Software-as-a-Service (SaaS) continues to build market momentum due to widespread adoption by customers, a strong embrace by more and more traditional software vendors and an increase in share-of-mind in the media and analyst communities. I believe that this momentum will continue and that we remain in the early stages of a structural change in the way technology is going to be sold, delivered and employed. Here are just a few of the reasons why.
SaaS is part of the larger Web megatrend towards Internet-based services that is driving Web 2.0, SOA and every other expression of today’s increasingly Web connected world. Fundamentally, the infrastructure of the Web allows us to cut out much of the location-dependent friction that gets in the way of communicating, collaborating and trading.
Software Vendors Have Caught the Fever
Can SAP, Oracle, and Microsoft all be wrong. Trust me, if they could have avoided moving to the SaaS model to sell their software, they would have. But they have read the very large tea leaves and made the leap, some more easily than others. Microsoft joined the party several weeks ago, announcing that the Office suite would soon be available on a subscription basis.
Everyone is Going Virtual
Most industry pundits and participants view virtualization as a technology trend, but it is also a business trend. Employees are increasingly working outside the four walls of the traditional office. Gen Y workers are always on the move and online. Traditional, on-premise applications and centralized servers sitting behind a firewall can’t effectively serve today’s mobile workers. SaaS and managed services are perfectly suited for these new, virtual business requirements.
The Lousy Economy is Good for SaaS
A recession will create challenges for all technology vendors but conventional independent software vendors will be at a competitive disadvantage to SaaS provides. The low-risk, pay-as-you-go model will give SaaS vendors a big competitive advantage if capes budgets are slashed, according to Goldman Sachs: “The ability to quickly and easily turn on new applications with a significantly lower initial cost of ownership makes SaaS an attractive offering... these benefits are likely to be key in a slower economic environment where purchasers of software may be increasingly skeptical of significant upfront investments which we anticipate to characterize 2008.”
Enterprise IT Embraces SaaS
In the past, the IT department was the biggest barrier to the adoption of managed services and SaaS. Many IT professionals were afraid these on-demand solutions might eliminate their jobs. Now, a growing proposrtion of IT staff see managed services and SaaS as a way to out-task mundane work or overcome complex application/technology deployment and maintenance responsibilities. While some IT organizations may have held out hope that they could control the adoption of SaaS within their enterprise by deploying SaaS applications internally, that isn’t the reality. In fact, many IT professionals, including CIOs, really like the low-cost, low-maintenance, low-resource profile of externally delivered SaaS application.
SaaS Platforms Proliferate
The more mainstream SaaS becomes, the more platform vendors (BEA, Oracle, Microsoft) will be forced to offer effective platforms for ISVs and enterprises that want to build SaaS applications. All of that is in addition to the separate emergence of hosted SaaS platforms.
Amazon, IBM and Google are all investing huge amounts of intellectual and financial capital in building out their versions of the “cloud”. SaaS is the applications thread in the whole cloud computing construct. As the cloud takes over as the structural center of the computing universe, SaaS will become the defacto application services model.
SOX is Made Simpler
Early on, most publicly traded companies and other large-scale enterprises rejected the idea of SaaS because they thought they needed to take greater responsibility for their own compliance requirements. Now, they view the process controls, auditability and offsite hosting features common in most SaaS applications as a perfect solution for their Sarbanes-Oxley (SOX) needs.
The Investor Community Loves SaaS
Wall Street loves the the predictability of subscription services. It's good for cash flow, forecasting and business planning. The venture firms also relish the opportunities that are opening up in a software as services-oriented economy. The ability to circumnavigate the incumbent software players with new disruptive technologies and propositions that are significantly easier to try and access for prospective customers compared to traditional software evaluation, along with usage and subscription-based business models verses the old licensing model makes investing in services-based software companies very compelling propositions from the venture firms' point of view. We should also see healthy M&A activity based on these similar opportunities in the coming year.