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IT in Transition: Virtualization, SaaS Soared in '08

Looking Back at 2008

What a year it was for enterprise software.

Facing slashed budgets but skyrocketing requirements, IT departments were forced to make do with far less than they were used to. For the major software vendors, that meant tightening their belts and, in some cases, rethinking their approach to the market entirely.

Yet even with the recession in full swing, it might be safe to say that 2008 won't be a total loss -- if only because of the key developments we saw emerging during the year.

And owing to one of those trends, the year had its clear winners, too: Namely, anyone betting that virtualization is a technology that's here to stay.

Virtualization: Enterprise IT's new rock star

It was a busy year in virtualization, with VMware (NYSE: VMW) rocked by the departure of senior executives including its co-founders, while watching nervously as Microsoft (NASDAQ: MSFT) blasted full bore into what was formerly its fiefdom.

As various VMware allies began to cozy up to Microsoft as well, the virtualization pioneer embarked on plans of its own to strike back. Its parent company, EMC (NYSE: EMC), installed onetime Microsoft executive Paul Maritz in the CEO's chair, where the famously tough-talking Maritz promised a bare-knuckle brawl to help VMware stand up to Microsoft.

Yet, at the same time, the virtualization market saw the blossoming of an increasingly complex web of interrelated products, partnerships and support relationships blossom. Despite their sparring for dominance in the marketplace, VMware still made nice with Microsoft in one area, joining its third-party server virtualization validation program.

And several vendors, including CA (NYSE: CA), BMC (NYSE: BMC), and Hewlett-Packard (NYSE: HPQ) have unveiled virtualization management tools to better address user needs. HP, which is playing footsie with VMware, Microsoft and Citrix (NASDAQ: CTXS), aims to be a major player in the virtualization arena, as does Sun Microsystems (NASDAQ: JAVA).

Cloud computing calls to businesses

Ah, the cloud. So fluffy, so light, so nebulous. People are still disagreeing about just what cloud computing is. Meanwhile, Marc Benioff, the feisty head of Software-as-a-Service CRM vendor Salesforce.com (NYSE: CRM) has been crowing about how the cloud and SaaS are the way to go and how successful his company is thanks to it.

The SaaS firms aren't alone in looking to the cloud. IBM (NYSE: IBM) launched some major cloud initiatives, and Microsoft unveiled its Azure cloud offering.

There was still more activity in the cloud computing market. Amazon.com (NASDAQ: AMZN) came out with enterprise offerings, and managed hosting services providers Rackspace (NYSE: RAX) and GoGrid began offering cloud computing services. Sun Microsystems also unveiled a cloud computing strategy.

[cob:Special_Report]With virtualization being one of the key technologies for the cloud, VMware unveiled technology to enable federation across on-premises and Web-based clouds and to link the datacenter to the cloud, stealing a march on what analysts say will become a major trend next year.

SaaS: It's still Salesforce.com's game

As the outspoken chairman of Salesforce.com, Benioff is a widely known figure in the industry. And why not? Salesforce this year became the first SaaS vendor to pass the $1 billion revenue mark.

While IBM, Microsoft, Oracle and other major players have a foot in the SaaS door, and up-and-comers like NetSuite (NYSE: N) look to gain ground, Salesforce.com still rules the roost.

Other, smaller players exist in the SaaS market but spent 2008 still scrabbling for a foothold. The smaller players understand that they have to offer breakthroughs rather than just shifting traditional functionalities to SaaS, but had problems breaking through into the enterprise this year.

The prospects may be changing with the recession, which is widely expected to give the entire SaaS market a boost, as enterprises seek to hold down or cut costs associated with installing and maintaining on-premises software.

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