The Year of SaaSing Dangerously? - Page 2

Internetnews.com wades through the top stories and issues that rocked the industry in 2006 in this week-long series.

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They point to a growing adoption of SaaS applications among larger enterprises, as well as defensive reactions from traditional on-premise vendors, as indications that SaaS has gone from being a minor irritant to a major threat to traditional software vendors' business models.

And there are hard numbers to support those claims.

According to a study conducted by THINKstrategies and the Cutter Consortium, almost half of all companies are already using SaaS in one form or another, and more than a third are considering adopting a SaaS-based application.

In fact, Jeff Kaplan, managing director of THINKstrategies, said that the number of companies considering a SaaS deployment rose by 10 basis points compared with last year.

Not only are more companies using SaaS, but they are using it for purposes that go well beyond CRM, the traditional bailiwick of Salesforce.com.

A survey of Global 2000 companies published by Forrester Research reveals that 54 percent of enterprise are using on-demand human resources applications, and 40 percent are using SaaS-based ERP .

That figure is one of several debunking the idea that SaaS applications are primarily for smaller companies or narrow departmental buys.

Other studies show the growth of SaaS into new vertical niches.

For instance, the Aberdeen Group published a study this year showing that more than 50 percent of companies have deployed a SaaS supply chain management application.

According to Forrester analyst Ray Wang, SaaS has finally convinced the doubters.

"Issues around data security and reliability have pretty much gone out the window, because most of the vendors have been able to deliver on what they promised," he told internetnews.com.

No wonder then that new SaaS vendors proliferated in myriad industries: Workday for human resource management; nSite for business intelligence; and Arena Solutions for product lifecycle management come to mind.

Traditional on-premise vendors have also either converted entirely to SaaS or have developed hybrid models combining Internet-based application delivery (on-demand) with a single-tenancy architecture (harkening to their on-premise roots).

SAP  was, to its credit, among the first to sense the shift. It launched a hybrid SaaS version of its CRM module, mySAP, in February.

Other on-premise vendors to have switched to SaaS or created hybrid versions include Maxager in manufacturing productivity and Callidus  in compensation.

Microsoft  has so far resisted putting its software on the cloud, but it has been making strides in that direction.

Beyond acknowledging the importance of SaaS, it created a SaaS-oriented developer site in August and a SaaS-enablement program for ISVs in November.

The new Exchange Server 2007 offers a hybrid of an on-premise e-mail server with hosted hygiene services.

This was also the year that traditional vendors decided to buy their way into the space in a big way.

Unlike Oracle's acquisition of Siebel, these were made specifically for the purpose of getting into the on-demand game.

Payroll specialist ADP  acquired HR specialist Employease this summer, and last month, Business Objects  acquired nSite, an on-demand counterpart.

Kaplan of THINKstrategies agreed that SaaS went "well beyond the tipping point" this year, but did warn that another significant outage like the one suffered by Salesforce.com customers last year could dent the momentum SaaS vendors have worked so hard to gain.

"The tolerance won't be there, and people will have second thoughts."