Although my company offers specific tools and SaaS enablers to do exact same, I thought it would be helpful to visit the issues related to SaaS and Off-shoring. Can Software as a Service be developed same way as a product by offshore outsourced Product development companies?
Traditionally most common SDLC model for software development has been Waterfall model - you start with requirements and then move to Design, Development, Testing and Implementation. For a successful Offshore Development, the most important phase was requirements. As long as customer has documented all the requirements properly and has signed off, shipping those requirements off to India and get back the working code (after periodic sneak peek builds) was fairly easy task. In SaaS, waterfall model is not always the first choice.
Generally SaaS companies tend to follow Agile model where requirements and solutions evolve through collaboration between self-organizing teams. Agile model is more suitable for SaaS where development cycles are much shorter.
Processes, documentation and methodology standards such as CMMi levels that have been practiced and promoted by offshore companies are better suited for non-SaaS applications. They ensure predictable results and mitigate any possible project risks, which in non-SaaS product is greater because of more than 70% resources being invested in Design and Development phases.
In SaaS applications (1) project cycles are short (monthly or quarterly) and (2) goal is excellence more than perfection. Process maturity and documentation are great but using them in a same way as older model, generally proves to be hindrance in the name process (SCM audits) adherence.
Resources And Teams
Offshore companies typically start a project by sending out a Team Lead(s) or Project Manager(s) on-site for requirements phase and Knowledge Transfer (KT). They then build offshore team around this on-site team and put the whole structure in place. Again, very predictable and easy to plan on resource allocation, hiring.
Now imagine a software company in Austin, TX that wants to start SaaS project with a version one implementation within 4 months. Not much time for KT (and taking that knowledge back to India), documentation or process compliance. You have to hit the ground running. So, best approach for that company would be to find on-shore alternatives or enablers.
If you visit websites of most the SaaS products, and a typical small business uses 5-6 of those from email to project management to accounting reports, one common feature you will notice that pricing plans are visible on their website. As much up front they are on their pricing, they are upfront and non-conventional about vendor pricing. Yes, these companies want to reduce development cost (and off-shoring is one way), but more importantly they are looking for a value.
To conclude, what worked so well and ensured predictable success for offshore companies for last decade will not work as smoothly when US ISV companies follow SaaS approach and re-emerge from economic meltdown. In a flat world, where low cost advantage is diminishing, old processes are not as effective, product life cycles are shorter and innovation carries real meaning; offshore companies must innovate for their clients to succeed.