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Ramping Up to Service On-Demand
Gartner finds that the rapidly expanding SaaS market will force service providers to position themselves in preparation for the quickly changing landscape of IT software.
Posted Mar 8, 2007
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The market for software-as-a-service (SaaS) continues to pick up steam, having reached $6.3 billion in 2006, and is forecasted to grow to $19.3 billion by year-end 2011, according to new research released by Gartner. "The dysfunction of the client/server era is driving alternative approaches to IT development, delivery, and management, which SaaS is the most apparent version of," says Ben Pring, research vice president for Gartner. "There is a widespread consensus among the movers and shakers of the IT industry that SaaS is an important and meaningful issue which can no longer be regarded as the 'lunatic fringe.'" Pring sees SaaS adoption broadening out from areas such as CRM and HR into new areas such as procurement and compliance management. However, the scale of change involved in moving to a SaaS approach is proving hard for many vendors to manage. "Due to the law of large numbers, traditional IT solution models are becoming victims of their own success, while the relative smallness of new approaches facilitates growth much more easily," Pring says. "For large, established IT solution providers, the SaaS market so far hasn't appeared to have enough incremental growth potential to meaningfully contribute to revenue growth. As a result, they have tended to ignore it." This has left the door open for smaller, newer players, who are now pouring into this gap, Pring says. Incumbent IT solution providers are slowly waking up to this and are entering the market to leverage SaaS market interest. "SaaS is a manifestation of the increasing maturation of software development, deployment, and management. New technologies used in software development and improvements in the underlying development business processes are making software development a more industrialized process." This maturation will also have a profound influence on the types of services consultants and system integrators will offer, and on the types of IT services that are sourced by enterprises. Some IT services will come to resemble manufacturing, and will have a similar development curve as most manufacturing businesses had during the last quarter of a century--that is, wide movement overseas to lower-cost production centers and overall price deflation, Pring says. Although the SaaS market is still relatively small, service providers need to make important strategic decisions now. Pring says that the scale of change that SaaS will produce requires providers to make the following changes soon so they can keep ahead of the SaaS wave:
  • Use solutions built on next-generation Web services, SOAs and highly automated server farms to produce multitenant, mass-customizable solutions that facilitate agility while sustaining uniqueness at a reduced cost.
  • Make strategic decisions around whether to offer SaaS as simply one element of a broader portfolio or to fully evolve toward a SaaS-based delivery model.
  • Act now because of the scale of change required to successfully exploit SaaS opportunities.
  • Conduct thorough due diligence to be well placed to take advantage of opportunities and manage risk as the market evolves toward SaaS. "This potential combination of SaaS and global souring delivery models--two notions that have seemed diametrically opposite up until now--will produce powerful changes in the entire IT industry, and particularly IT service providers," Pring says. Related articles: Salesforce.com and Deloitte Consulting Ally Market Focus: Professional Services: Servicing the Law
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