Although in its infancy, the market for on-demand application systems, including software as a service (SaaS), is taking root and growing rapidly in East Asia, as was seen in Part 1 of this series.
SaaS revenues in the region growing 80 percent annually between 2006 and 2010 from a 2005 base of US$80 million with customer relationship management (CRM) software leading the way, according to Springboard Research. Of the small and medium-sized businesses (SMB) surveyed in the research house’s May 2006 Asia-Pacific SaaS market report, savings estimates ranged from 5 percent to 55 percent compared to the traditional licensed model, with the majority (58 percent) reporting estimated savings of 20 percent to 30 percent.
On-demand applications are also gaining traction in Japan. Systems integrator and developer NTT Data Salesforce.com’s recently introduced Platform Edition to develop a distributed CRM system for Japan Post, one of the world’s largest savings bank, as it prepares for privatization. Japan Post’s move is sparking interest in on-demand applications in corporate Japan.
Last July, on-demand contact center provider Contactual teamed up with IT solutions provider Infocom to form White Pajama, a joint venture that aims to deliver innovative on-demand contact center technology in the Japanese market.
Contactual is providing its on-demand contact center platform — supporting alliances with solutions providers such as NetSuite, Numara and Salesforce.com — as well as technical and marketing support. Infocomm is responsible for day-to-day operations, sales, marketing and alliance support with OEM (original equipment manufacturers) partners in Japan.
“Many customers think [making use of on-demand contact centers] means high costs and investments, mainly because several companies — such as Avaya, Genesys and NEC — have distributed huge systems in the Japanese market. So, many customers that couldn’t make these investments had to outsource to telemarketing companies, Bell System 24 and Transcosmos, for example,” Daisuke Uki, White Pajama’s general manager of sales and marketing, told CRM Buyer.
Formerly a provider of Cognos’ contact center offering, Infocomm decided that given its comparatively low IT overhead, short start-up time and low cost, a shift to SaaS would open up new market opportunities in less competitive segments, such as the SMB market, and lead to more satisfied customers, according to Uki.
“Now, our challenge is to convince companies that our on-demand technology can lead them towards building on-demand contact centers,” Uki explained.
A Springboard for Japan
Springboard Research opened its Japan office six months ago, looking to expand its research into emerging software technology trends. One of its focal points is on independent software providers (ISVs) and the SMB market, including the development of SaaS and its use there, according to Robert Triendl, Springboard Japan’s director.
“Typical of Japan in many ways, even our partner company, which probably has the most interesting and in-depth coverage of data — and data obtained from users — SaaS is not yet a topic of significant discussion … which is a bit surprising. So, [a deal] like that between NTT Data and Salesforce.com is exemplary,” Triendl told CRM Buyer.
With NTT Data involved, it provides an offering that can be trusted, which goes a long way as trust is key to Japanese business culture, Triendl explained, “particularly for small and medium-sized businesses that often do not have strong IT departments or the capital to invest in them, and which typically have strong ties and are tightly integrated with much larger manufacturers.”
Tough Sell for Small Businesses
As large as it is, Japan Post is a unique organization in corporate Japan: As the nation’s public postal and delivery service, banker and insurer, it is organized from the roots up. Japan Post is composed of many semi-autonomous units, as opposed to having a centralized top-down hierarchy, Triendl continued.
“There’s NTT Data, a huge trusted organization, and the users are made up of semi-autonomous small units,” he said. “So here, SaaS makes sense. But if you look at small independent companies, Salesforce.com will have a tough time selling into the Japanese market.”
The Japanese market for CRM, sales force automation and enterprise resource planning(ERP) is highly fragmented, according to Triendl.
No one vendor dominates the market — not SAP or even Fujitsu — and there are many smaller companies that seem to have entered the field through happenstance, Triendl commented.
“Specific, localized SaaS and SaaS-like applications have popped up in recent years but the question is to what extent they can broaden out and expand here, or to what extent companies like Salesforce.com can strike deals with the large integrators and ISVs like Fujitsu … it’s probably going to be difficult,” said Triendl.
Across the Region
While SMBs are leading the way in East Asia, SaaS adoption is picking up in the large enterprise sector as well, according to a recent Springboard study.
“Large enterprises are far less likely to leverage the SaaS model for core applications such as ERP. But for applications deemed less mission-critical and those on the edge of their infrastructures, SaaS is receiving considerable interest,” Springboard researchers wrote in their May 2006 report.
Australia and New Zealand are the leading adopters of SaaS region-wide, with uptake comparable to that in the U.S., while CRM accounts for 50 percent total SaaS revenue in the region, not including Japan, according to Springboard.
SaaS faces challenges down the road, Ravi Shekhar Pandey, senior market analyst at Springboard Research, told CRM Buyer.
“The primary factor preventing companies from adopting SaaS is a lack of a business requirement,” he said. “Many organizations are not deploying SaaS as they perceive licensed software to be cheaper and also consider SaaS applications technologically less mature.”
Security concerns are another significant factor, he explained.
“We believe that even though more companies are now aware of SaaS, not many have an adequate understanding of how it works and how it can help their business. And that is the most important challenge that vendors must overcome if they have to grow in the [Asia-Pacific] market,” said Pandey.