SaaS will dominate your cloud strategy

If an enterprise is focusing on the infrastructure layer to build its cloud strategy, then it's looking in the wrong direction. SaaS will dominate spending on cloud into 2020 and beyond, according to Forrester projections.
Written by Phil Wainewright, Contributor

The chart in Larry Dignan's blog post end of last week reporting Forrester's projection for a $241 billion cloud computing market by 2020 clearly shows the relative market shares for SaaS, PaaS and IaaS. It's a graphic reminder that, if an enterprise is focusing on the infrastructure layer to build its cloud strategy, then it's looking in the wrong direction.

Forrester projects that a massive 80% of spending on public cloud IT next year will be spent on SaaS. A far smaller 11.5% share will be IaaS, and while PaaS is growing fast, that is from a low base and it is set to remain a small proportion of total cloud expenditure relative to SaaS. Even taking private cloud spend into account, public SaaS still holds above 50% of the total market, right through to 2020 and beyond.

There are several reasons why SaaS spending is high and will continue to strengthen.

  • SaaS is ready-to-run with next-to-no set-up expenditure — barring initial data import, integration to existing IT assets and implementation of company-specific policies and processes (all of which equally apply with any other layer of cloud). This ease and low cost of implementation make it highly appealing for replacing legacy applications or meeting new requirements without incurring heavy budget commitments.
  • The majority of cloud applications are peripheral to an enterprise's core operations. SaaS has its deepest traction in functions such as salesforce automation, collaboration, people management, e-commerce, content management and customer service. These are still vitally important functions, but there's less argument around losing control of proprietary business processes and more likelihood of efficiency gains from adopting popular best practice. So the case for adoption is easier to argue.
  • SaaS is a low-risk on-ramp to wider cloud adoption. It's how most enterprises first encounter the public cloud, and once SaaS has been accepted internally, it tends to stay in place as other cloud assets are added.
  • An important economic factor in play here is that SaaS vendors are better able to deliver business value because their applications encompass a complete set of functionality that the vendor continues to evolve and enhance. This keeps SaaS less exposed to the commoditization that lower levels of the cloud stack will experience — in particular IaaS.

The other reason SaaS dominates is one that I'll return to later this week as I complete this series of interlinked posts discussing enterprise cloud strategy. It's to do with economics and the fact that SaaS providers can leverage multi-tenancy top-to-bottom throughout the cloud stack, while achieving economies of scale that allow them to deliver enterprise-class availability and performance across a diverse customer base. In a nutshell, SaaS vendors are simply able to deliver business applications far more cost-effectively than home-grown PaaS or IaaS implementations.

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