| |April 20189CIOReviewbeing the underlying economics that includes tradeoffs between cost (tal-ent, latency, downtime, security, etc...) and focus on specialization/ line functions. Valuations focusThe low entry barriers for busi-nesses in the IT and allied sectors have brought in a surge in startups and entrepreneurs (self-funded or by VCs). This has created a significant buzz around buying and selling busi-nesses, that has put a spotlight on company valuations. For a software consumer's valu-ation, an operational expenditure is easy to understand and account. Unlike a capital expense that has to be shown as an asset and expensed over the year, an operational expense model assigns the right amount of expenses to the revenue for a given year. Also, with newer technologies coming at a fast pace, keeping soft-ware license as an asset may not add much value to the balance sheet. This preference towards operational ex-penditure has created a higher need for SaaS.For a software provider, a SaaS model provides a locked-in custom-er base with recurring revenue over the years. Although technically one can stop SaaS consumption easily, it is not that easy to stop it once it be-comes an integral part of the business function. This provides a stable out-look for the provider's business and increases its valuations. Hence, for both, the software provider and consumer - this adds to their respective valuations and is pro-pelling the need for SaaS-based en-gagement models. This varies by in-dustries and the focus on operational expense could change over time. Consumption pattern trendMost businesses worldwide are moving towards try-before-buy or pay-per-use models. These chang-ing patterns have also impacted software consumption. Applications that use newer un-tested technologies may have to offer SaaS as the first option because busi-nesses want to explore and co-inno-vate before deciding to lock-in and buy a perpetual license from any ven-dor. In price sensitive and emerging markets, as more businesses adopt IT for operations, there is a need to 'try' the software with a quick deploy-ment on a pilot before committing to a large expense. They are more com-fortable with an operational expense for the time they use the software than spending time on deployment with expensive IT consultants. The other subfactor is for applica-tions that are used only once a month/ quarter or year. Businesses looking to rationalize their costs are asking for a 'pay-per-use' pricing model and not buy the license for perpetuity. These changing consumption patterns are also driving the need for SaaS en-gagement models.So, is this the way forward for all Enterprise Applications? The first fac-tor has always existed and the under-lying economics has to make sense, to attract businesses, especially in price sensitive markets. The second and third factors are specific to each one's domain of applications and change over time. Based on these, each appli-cation and customer base will need to be individually evaluated to create a roadmap to SaaS engagement model, where required. Most businesses worldwide are moving towards try-before-buy or pay-per-use models. These changing patterns have also impacted software consumption
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