I LOVE  it when a reader takes me to task.
Recently, Kirsten Watson, Director of Marketing at Kinaxis, did just that! She took issue with my post om my post on the Innovators Dilemma (http://www.supplychainshaman.com/2010/02/innovators-dilemma/). She felt that Kinaxis had successfully made the transition from a licensed software provider to selling in a Software as a Service (SaaS) model.  So I asked her to set up some time for me to talk to Doug Colbeth, the President and Chief Executive Officer (CEO) of Kinaxis.  Kirsten was right, and I was wrong. Kinaxis had successfully made the transition. In this post, I share some insights from a company that did successfully make the transition from a licensed software offering to an SaaS solution.

Insights from a SaaS Leader

It was great to reconnect with Doug.  I remember when he took the helm of Kinaxis in March 2003.  I admire his leadership. Under his guidance, Kinaxis successfully navigated through the land mines that havebeen pervasive in the Supply Chain Management (SCM) market.  Kinaxis, Logility, and WAM Systems are three solutions that havebeen able to maintain profitability and power growth in the SCM market during the last five years while the market consolidated and sunk from user abandonment and financial misses (http://www.supplychainshaman.com/2010/02/some-flowers-may-be-perennials/).
Doug felt that 99% of my article was right and to the point.  He liked the content; but like Kirsten, felt that Kinaxis had successfully made the transition from selling a licensed solution to a SaaS solution.  He continued,  “Most people that we talked to told us that it would take three years for us to get back to the revenue numbers we saw before we switched to the subscription model; however, our experience was different.  We switched to a subscription model in late 2005 for both new customers and existing customers. We launched our new on-demand service in April 2006). In year 1 (2006) we saw a dip.  In the second year  (2007), we surpassed our 2005 revenues (the last year as perpetual licensing) and by year three (2008) we had doubled our subscription revenues.  I think that we met your test.”  I agreed.
 Doug continued,“Since switching to SaaS/subscription, we’ve had an overall revenue CAGR of over 20%, and over the past three years, our subscription CAGR has been over 40%. In addition, we’vebeen cash flow positive every year since we made the transition, and are running our business with profit.”  In the conversation, Doug commented that over twenty companies had contacted him to get guidance on how to make a similar transition.  Doug commented that “Not one company that called had the stomach to make the transition.” I then asked Doug what gave him the stomach to make the transition.  Doug’s response was that “it is the right thing to do in the long-run to improve customer relationships and organizational capabilities within Kinaxis.”

Do You Have the Stomach?

The day after the interview with Doug, I had a briefing with Deposco.  Deposco is a new SaaS offering in the Warehouse Management Market (WMS) under the leadership of Chris Clark.  Chris was one of the founders of Procuri, an early adopter of e SaaS in the procurement market.  Bottom line, I think that SaaS models require a different type of leadership. It is right for the both the provider of the software and the business user.  However, to do this, we need more leaders like Chris and Doug. Leaders that have the right stomachs; because, the user adoption for these solutions is growing.
What do you think?  Do you see SaaS as the new trend in SCM?  If so, what do believe that it takes to deliver on the SaaS promise?
A special thanks to Kirsten for keeping me honest.