Will Accenture Embrace SaaS?

Oct.23.06 | About: Accenture plc (ACN)

ZDNet's Phil Wainewright asks whether Accenture and other systems integrators can learn to love (read: build practices) around SaaS:

Accenture and its competitors — both those based in US/Europe and the
up-and-coming Indian IT services and outsourcing firms — are starting
to take an interest in on-demand services. Even though they must be
worried about the potential impact on their established business
models, they can see on-demand revenues growing and more and more
enterprises giving it a go. But what sort of engagements are they
looking for? What will it take to bring them to love SaaS the way they
currently love SAP, Siebel and the rest?...(continued)

He goes on to say (correctly) that the systems integrators would intuitively seem more interested in maintaining the status quo because the value proposition of SaaS inherently removes some of the financial opportunity the SIs capture in an enterprise-wide deployment.

I'm very skeptical about the big SIs truly embracing SaaS models anytime soon for the reasons Phil points out and others. If you give credence to the age old assertion that for every $1 spent on enterprise software another $8 is spent on systems integration consulting, it stands to reason that no other industry is more beholden toward maintaining the traditional "big iron" on premise software model than the established SIs.

SIs really make their money from complexity and customization. Right now, SaaS represents neither. But to be fair, even the most successful SaaS vendors have yet to push into enterprise-wide use save for a few rare customer cases. If we're to come to a day when someone like SfDC or Workday are to be deployed across a global enterprise, it's going to require a  lot of customization and integration work. In other words, stuff that makes the big SIs hearts go pitter patter.

This situation is analogous in many ways to the software testing tools market. My firm has a long-standing interest in the software testing space, most notably Mercury Interactive. Even as the company was growing in prominence and dominating the testing market while also emerging as the lead dog in application performance management, Mercury could never get material traction with the large U.S.-based SIs.  It seemed that every time Mercury held an analyst meeting or earnings call, someone would ask about progress with Accenture and others.  And every time the answer would be the same; Mercury tried to foster interest but it was slow going.  The reason Mercury had such difficulty gaining traction within Accenture was the exact reason the SaaS vendors will continue to struggle on this front for awhile longer...tools were highly valuable and necessary, but neither complex nor in need of much customization.

Ultimately, Mercury turned its attention to the large Indian SIs (particularly Tata) and made no bones about its belief that success in that channel would perhaps FINALLY draw Accenture to the table.  As my friend Sadagopan can attest, SfDC is taking a similar approach and the Indian SIs appear more willing to embrace the potential of SaaS now.

Note: At the time of this writing I, and/or funds I maintain discretionary control over, maintained a long equity position in MERQ, CRM. We did not maintain a position (long or short) in ACN.  We also may, at times, carry derivative options on underlying positions as a hedge.