Monday, September 10

On-demand BI fits Casual Male

Here's a story about a retailer making the cultural and mindset shift from using mainframes to looking outside their walls for Software-as-a-Service (SaaS) BI to handle their planning and reporting needs. Not only is that a serious shift for any organization and IT department, the retailer, Casual Male, "needed a better way to plan inventory" and "understand customer buying behaviour". And they did what most companies do and "looked at traditional BI software but balked at the price."

Where have we heard this before.

As I'm reading the article from Search Data Management and preparing to rant about the high price for license fees and on-going maintenance contracts (another 10% - 15% annually), I made it to the bottom of the article.

What I found interesting was a mention of the big BI vendors seeing the benefits of SaaS BI. Initially I thought SaaS BI was more of a competitor, however Cognos and BO have acquired smaller SaaS BI companies Celequest, NSite, and Applix. While SAS built in five on-demand BI modules last year.

So what does this do to the traditional software licensing vendors business model, you may ask? Won't offering a pay for service solution cut into their high margin license sales?

And the answer looks like yes... on the surface. So why are they doing it? In my mind, because they are expanding their business to include small to mid-sized customers. The traditional licensing costs are out of reach for these customers (Casual Male sited the same concern over price). By having a BI solution that is now affordable, the big BI vendors now have another revenue stream offering SaaS BI as the service. By having two-tiers for BI solutions, they can reach a more complete range of customers from large to small.

If this is their strategy, they will need to keep the two-tiers separate in the minds of customers. When customers perceive cost and functionality overlapping on both tiers, confusion will build in the minds of customers. They will wonder, "What is the difference between your two products?"

That would be not be a great market strategy.

So you then push the tiers even further apart. Now does that mean increase license fees and provide additional functionality for traditional software? What about reducing the functionality for those low-end customers who cannot afford the expensive tools?

The various ways the big BI vendors may approach this will be interesting. Expect more direct competition between Cognos and BO. And expect an offering to come from the other major players.

And I almost forgot. Those traditional software vendors getting into SaaS BI will need to dive into the hosting business, which brings with it a different business model and mindset for sales and infrastructure. Software-as-a-Service was touted as the traditional software killer back in the day. Now the traditional software pure-plays are becoming hybrids.


Timo Elliott said...


Some thoughts:

(1) You are talking about three different axes -- on-premise vs. on-demand, perpetual license vs. subscription license, and enterprise vs. mid-market. And then assuming that they're aligned, e.g. on-demand = subscription = mid-market. That may well be a big segment, but it's far from the only valid combination -- e.g. SAS charges an annual fee for their on-premise software (perpetual licenses for a hosted services are rarer, but they do exist -- e.g. lifetime fee offers for hosted web sites)

(2) What's a high price? I haven't yet found anybody who wanted to pay more for their BI software, but whatever the price there will be some people who can't afford it (this includes "free", since it always take effort to set up). If BI is at the top of CIO priorities in 2007, according to Gartner, surely that's an indication that the benefits typically outweigh the "high" prices?

(3) There's nothing in the rule book that says that a hosted service has to be cheaper or provide lower margins -- indeed, because it's typically a subscription fee rather than a perpetual license, it will usually be more expensive over the long run.

The big advantage of a perpetual license to the vendors is being able to recognize the whole revenue at the time of sale, rather than over a longer period -- but there's also an advantage to starting each year with an existing stream of expected revenue, rather than having to sell new deals.

It's also worth nothing that a major cost component -- running the machines -- is now provided by the vendor, so in theory, for an equivalent business value, companies should be willing to pay HIGHER rates compared to on-premise software.

(4) Enterprise vs. mid-market: the BI vendors are all working on mid-market on-premise packages, with the associated problem of segmentation. Mid-market companies need the same functionality as larger organizations (indeed, because their systems are less complex, their usage of dashboards, say, can be more strategic than the average enterprise customer). But large organizations usually need access to more data sources and more ability to customize, and this is typically what's being used to differentiate between the two segments. Larger organizations are also showing interest in hosted BI -- although the data sources/customization issues mean that more sophistication will typically be required.

(5) It's no longer only about hosting the software. A key part of BI 2.0 will be "information on demand" -- the ability to easily augment internal data with external benchmarks, such as market share, economic predictions, etc. (e.g. see for Business Objects' plans in this area)

(6) The future clearly isn't about on-premise vs hosted, just like it wasn't about PCs vs. internet appliances. Organizations will want the flexibility to use both, and they'll want the on-premise and on-demand aspects of the solution to work together seamlessly. I believe the BI solutions of the future will have a central platform (connected to the "internet information cloud") that communicates with an optional on-premise version of the same software (e.g. connected to internal data sources). Despite the silly "no software" slogan (OK, not so silly at one level: it worked), even has had to provide offline versions of its products for sales people on the road...

Tom Hudock said...

Thank you for your thorough comment Timo. Appreciated.