McKinsey & Company has delivered several white papers over the past year on the emergence of the software-as-a-service (SaaS) market. Their most recent one, Emerging Platform Wars in Enterprise Software, delves into the growth of SaaS platforms and the challenges in establishing a successful platform. A battlefield is clearly emerging between the established mega-vendors and pure play SaaS vendors as well as the different platform archetypes that will shape the future evolution of these platforms. McKinsey outlines the key challenges necessary for success.
The SaaS platforms market will be shaped as much by the demands of stakeholders as by platform vendor actions. Given the number of players that have entered this market in recent months, winning the platform wars in the long term will be a very challenging task. Industry research highlights various important factors driving the success of platforms, which vendors must incorporate into their business models and strategies. We believe that platform vendors will need to focus on four critical elements of their businesses to succeed.
- Build a robust offering: First and foremost, vendors will need to create a robust offering that offers real value to SaaS developers. They must offer technology and services that address SaaS-specific needs and are at the cutting edge of industry innovation. In addition, reliability of services and quality of support will play a critical role in separating the winners from the losers.
- Monetize effectively: Monetization will be the most important success factor for platforms. Vendor offerings must deliver significant value to users compared with their alternatives (e.g., do-it-yourself, on-premise, etc.). Platform leaders will be those that are not only able to truly share economic value across their ecosystems but also create significant economic value for the ecosystem.
- Deliver extensive value-added services: Apart from the core offering, value-added services that extend the value of a platform (e.g., go-to-market benefits for ISVs, access to customers, etc.) will play a significant role in the market. Addressing customer pain points will be key to creating “sticky,” successful platforms.
- Drive ecosystem growth: Driving growth of ecosystems with extensive distribution and partnerships (often possible only for first-movers) will be critical for platform vendors to capture share. Vendors will need to build a community that adds value to all its members through collaboration and sharing of tools and best practices.