.

The sharing economy offered entrepreneurs a wide range of business models based on the idea of availability of online platforms among which can be named such forms as collaborative consumption, wikinomics, peer-to-peer file sharing, open data, content sharing in social media, user generated content, subscriptions, crowd funding, crowdsourcing and etc. (Matofska, 2014). Later, the sharing economy term has become more specialized and the subscription based models have been allocated as a separate direction in the business landscape.

Indeed, subscriptions have been used for many years by some industries - for example, magazines and newspapers, mobile and internet operators, cable TV, fitness clubs, public service ad etc. But more recently, many other new kinds of unexpected industries have started participating in the subscription economy, offering diverse range of goods and services from cars to online software for a flat monthly or year fee (Lev-Ram, 2014).

The subscription economy is the term coined by Zuora, a leading commerce, billing, and finance solution for subscription-based businesses (Bastian, 2014). In 2007, CEO of Zuora Tien Tzuo and his partners Cheng Zou and K.V. Rao started to build and spread around fundamentals of a new business model which could be used by companies of any size. The idea was to make possible for companies to offer customers different services via subscriptions instead of making single transactions and selling separate products.

They noticed that markets across different industries are looking for new models of shipping products as an answer to the increased demand of clients to consume goods in a new way. A significant point of this new business model was focusing on consumers and value to them, making them a key player in this process instead of focusing on the product, or transaction, or value to the brands themselves, as it was in traditional business model. The sudden idea was to monetize long-term relationships by offering consumers flexible and personalized goods and services. Flexibility here is about allowing customers the adaptability to either pay as they go, or pay per subscription monthly, or via a long-term contract (Whitler, 2016). Personalization in its turn is giving individual package of service depending on the needs of a particular client.

Thus, they called this new business model the subscription economy. Inventing this phrase helped Zuora made a buzz in the most popular business magazines such as Forbes, Wall Street Journal, Tech Crunch, Fortune, BBC, Huffpost Business. Since the year 2013, there have appeared many publications explaining what the subscription economy is and why it is important to put attention on it (to name just few of them: Zuora Lands $50M From Next World, Paul Allen, Marc Benioff & More To Help Fuel The Rise Of The Subscription Economy by Rip Empson, Tech Crunch Sep 5, 2013; The rise of The Subscription Economy by Kyle Hutzler, Huffpost Business, Jan 08, 2014; It's a subscription economy, and you're just living in it by Michal Lev-Ram, Fortune, June 6, 2014; How The Subscription Economy Is Disrupting The Traditional Business Model by Kimberly A. Whitler, Forbes, Jan 17, 2016). Subsequently, the term took a root in business environment being acknowledged by many experts as a new trend in economy.

The experts' opinions which were provided in the articles and in the forums were mainly positive and supported the core idea of the subscription economy phenomenon. Robbie Kellman Baxter, author of The Membership Economy, claims: Customers are saying, `I'm willing to sign up, set it and forget it in exchange for a value accrued to me on a regular basis. He also emphasized that It's a massive transformation that is changing the way organizations engage with their constituents, (Guth, 2015) which can be translated as being a revolutionary shift in economy and not just a passing trend. Another opinion leader John Warrillow, author of The Automatic Customer agrees with Baxter stating that It's a fundamental change in the way we think, which he explains as being more attracted by the brands who advertise experiences, relationships and belonging rather than by usual sellers. He gives such a comparison: It's a little bit more like a marriage, where the consumer commits and the supplier says, `I'm going to look out for you, watch your back, and treat you right' (Guth, 2015).

Talking about the perspectives and reach of this trend, the market leaders said that The subscription economy is ever-growing. It's hard to quantify how big the subscription economy actually is, however, it's clear that this is the direction that most every service provider is headed and that The subscription or membership economy is huge (Judson, 2015). And good news is its growing, look at services such as Dollar Shave Club, or Dollar Beard Club, or even digital subscriptions such as Netflix, or Spotify, these are all subscription services, it's the new way of doing business (Taei, 2015).

To understand better, why a shift to the subscription economy is happening we should accept these two facts proposed in 2014 by Dave Frechette, Vice President of Worldwide Sales Strategy and Execution at Zuora (Bastian, 2014):

1. It comes to stay. Companies that once have changed their business model to the subscription model rarely convert back. There is no way back from this transformation which goes through all the economy;

2. Big corporations prefer this model for being predictable. It gives them more focused and certain forecasts of their revenue and profitability.

As it was said before, the main attention in the subscription economy is focused on the consumers and their needs. In other words, there would not happen such a shift in economy if consumers would not show a tendency to desire more control and influence over their relationships with brands, vendors and service providers. The overall internet access and tremendously fast spread of mobile devices and social networks made consumers being more involved into all kind of communication processes giving them immediate answers to all their requests and demands. They got accustomed to the idea receiving everything they want here and now and be also able to select characteristics and conditions of usage according to their personal preferences. Saying differently, there has appeared a new type of a customer who wants brands to serve him how, where and when he wants (Sloat, 2015).

Another big change in consumer behavior which inspired this shift in economy refers to the demand for new consumption models: in the report prepared by The Economist Intelligence Unit in 2014, 80 percent of customers are demanding new consumption models including subscribing, sharing, and leasing?--?anything except actually buying a product outright (Tzuo, The subscription economy: a business transformation, 2015). As Saar Gillai, Senior VP and GM at HP noticed in this report, Consumers are getting accustomed to pay-as-you-go models, and they like that flexibility. They can instantly get all the capabilities without paying up-front for the cap-ex, and they have better control over their spend.

Thus, it is possible and obvious to conclude that the consumer behavior has changed. To sum up, here can be given the following explanations of this change provided by various experts:

1) Customers today, especially youngsters, have no strong division between their business and personal interests and so they expect their business relations being more personalized. They frequently consider brands as their friends with whom they can always negotiate about any deal and compromise their interests;

2) Customers want to have a permanent access to an extensive library of information, ideas, solutions and specific products. The new era of information dictates a rule to be always aware of the latest updates on the market and be able to use them when, where and how you want it. Access itself becomes more significant than asset (Guth, 2015);

3) Customers do not want to buy a product that can become quickly old-fashioned or dysfunctional. Instead of that, they prefer to be able to stop using a product as fast as it is not useful anymore. Such a behavior is based on a common idea of the right now need, which means that a product cannot be delivered later and it should come at the right moment to be real-time experience with immediate fulfillment (Sloat, 2015) to satisfy a spontaneous and transitory wish;

4) Choosing a solution whether for personal or business use, customers now expect to get some value in return for their choice. They believe it will save them money or make their lives easier, or, at least, will bring them fun (Janzer, 2015).

Reasons given above make brands and vendors take more care of earning customer loyalty by presenting on-going value and memorable services which were supposed to show clear understanding of customers' demands and readiness to maintain long-term relationships with every client.

To sum up, many experts from the business landscape commit an idea: companies that eager to be leaders in their industries, maintaining long-term relationships with their clients and getting financial, technology, market, and customer loyalty benefits from their relations, need to plan their participation in this transformation already now.

1.2 Subscription based economy model overview: characteristics and functions

Since we discovered the relevance of the subscription model and found out why the transformation from traditional transaction economy to subscription started to happen, it is necessary also to go deeper into exploring particular features of its elements to understand better how it works.

Subscription business model is a model where a customer gets an access to a product or service after paying a subscription price. That means that rather than selling individual products, companies are turning towards to delivering services repeatedly. This changes financial relationships completely and requiring a new management system.

The basis of the traditional product world is the distribution-centric revenue management with the one-time transaction business model where sales are straightforward (shipping a product and sending an invoice to a customer to pay it). Additionally, traditional product-centric approach is tightly connected with implementation of such tools as customer relationship management (CRM) and enterprise resource planning (ERP) systems which support sales automation, customer service, inventory management, supply chains, and accounting (Tzuo, The subscription economy: a business transformation, 2015). The problem is that these systems were not designed for subscription based businesses, and companies who want to turn their customers into subscribers should adopt new technologies and management approach to facilitate their transformation.

A new management approach in the subscription model is based on the recurring revenue management (RRM) system: invoices are generated daily, monthly, quarterly or annually (Warrillow J., 2014). Thanks to this system, companies get an opportunity to manage the entire subscriber lifecycle and measure recurring revenue and subscription metrics.

Subscription is focused on the individual experience which makes customer fulfillment variable: customers can request anytime changes in the service adding new users, more services, changing pricing plans, or simply canceling service. Flexibility of price and packaging is the main feature of subscription employed to satisfy any kind of users. Flexibility allows customers to receive a standard subscription agreement but use the product differently depending on their needs. Thereby, customer demand in the subscription business model is measured not only by purchase data but by usage data and purchase data together. Moreover, in the subscription economy, there are no limits in product availability: a customer can receive a product or service in that extent which is preferable for him. Thus, differentiated value and revenue opportunities have to be created by providing differentiated product packaging (e.g., different combinations of minutes, text, and data in a cellular plan) (Shanahan, n.d.). As a result, inventory management is replaced with the rate plan management to optimize revenue.

This scenario goes beyond the systems designed for one-time transaction models. That is why revenue management system should be replaced with the recurring revenue management system which can better handle the complexities and growing needs of the subscription based businesses.

Chapter 2. Subscription Models applied in SaaS businesses

2.1 SaaS Subscription model: key features, market drivers and deterrents

In this paper we will not cover technical details which differentiate SaaS concept from other cloud computing services such as IaaS and PaaS (the basic structure of the clod computing is given the Application 1). The focus of this paper is to explore common features which attract customers to understand how SaaS changes users' life. This clear idea will help us consequently find advantages of SaaS subscription model and, as a result, frame particular strategies of attracting customers and turning them into subscribers. But before that, the first step should be researching SaaS as a subscription model.

Software-as-a-service (SaaS) phenomenon appeared in late 1990's when companies started offering traditional enterprise solutions such as customer relationship management (CRM), sales force automation (SFA), and Web content management through a SaaS model. But the idea of shared resource environment and cloud computing was already formulated in 1960's by a renowned computer scientist John McCarthy who won the Turing award for his work in Artificial Intelligence. In 1961, in his speech to MIT students he claimed that computation may some day be organized as a public utility. Yet this model was first implemented more than fifteen years ago, it has become a part of the business vernacular just over the past few years when SaaS companies have proven they are able to grow their revenue and customer base through a subscription licensing model (Singleton, 2011).

The common definition of Software as a Service (SaaS) is a way of distributing software in which vendors or service providers, instead of selling it to companies, make it available to customers over the internet, using cloud-computing technology (Singleton, 2011). It represents a software distribution model which, in contrast to an On-Premise deployment model, democratizes the access to software. The crucial characteristic of SaaS is hosting applications on provider's service instead of storing data on users' machines which gives an access to software from any computer connected to the internet.

Additionally to allowing remote access to the software applications and data via the web, SaaS also varies from On-Premise software in its pricing model. Typically, On-Premise software is available by purchasing a perpetual license and also requires additional fees (15%- 20% per year) to maintain and support it. Any update versions also cost high additional fees. In SaaS subscription model, users do not need to buy license to use the application, install its whole complex infrastructure and then pay ongoing operating and maintenance to support it and keep it updated. As an alternative, SaaS vendors offer to rent a software for a period of time and get a complex support and automatic updates included in their rental price (Patterson, 2010), in other words, buyers pay an annual or monthly subscription fee which is comfortably spread over time. For more detailed comparison of the economics of SaaS versus Licensed Software revenue models it can be interesting to look through the article SaaS Revenue Models Win in the Long Run (Key, 2013).

There are two types of SaaS which are business software and consumer software. The most popular SaaS examples are solutions for improving workflow with greater efficiency: these are various project management systems, task organizers, collaboration tools, document management platforms. They help organize individuals' and teams' shared and personal projects and tasks, give them a space for collective distant activity. Besides, such platforms are supposed to help planning time and resources for multiple projects and users. The target audience of these solutions is very diverse; they attract all kind of people with big work routine. This can be freelancers, representatives of all size businesses including startups, public administrations, student project groups.

Another pull of SaaS platforms consists of more specified solutions for particular industries and related activities. Here can be named applications for such spheres as finance and accounting, CRM, business information and analytics, human resources, marketing, operations, sales, communication and others.

SaaS features which make impact on both business and personal customer performance are based on the general advantages of cloud services. They are the following positive attributes:

1. Simplicity of adoption

SaaS solutions offer powerful fast integration of all necessary services within one modern platform that leverages secure, reliable and high performance database and middleware technologies which reduce technology difficulty of installation full in-house solution. The main mission of SaaS solutions is to make it easier to accomplish tasks and help optimize business processes. SaaS products mainly have drag-and-drop functions, intuitive interface and simple visuals. They do not require as necessity coding knowledge (it can be an additional option for advanced users) and IT-background (Patterson, 2010).

2. Price

High popularity of SaaS solutions is also boosted by its implementation cost. Buying a fully functional in-house system is not always affordable for companies, especially, for small and medium businesses and private users. SaaS subscription model with differentiated packages makes it more cost-effective to acquire the application. Besides, reduced total cost of ownership is the primary and most attractive benefit driving SaaS adoption. SaaS vendors have long touted the benefits of multitenancy, a software architecture that allows many users to share a single application instance while retaining their own separate information. Multitenancy cuts costs by allowing vendors to patch and update the software for many users simultaneously and allowing many users to share the underlying infrastructure (Kari, 2014).

3. Backup

SaaS platforms reduce the possibility of losing data in case of sudden emergencies such as ordinary computer system crash or less common nature disaster and civil disorder. Computer itself does not mean much as all data are backed up by the provider whose server plays a role of buffer in any unpredictable situation. That is an important issue proved by different researches: According to research by KPMG, 70 percent of organizations have suffered at least one project failure in the prior 12 months, and 50 percent of respondents indicated that their project failed to consistently achieve what they set out to achieve (Oracle, 2013).

4. Access to latest features

The cloud services open the door for latest functionality and improved security, usability, patches and bug fixes. Continues updates are sent as soon as they are ready to consumers and it's all done in the background, transparent to the users in your organization. These upgrades add value to consumer experience as they develop application ecosystem and give users new ways to collaborate and share information.

5. Flexible customization

Today, an integral part of being competitive in business is to be able to deal with changes easily. This flexibility requires new features and functionality for applications, for instance, adding new users to an application dashboard, upgrading original deployment with additional modules or components, or adopting entirely a new application. In SaaS platforms it is easy to manage such particular changes without concerns about changing whole infrastructure.

6. Multi-tenancy

SaaS model allows the cloud services providers (CSPs) to locate a single application instance to one tenant (to one client, despite of its size) with retaining own separate information of each user rather than putting out single instances to every individual user. Multitenancy cuts costs by allowing vendors to patch and update the software for many users simultaneously and allowing many users to share the underlying infrastructure (Kari, 2014), which is attractive to companies with limited financial resources.

7. SaaS Help Desk Solutions

Furthermore, most of the SaaS subscriptions include customer support which means getting immediate help of the professional team in any problem situation. Customer Support service tracks and responds to all the customer inquiries from multiple-channels like online community forums, phone, email online consultancy, webinars, tutorials, and social media. The advanced features of SaaS Help Desk Solutions are opportunity to find answers without anybody's help at Self-service or knowledge base portal and integration with other applications (like Google Analytic or social media) (Jadhav, 2016).

8. Mobile access

Growing popularity of mobile devices made vendors expanded beyond desktop-only access and began providing mobile SaaS apps that could be accessed from smartphones, tablets or any other device with a browser. All data in both desktop and mobile systems is typically auto-synced, which helps run business from any place and any device with the internet access (Viswanathan, 2015).

To conclude, SaaS solutions priced on a subscription basis demonstrates a number of strong advantages over traditional, On-Premise software deployments. For both business and personal purposes, SaaS applications deliver modern functionality and up-to-date capabilities that can satisfy any budget. Attractive affordability and the familiarity of the web browser-like user interface (UI) offered by SaaS solutions makes it more convenient for costumers to run their businesses.

Nevertheless, there also exist strong deterrents for distribution of cloud services and SaaS particularly. The major challenge which SaaS developers face today is identity management and access control for enterprise applications. Another point under contradictory debates among users is the information security. Many companies who have never worked with clouds are afraid to store their projects and client bases on the outsource servers because of fear of violating private data. In their view, their own IT departments which protect bases are more reliable than any other sided provider.

But indeed, the security and privacy of data is a more developed point that ordinary consumers think. This moment is not technical but psychological. There exist various technologies to expand the role-based access to the cloud, for example through a single access (single sign-on, SSO) technology. Nowadays, the leading SaaS solutions provide multi-tiered security clearance which makes keeping sensitive data completely safe (Singleton, 2011).

Currently, each of the big players in the SaaS market tends to create its own technology of relationship with the client to assure them in safety of data storage. For instance, Google has a Secure Data Connector which creates an encrypted connection between customer data and Google business applications and allows a client to control which employees can access to Google Apps resources and which cannot. CRM Salesforce provides similar functionality based on its own technology.

There exists a comprehensive standard ISO 27001 which describes many aspects of information security which can be confusing for customers. There is also another standard ISO 27002 which can be interesting for service providers and customers which describes the practical information security management. This standard can be used in constructing the SaaS cloud, but in any case it is necessary to develop specific standards for cloud computing.

Another drawback of storing data in the SaaS platform is its just online availability. It makes users depended on the Internet and, in case of loss of access to the Internet, they lose access to their data in SaaS applications.

One more problem that SaaS vendors face is that there are users who are not ready to pay for software if they know how to get this software illegally for free. But experts say that if the price corresponds to the "painless" level, then users will probably not use illegal tools like registration code generator or wares (note: wares are software programs distributed illegally with copyright violation). But SaaS subscription model in contrast to On-Premise reduce possibility to get a software illegally as an access to personal online account can be received just after paying subscription fee.

Thus, taking into account all the concerns related to SaaS solutions, that consumers have, SaaS developers should strive for a high level of transparency of their services. They should give users a feeling of totally safe and reliable storage of their data. The ideal model would be giving options of aptitude install or export of all infrastructure and repository of data created with this software. Moreover, the price should be set at the reasonable level as the main concern for most of users when they choose SaaS platform is to get more for a less price.

2.2 SaaS in Russia: trends, problems and opportunities

In the overview Cloud services in 2015 (CNews Analytics, 2015) a detailed investigation of the recent trends on Russian IT market is conducted. In the current part of our research we will use this overview as a reference to study trends and problems which SaaS phenomenon face in Russia nowadays. This will help us evaluate the potential significance and opportunities of SaaS solutions for the Russian customers.

The first big Russian cloud computing projects were launched in 2009. During 2011-2012, the development of the SaaS solutions by Russian companies was targeted mainly on small and medium business. In 2013, there were about 25 SaaS solutions prepared by Russian providers, and the main part of them were projects adapted to the SaaS subscription model from the traditional software model (PMR, 2015).

But recently, the situation on the SaaS market in Russian has started improving a lot. Experts from Paralleles estimate that during the last few years the share of SaaS in the cloud solutions sales in Russia reached about 70% and in the segment of small and medium businesses almost 90%. According to the experts from Russian Cloud Computing Professional Association, the Russian SaaS market consists of nearly 200 high-quality complex services for business users, whereas less than 30 young and ambitious IT companies set trends in this sphere. Most of them are not even placed among top-100 of the largest domestic IT companies but they successfully compete with the world's leading producers of IT solutions (CNews Analytic, 2015).

Another analysis provided by iKS-Consulting estimates the pace of growth of SaaS market to be around 25% in 2015-2018. The SaaS market is growing despite the fact that the Russian IT industry is generally stagnating. According to CNews100 rating (2014), the total revenue of 100 largest Russian IT companies increased slightly (+ 1%) in RUB, but decreased by 15% in dollar terms. The figures published by iKS-Consulting demonstrate also the proceeds from the cloud technologies in Russia increased by 35% in 2014 comparing to the previous year. The biggest part of this cloud revenue belongs to SaaS and makes up to 89% (the IaaS share is 9%, PaaS - 2%) (Lebedev, 2015).

Speaking about economic situation in Russia, Olivier Caisson, commercial director of Orange Business Services in Russia and CIS explains in his interview to CNews why crisis provokes the increase of cloud solutions such as SaaS (as well as PaaS, IaaS and others). In the crises time characterized by uncertainty, businesses need maximum flexibility which can be achieved by using cloud infrastructures. Another cloud trend on the Russian market announced by Caisson is improving law regulation for personal data storage which stimulates the development of local cloud market. Moreover, the Russian market has enormous growth opportunities since for many customers cloud applications are not yet an obvious solution. Comparing to Western Europe, the level of outsourced managed services is still lower in Russia. But, referring to his words, the situation is changing, and the number of companies that are interested in transferring their resources to the cloud and shifting to the outsourcing model is growing. Nevertheless, this process is still not wide-spread and this approach to market strategy planning is not common (CNews, 2015).

Ilya Bublik, Head of Corporate Business Automatization Department at SKB Kontur, thinks that combinations of software and services will be widely discussed and popular: Cloud services are expanding and will go further. Exponential or close to it growth was shown by MoeDelo, MoiSklad, bitrix24, amoCRM, Kontur.Bughalteria, Kontur.Elba, Kontur.Diadok etc. I want to specify that this growth is not directly due to the current environment: rub's depreciation and import phase-out. Cloud solutions are more convenient for small business in comparison with desktop solutions, as they provide an access to the app from any spot in the world and from any platforms - smartphone, tablet or stationary PC. Besides, cloud solutions provide a lot of other, unseen for client, necessary things: data safety, output capacity etc. In fact, the only thing that prevents the distribution of the cloud - some kind of inertia of thinking (Consulting, J'son & Partners, 2015).


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