SaaS in East Asia, Part 1: Breaking Ground

Software as a Service, also known as “on-demand software,” is making inroads across East Asia as organizations large and small become comfortable enough with Web services and network application delivery to risk using them for a variety of business functions.

In the East Asia market, excluding Japan, SaaS enterprise application revenues amounted to US$80 million in 2005, growing 82 percent year-over-year. Moreover,Springboard Research projects usage to expand at an annual rate of 84 percent between 2005 and 2008 according to its May 2006report.

The regional SaaS market will grow more than 80 percent at a constant annual rate between 2006 and 2010, predicts Springboard Research.

“At that pace, we expect that SaaS applications will account for more than 40 percent of the enterprise software applications market in Asia-Pacific — excluding Japan — by 2010,” Ravi Shekhar Pandey, Springboard senior market analyst, told CRM Buyer.

Driving Factors

The two primary factors driving SaaS adoption in the region are ease of use and low cost of ownership, according to Pandey.

“A substantially increased awareness of the concept coupled with a growing inclination among enterprises and business users to try out Web-based applications are among the key factors that have added to the dynamism in the SaaS market in the region,” he explained.

Customer relationship management (CRM) systems remain the largest source for SaaS demand by revenue in the region. Businesses large and small are making use of SaaS across a widening range of business functions, Springboard’s research shows.

The most widely used applications include word processors, spreadsheets, e-mail, security/compliance applications, and human resource payroll/workforce management, according to Pandey. CRM, mostly SFA (sales force automation), Web conferencing and messaging, ERP (enterprise resource planning), accounting and supply chain management are next in order.

CRM accounted for 50 percent of total region-wide SaaS revenue in 2005, followed by Web conferencing and collaboration at 30 percent, and back-office applications, such as ERP, at 9 percent, according to Springboard’s May 2006 report.

Global and Local

U.S. vendors such as Salesforce.com andWebEx, as well as regional independent software vendors, are growing their businesses in the region, according to Pandey.

Salesforce.com CEO Marc Benioff in April announced the company’s largest sale in Japan to date: a partnership withNTT Data, the country’s largest software developer and systems integrator, to develop CRM applications forJapan Post, Japan’s public postal and delivery service, banker and insurer. The corporation is the nation’s largest employer, and its savings bank assets are said to be the largest in the world.

The Japan Post-NTT Data contract is also significant for Salesforce.com, as it is one of the first in which a customer will develop its own CRM system by making use of the vendor’s Salesforce Platform Edition, an initiative that expands the vendor’s product line and strategic position beyond application services development and distribution, Salesforce.com Japan’s Joseph Schmidt told CRM Buyer.

In addition to providing impetus to its own efforts to crack the Japanese market, the deal is seen as one that can spur the adoption of on-demand applications across corporate Japan.

SaaS Rising in Japan

Japan Post is in the midst of a privatization process that will see its operations spun off and sold to investors beginning in October.

Adoption of on-demand application systems from one vendor by as large an organization as Japan Post paves the way for other Japanese organizations and vendors to do the same, according to Daisuke Uki, general manager of sales and marketing at White Pajama, a joint venture between Japan’s Contactual and U.S.-based Infocom.

On-demand application systems are growing in popularity in Japan. White Pajama expects the market to grow 83 percent, to around 100 billion yen ($817 million) by 2011.

“We think this is a big chance for us. We have an interface to Salesforce.com, and [hence] Japan Post becomes our prospective customer,” Uki told CRM Buyer. Inquiries are coming in from prospective customers looking to learn more about White Pajama’s SaaS-based On-Demand Contact Center, though he declined to name them.

Preparing to Enter the Private Sector

Japan Post expects to deploy Salesforce.com’s CRM platform and associated applications across 4,200 Japan Post Office sales and marketing departments and some 5,200 sales agents, according to Salesforce.com’s Schmidt.

Having to get a functional CRM platform up and running within a six-month time frame led Japan Post and NTT Data to consider an on-demand application platform and go with Salesforce.com’s Platform edition.

“The project has an introduction period of six months and a period of use of 18 months. Under these conditions, we decided that use of on-demand applications could reduce the introduction period and introduction cost, rather than building a new system,” explained Shosuke Ootsubo, a deputy manager at NTT Data.

Facilitating Cultural Change

The main aim of the CRM system is to prepare Japan Post’s financial sales agents and supporting departments for life post-privatization by provisioning them with the data, sales and decision support tools and back-office support they will need in order to compete with domestic and multinational banking and financial sales organizations in the private sector.

However, that’s only one aspect, a mechanical one, of Japan Post’s CRM project.

“Salesforce’s system will provide JP, which to date has probably been one of the most conservative financial — and social — institutions in any first world economy, with a general blueprint for global sales and marketing best practices. The greatest value we are providing is in enabling cultural and behavioral change,” Salesforce.com’ Schmidt commented.

The Japan Post project is progressing as originally planned, according to NTT Data’s Ootsubo.

“The major challenge is to build a system that is compatible with operations of the user. Prototyping to confirm user requirements and system verification by the user is planned for accurate understanding of the user’s operations,” he explained.

Protecting customer information by ensuring sales agents have access to accurate and up-to-date cross-selling customer approval forms is one of the project’s most important aspects. Data encryption, audit trailing and management of user authority will be in place to ensure compliance with Japanese privacy laws and regulations, he added.

SaaS in East Asia, Part 2

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