Eight reasons SaaS will surge in 2008

The coming year is going to be a pivotal one for anyone involved in software-as-a-service. For everyone else, it's going to be the year when SaaS becomes impossible to ignore. Here's why.
Written by Phil Wainewright, Contributor

The coming year is going to be a pivotal one for anyone involved in software-as-a-service. For everyone else, it's going to be the year when SaaS becomes impossible to ignore. Here's why.

  • It's all about services. I'll start my list by repeating the prediction I made at the beginning of last year: "SaaS is just part of a wider move towards Internet-based automated services." The megatrend that powers SaaS is the same one 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 used to be delivered in boxes and had to be installed in the same building as the people that used it. The Web removes those constraints, enabling SaaS — and SaaS in turn becomes the foundation for innovative new ways of interacting and doing business.
  • Mainstream opinion says 'yes' to SaaS. The world is starting to wake up to the potential of SaaS. Fellow-analyst Jeff Kaplan has nailed this cogently in his own great post on Top Ten Reasons Why On-Demand Services Will Soar in 2008. As Jeff points out, everyone from Nick Carr to Wall St is falling in love with SaaS.

Next: Software vendors stampede into SaaS

  • Software vendors stampede into SaaS. A year ago, you could still find plenty of SaaS naysayers amongst the mainstream software vendors. Now even SAP and Oracle are keen to show off their SaaS credentials [update: I'm giving a keynote at an Oracle industry summit on SaaS later this month. See disclosure]. Hundreds of lesser names in the software business have realized it's time to follow suit. In a research alert on Key Trends in SaaS: 2008 and Beyond (PDF, registration required), industry analyst Saugatuck Technology asserts that "approximately 15-20 percent of application ISVs have already either begun new skunk works initiatives or gained access to SaaS assets and development experience through M&A activity. However, over the next 12-24 months we anticipate this number to rise dramatically, as a tougher economic climate will only exacerbate an already challenged on-premise and traditional perpetual license model."
  • Virtualization makes it easy to go SaaS. One of the factors making it much easier for independent software vendors (ISVs) to adopt SaaS is the emergence of virtualization technology. Late last year I described how people management vendor WorkStream uses VMWare, for example, and I reported on how some SaaS vendors are using Amazon's EC2 cloud computing platform. There are many other examples out there, including Joyent's astonishing giveaway of application hosting accounts to 3,500 Facebook developers. Virtualization will be a big factor this year in helping many ISVs, large and small, get their first experience of delivering software in a service model.
  • SOA and SaaS become bedfellows. I've always believed SOA and SaaS were two sides of the same coin — their common currency being the services model. So much so that, in the hiaitus between the ASP bust and the resurgence of SaaS, I produced a website about SOA called Loosely Coupled. During that time, I got to know Jeff Schneider, one of the most insightful and knowledgeable practitioners blogging about SOA. Imagine my surprise and delight when I read his Top 100 SOA Predictions for 2008 this week:

#1 - The incredible value of SaaS is realized and buyers want in #2 - The buyers realize they need enterprise SOA to effectively pull off SaaS #3 - #100 are irrelevant.

  • Economic factors favor SaaS. Although a recession — if that's what's on its way — will pose challenges for SaaS vendors too, the majority of observers seem to think conventional ISVs will be worse off. InfoWorld, counting down the "top underreported software stories" of 2007, goes as far as holding SaaS largely responsible for the pricing pressures ISVs will face in the coming year. Certainly, the low-risk, pay-as-you-go model will give SaaS vendors a big competitive advantage if capex 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. Here's an interesting take from Microsoft SaaS architecture expert Gianpaolo Carraro: "Similarly to what happened about 10-12 years ago where the growth of the Intra-net was faster than the Inter-net (certainly in terms of $ if not in global terms), in 2008 SaaS ... will grow faster inside the corporate boundaries than outside." Of course, it's in Microsoft's interests to see enterprises deploying SaaS internally (and thus having to buy more server licenses to do so) than it is to have them consuming SaaS externally (especially when the external SaaS vendors are typically running Unix-based data centers and using open source platforms). In my view there will also be a lot of the latter going on, because contrary to popular opinion, many IT folk like the low-cost, low-maintenance, low-resource profile of externally delivered SaaS applications. But if others want to try deploying their own SaaS applications internally, I'm not going to stand in their way. It'll be a great learning experience for them and for the platform vendors they work with.
  • SaaS platforms proliferate. Last month, SaaS Week reported BEA's launch of Project Genesis: "BEA claims that Genesis will be the first open enterprise-class SaaS application platform to address the challenges that ISVs face in creating, operating, and governing dynamic business applications." Genesis is not as original as its name suggest. Progress Software also offers a SaaS platform. Oracle is drawing together the elements of its own SaaS platform — its products are already in use at many SaaS ISVs. Microsoft is working to make its own server products SaaS-ready. The more mainstream SaaS becomes, the more these vendors 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, which Saugatuck highlights in the research alert I mentioned earlier: "the powerful growth, presence and influence of SaaS within user enterprises are driving the growth of 'build in a SaaS environment'." Saugatuck goes on to suggest that such platforms will gain favor not only because they fit in with SOA initiatives, but also because they conform to "green tech" aspirations because of their resource efficiency.

That's my take, anyhow — with thanks to the bloggers and analysts I've referenced along the way. What do you think?

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