Is the enterprise market tipping towards SaaS?

Ray Wang's informative scorecard for SaaS vendor revenues versus the on-premise vendors is worth deeper study:

For a better view of the numbers, click the scorecard to enlarge (or hop to Ray's site). What's interesting to me is that even the so-called specialist minnows in the SaaS space are doing well in comparison to more established names in the broader ERP space. That could be a function of being in the right place at the right time: Taleo and SuccessFactors, both talent management players are benefiting from the downturn as customers seek to rightsize while retaining the best skills they can. It reminds me of i2's heyday when demand planning was all the rage so perhaps we shouldn't read too much into reported relative success. But as I said in an earlier post, SuccessFactors massive win at Siemens was certainly a warning sign that incumbent ERP players are not getting it all their own way. On the quiet however, I am hearing that Q3 for at least some of the SaaS players is not going to be as rosy as the market might expect. We'll see in a few weeks' time when they all start to declare earnings. Let's not be too hasty in declaring premature SaaS victory even if it can sound compelling. There is a long way to go.

In his analysis Ray says:

Continued economic pressures force customers to choose best of breed and purpose built solutions. SaaS vendors appear to be the beneficiary as the overall business model aligns with client pain points. On-premise vendors will also win as they reduce the cost of entry and provide effective price points for purpose built solution modules in demand by clients. With very little hope for a recovery in 2009, vendors will have to adjust their go-to-market strategies to deal with waning deal sizes. It’ll take more than a hat trick in 2009 to stabilize revenues. With 4 months to go, vendors should rethink their 2010 strategies to address price points, financing options, and module availability.

Over the last few months, offline conversations between Ray, VInnie Mirchandani and myself have in part focused on the need for white space apps the large scale vendors don't seem able to build quickly enough. In the SME space I see more concentration on the provision of vertically oriented SaaS products. They're all doing moderately well, in part because the way SaaS is built provides a much faster way of getting services into the market than the traditional on-prem guys. Having an opex spend model to dangle in front of cash strapped CIO's makes a helluva difference when compared to the million dollar deals that SAP/Oracle want to pluck.