• March 1, 2008
  • By Marshall Lager, founder and managing principal, Third Idea Consulting; contributor, CRM magazine

SaaS X.0?

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Software-as-a-service (SaaS) has been around for a while -- since the first application service providers. But the last few months have showcased the on-demand delivery model's pull within business computing: NetSuite made a splash with its public offering (see "NetSuite's Sweet Ride Takes Another Turn," page 19), Salesforce.com continued to popularize cloud computing, and Oracle's Larry Ellison -- an investor in both firms -- publicly questioned the value of subscription-based software. It's been an attention-grabbing few months. But where does SaaS go from here? What more can be accomplished with online delivery, and can a new breed truly be a departure from what came before? Is 2008 going to be all about SaaS 2.0? "I don't know if we can draw a clear line of demarcation between SaaS 1.0 and 2.0," says Jeffrey Kaplan, managing director of SaaS consultancy THINKstrategies. "There's been continuous, ongoing improvement." Still, the overused digital suffix seems to have a lot of currency. "The 2.0 idea has been used [a lot]," Kaplan says. "We might be on 3.0 now." Developers of on-demand applications have a take of their own. "I admit to a bias, but I believe SaaS is not just here to stay, but will only continue to evolve and gain momentum," Chris Cabrera, CEO of on-demand compensation management solutions provider Xactly Software, said in a statement. Research from Gartner/Dataquest backs up his claim: An August 2007 report on the enterprise-application market predicted a compound annual growth rate for SaaS of 22.1 percent through 2011, twice the rate expected to be seen in the overall enterprise-software market. "Clearly, something is ticking out there," Cabrera said. Cabrera also said we've only seen first-generation SaaS solutions (though many vendors would argue otherwise). "The limited functionality in many of these solutions was criticized by the market and customers as not being as robust as their enterprise counterparts," he said. "In 2008 we will see SaaS companies partnering or building out more robust solutions or platforms (much like Salesforce.com's Force.com platform)." As one of Salesforce.com's AppExchange partners, Cabrera would know. "In 2007, we saw the delivery of mashups combining data and functionality via single sign-on in SaaS applications. In 2008 we will see SaaS companies supporting end-to-end processes for customers through a suite play, deep integration, or partnerships." That echoes Kaplan's findings. "Customers are not only accepting SaaS within horizontal applications, but vertical ones as well; point solutions as well as platforms. There's more recognition of channel opportunities with SaaS now," he says. "There's going to be big, big change." In attitude, as well: "SaaS has been adopted in an uncontrolled fashion by business units, and IT has been resistant, reluctant, or concerned about SaaS' reliability, security, and performance," Kaplan says. "They will realize they can't resist it, and...new SaaS solutions [will] aim to help IT do its job, and solve important issues such as compliance, archiving, backups, and disaster recovery." In short, hype is no longer enough. "SaaS providers must prove their own viability," Kaplan says. "The selection criteria are the same as with any enterprise applications: It's got to be a good product, from a financially viable company, and part of a network or ecosystem." Cabrera's enthusiasm refuses to be repressed: "Love it -- like Marc Benioff -- or not -- like Larry Ellison -- 2007 foreshadows how SaaS will continue to burn a hole right through traditional enterprise software models through the end of the decade and beyond."
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