This paper reviews academic knowledge for software-intensive business firms' approaches to support transition from on-premise solutions to SaaS. The aim is to increase preunderstanding for future research and review the transformation's impact on business models. The study is restricted to the small and medium-sized software vendors. In addition, embedded software vendors are excluded from the research. In preliminary unsystematic literature review, several business model specifications and canvases used to address the transformation were identified. Firstly, a few of the papers were concentrating on huge softwareintensive companies like Oracle, Siebel etc. and comparing their business models. Secondly, other studies were analyzing technology changes as well as threats and the lifecycle of technology. Thirdly, researches were analyzing SaaS platforms like (Microsoft's) Azure or (Amazon's) AWS. The review shows that few works focused on how the smaller enterprise software companies did the transfer, which covers for example personnel, product portfolio, distribution network, market segmentation and revenue model or why they have not even started. This study shows that there is lack of studies addressing this issue and propose further research on the issues, which would benefit small- and medium-sized softwareintensive firms.
Cloud computing and Software-as-a-Service (SaaS) paradigm have gained remarkable
popularity in the software industry. According to NIST [
For a customer as well as a software vendor, cloud computing and SaaS solutions offer clear benefits. On one hand, a customer will be using the same software version as everyone else. Consequently, there will be less bugs, less maintenance, faster product development for the customer etc. The negative point is that there are no or only a few alternatives to adjust or tailor the software to fit specific customer needs.
On the other hand, the vendor has just one main version to develop, update and keep updated compared to an on-premise alternative, where there may be two versions under support and one new version under development. The positive impact of these all is the improved speed of product development and cost savings because of less concurrent work. The negative impact is, firstly, minor customer requirement coverage. Secondly, this may need increased attention to product management and product marketing. If there is a lack of those activities, it may lead the customer choosing another vendor.
Due to the rising popularity of SaaS solutions, several software companies have changed their business model from selling on-premise products to providing cloudbased solutions. As a notable example, for instance Microsoft has transformed its Office tools from on-premise installed products towards SaaS-like solutions with the new Office 365 service. In addition, it is likely that there are plenty of companies, which are planning of following the same path.
However, the transformation process from offering an on-premise installed product to a solution offered as a service in a cloud is not straightforward. In top of technical challenges, this kind of a transformation process naturally creates change pressures to the company itself and its business model. For example, how an organization, which previous on-premise software product has generated income with both license and support sales, should manage changes in the cash flow when a new SaaS version generates stable, yet in the beginning smaller, revenue stream?
This position paper focuses to study what do academic literature report of this kind
of transformation processes. Our focus is specifically on the changes in the business
model as well as in the financing of a software-intensive vendor. The aim of the paper
is to create a starting point for further studies in this area as well as propose some lines
of research. This position paper uses unstructured literature review method [
The digital transformation impacts the whole industrial world. Because the digital transformation will be everywhere, there will be a risk open the limitations too much towards generic digital disruption. For this paper, we restrict our attention to softwareintensive companies, and especially small and mid-size software vendors. The target group is enterprise software vendors and non-software companies have leaved out. The rationality is that large software vendors might have enough knowledge, capital and resources to manage the transition whereas small- and mid-size enterprises might not have capital required nor enough human resources for a new project. Furthermore, we exclude embedded software vendors as their main revenue flow often does not come from selling software licenses. That is, the transition might not create similar changes to their business model.
The remaining of this paper is organized as follows. Section 2 gives an overview of cloud computing research and defines the complex concept of business models. Section 3 presents finding from the literature review regarding different cloud business models and business model elements. The fourth section discusses about the directions of further research and the final section concludes the study. 2 2.1
Cloud computing
The paradigm shift, from on-premise software solutions toward SaaS solutions, seems
to be reality nowadays. The SaaS trend seems to be a de facto standard or at least
approaching the de facto on consumer software solutions. [
Marston [
However, as this study focuses on the business issues, the issues belonging into the technical perspective will be excluded for keeping the target clear and tight. Therefore, for example issues belonging in the following areas will be excluded from the research: 1. Software product development; 2. Core technologies like virtualization, multitenancy and web services; 3. Software product modulization, product structures and product modules; and 4. Software development methodologies
The consumer software, like mobile phone software, are today more or less platforms where different vendors are producing their applets. Consumers are paying monthly fee or limited purchase price and at the same time, the software vendor pays a fee to the platform owner.
In business software, above mentioned operation model is similar, for example, like SAP has, called SAP EcoHub an online solution partner marketplace. There a single software vendor has a possibility put their software (applet) for purchase by end user. Remarkable is that is only possible for SAP end users who are running it in SaaS format, not on-premise SAP product owners. Other big actors in the field, like Microsoft and Oracle have similar concepts. Of course, for example, SAP is investing huge amounts of resources to go towards SaaS, but it will take several years until the whole on-premise product is rewritten.
The headache with smaller software firms differs a lot. They have existing product, existing customer base and no platform. The question how jump into SaaS world, might be a question of dead or life. Roughly, based on author’s over 20 years’ experience of software industry and empirical research, the companies planning to promote a new SaaS product to a market, may be divided into four categories: 1. The first ones have started with something very new without legacy systems headache. 2. The second ones have fight with existing customers with their on-premise installations as well as at the same time try to develop modern cloud-based solutions with new functionalities. 3. The third type of company believes that the momentum is not right to convert the business model because of huge existing cash flow. 4. The fourth have not even started to consider the threats of market change.
In the remaining of this work, we will take a look how academic literature guides the companies belonging into the first two groups. A business model is an important concept for this study. As it’s seen in the Figure 1 the business model consists of several factors. Later it will be other descriptions of business model like Table 1 and Table 2. Whenever a business transformation is under discussion, it will always lead to a new business model. On practical level, for example the following question will raise: The firstly what the new revenue model shall be? Secondly, is there a need for a new kind of partnering? Thirdly, what are the products and services in offered portfolio? Fourthly, what are the key resources, do those already exists or will it be the starting point to find right resources first?
Osterwalder and Pigneur's [
Osterwarlder and Pigneur’s model is not the only one. Juntunen [
Furthermore, Da Silva et al. [
Authors Product/service information flow architecture, business actors and roles, actor benefits, revenue sources, and marketing strategy Value proposition, target markets, internal value chain structure, cost structure and profit model, value network, and competitive strategy Core strategy, strategic resources, value network, and customer Interface Transaction content, transaction structure, and transaction governance Strategic objectives, value proposition, revenue sources, success factors, channels, core competencies, customer segments, and IT infrastructure Value cluster, market space offering, resource system, and financial model Customer value, scope, price revenue, connected activities, implementation, capabilities, and sustainability Products, customer relationship, infrastructure and network of partners, and financial aspects Number of elements 5 6 4 3 8 4 8 4
Luoma [
The term product or service company is still unclear and requires deeper research. The most important factor may be is there a common model how those companies behave. Rather often companies have either product or service operations in place. The most of companies have both operations. When investigating the transfer of business model change from on-premise to SaaS it must be sure are people talking about product or service company.
For example, if the company A turnover split is: 20% license sales 40% consultancy sales 40% maintenance
Compared to company B: 60% license sales 40% services.
The operational business structure will vary remarkable depending the level of product / service allocation 3
Cloud computing start to be common nowadays. A lot of research work has done to justify what is cloud computing. However, the main target in this research is to review what is known on enterprise software firms and how the business model has changed by moving from on-premise to SaaS business model.
For this study, an unstructured literature review [
The unsystematic literature review was performed so that the authors searched primary articles with different keywords and their combinations. The used keywords included e.g., cloud computing, SaaS, business model, transformation, change. The searches were done with, e.g., Google Scholar, IEEE Xplorer, ACM Portal and ScienceDirect publication databases.
Articles which were found relevant for this study was selected and read through. If
a primary study referred to another primary study, that was not included into, the other
primary was acquired and included into the review. We included also other than
research articles (e.g., reviews in magazines) if they were finding to belong in the target
group. The final set of selected articles are [
By doing unstructured literature analysis, it was found that there are several alternative approaches to narrow the business model in this context. One fact was already now rising: The business model will be the most important factor if the transfer will be successful or not.
In the following, we will review the literature what was found in the unstructured
review. For example, Boilat and Legner [
In addition, existing research divides SaaS environments into subclasses. One
alternative for dividing SaaS solutions is based user involvements as Luoma et al [
All those three classifications they have analyzed by financial, resource-base and
customer-facing elements. Boilat and Legner [
Regarding more general business-oriented research on cloud computing and SaaS,
there are many studies. Thus, SaaS has started to be commodity. For example, a widely
known model how to analyze different factors in cloud computing is a Cloud Cube
Model from the Jericho Forum [
Cloud Cube Model has been further analyzed and developed by Chang [
In a business model transformation, personnel are one of the most critical factors. In
computing world and all high-tech industry, there is huge lack of competent people
[
Transformation from on-premise to SaaS moves the business logic from product
business to service business. Cusumano’s recent work [
Finally, Juntunen [
The aim of this position paper was to review the current knowledge of academic literature on guiding small and medium-sized software-intensive businesses for transforming their business model from on-premise products to SaaS solutions. In the unstructured literature research, it was found that there are several investigations and research results comparing companies, their status in cloud development and their product portfolios. Mainly the studies in the extant literature have been focused huge companies like Oracle and SAP.
However, there seems to be lack of research to comparing companies how they have done the technology and business model transformation from on-premise to SaaS business. Specifically, there is a lack of studies how smaller firms have achieved the goal. While it is possible that there is such research available; however, there are lack of understanding to support the companies in this kind of transformation and this requires do more detailed research.
Thus, this position paper requires further research concentrating on small and midsize software companies, who are on their way to transfer their on-premise product range to SaaS software. The main goal of this kind of research should be to answer to the following questions: How software-intensive firms have handled the transformation and what has been the lessons learned? What are the required steps in transformation? What has been the critical factors in business model transformation? What guidelines could research give to companies that are planning of transforming their product offering and business model? How a software-intensive business can satisfy simultaneously both its current customer base, with on-premise installations, as well as the new customers, with wishes for new functionalities in a SaaS solution?
Based on the unstructured literature analysis there are few main limitations that should be acknowledged in the research. Firstly, what is the impact of product / service allocation in business model and business model transformation for a software-intensive business? Secondly, what is the impact of company size for this kind of a transformation? Thirdly, what is the impact of life cycle status, is the company well established or a start up, to the transformation?
The continuation of this literature research will be to find out candidate companies
and then for example, analyze their cloud computing business models and do the
classification like Chang [
This study focused on searching what the extant knowledge reports on transforming a business model of a software-intensive business from an on-premise product to a SaaS solution. Considering the researched material, there were several studies reporting differences caused by an adaptation of a cloud computing-bases business model. However, most of the review work focused on large-sized companies, which have resources to manage the transformation. On the contrary, there are not much reported on small and medium-sized companies.
Limitations of the paper are lacking systematic literature review and other methodology. Ecosystems business model should need more attention timely and rigour academic literature.
With the studied reference literature, this study has shown that there is a need to research how to support a small or midsize enterprise software company, which is planning to change the business model from on-premise to a SaaS business model.