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The Year of SaaSing Dangerously?

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

This year will likely be remembered as the year that software-as-a-service (SaaS) finally came into its own.

Players in this business model have gone from edgy to establishment while on-premise vendors have gone from dismissing on-demand software to mimicking its attributes. And, in the surest sign that a market is maturing, SaaS companies have gone from evangelizing their own business models to competing with each other.

The business model has succeeded largely by putting performance issues to rest, convincing enterprise clients that their data is just as safe in the cloud as behind their firewalls, and by addressing overhanging issues like customization and interoperability with legacy systems.

The year in SaaS actually got off to a rocky start, as the sector dealt with the PR fallout from outages at bellwether Salesforce.com .

But the iconic vendor of on-demand customer relationship management (CRM) tools quickly reversed the bad-karma tide in January by shipping AppExchange, which is a platform for other SaaS-based point solutions.

AppExchange benefits Salesforce.com by giving it a way to offer its customers a wide range of applications, thus preventing defections from its installed base.

Since the launch, Salesforce.com has done nothing but build on that platform, launching OEM Edition, which subsidizes smaller SaaS vendors looking to create point applications using AppExchange as a base.

Later this year, it introduced a new Java-like programming language to help developers customize its applications on the back end.

This promises to help address connectivity issues with legacy systems from vendors like SAP  and Oracle .

Netsuite, Salesforce.com's most well-known rival in the SaaS space, launched SuiteFlex, an application development platform of its own, this summer.

All in the name of creating an ecosystem. The industry, say analysts, will never look back.

Next page: The big fish want it, too