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

Best of 2006 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.”

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