SaaS goes mainstream

eWeek has posted an article about SaaS going mainstream in 2006. Its interesting that the article notes how legacy infrastructure and customization will be ongoing issues for large enterprises adopting the SaaS model.

The article also draws the connection between AJAX and SaaS development:

Growing interest in the use of AJAX (Asynchronous JavaScript and XML) programming technology makes it easier for developers to create interactive Web-based applications, and will help drive the launch of new SaaS companies and applications, Benioff said.

yep, *that* Benioff...;-)

78% considering SaaS

John Fontana of NetworkWorld is writing about the rise of SaaS....interesting quotes:

A survey released in November by AMR Research shows that more than 78% of 500 respondents across major vertical industries and company sizes are currently using or considering software-as-a-service. Only 18% said they have no plans to consider software-as-a-service.

In an October survey of 118 IT professionals by Cutter Consortium, an IT advisory firm, 65% of respondents said they were using or considering software-as-a-service, while 35% said they are not considering it. Of the 34% who are considering adopting software-as-a-service, 82% said they plan to do it in the next six to 12 months.

And *why* is SaaS gaining such momentum? (again quoting)

"Users are saying I would be nutty not to at least give [software-as-a-service] strong consideration going forward," says Bill Gannon, vice president of consulting for AMR. "Whether they do it is another item, but upwards of 60% of customers are saying to get on my short list, software-as-a-service is one of the key criteria I am looking for. What they are saying is they recognize all the promised benefits of decreased cycle time, faster time to value, lower cost per user, lower [total cost of ownership], not to mention the change in the economic model from a capitalized expenditure to a manageable [monthly] expense."

I wouldn't underestimate the power of that last poinnt -- from capital expenditure to manageable monthly expense -- those types of accounting changes can be very powerful in some business models.

Search Index as a Service

With Amazon launching and opening up Alexa, the search index has become:

A) an open service
B) commoditzed

big ripples on this one. Search's proprietary side is the algorithm - but the index is not. Opening the index provides a huge base of knowledge for developers to work on. Making it a *service* means that its being done in the right way....

Two Familiars

Two links highlighting how two familiar companies are getting in to the world of SaaS:

SAP Pursues On-Demand Model, BPP

Quoting:
SAP's CEO Henning Kagermann has in the past said the company would come out with a hosted version of its software, but that it would do so in a manner that's somehow different from the prevailing market leaders' platforms.

Those vendors, including Siebel Systems Inc. (which is in the process of being acquired by SAP arch-rival Oracle Corp.), Salesforce.com and NetSuite Inc., offer hosted versions of CRM (customer relationship management) and ERP (enterprise resource planning) suites, along with a variety of add-on products.

and

Verticalnet Polishes Hosting Service

Remember these guys? Turns out now they have "hosted" supply chain management.....

And the SaaS ecosystem expands...

The growth of an ecosystem

I noticed OpSource's recent announcement of an "incubator" for SaaS companies for one reason: it is evidence of a growing ECOSYSTEM around SaaS companies. What we have here is a company providing infrastructure to other SaaS companies....

...and an interesting quote:

"According to our research, 79 percent (of 512 IT professionals surveyed) have purchased or are in the process of reviewing a SaaS offering," Traudt said.

Hmmmm......

The Composite Enterprise

Call it what you will - the adaptive, composite, on-demand, networked enterprise. Any way you slice it, that *kind* of company is about not concentrating on non-core competencies, but instead being able to focus on *results.* And I think its a key driver in the world of SaaS...

Along those lines, I'm exploring some companies that could help build the "composite" enterprise:

Salesforce.com - to manage sales leads, CRM (every one knows this)

Bryght - for my website, wiki, blogs

DemandWare - an on-demand ecommerce platform (tailored to multichannel commerce)

EchoPass - SaaS-driven contact and call center management

AppStream - SaaS-driven application deployment for enterprise IT

ExactTarget - Saas email solutions (marketing)

intacct - SaaS ERP

NewsGator - SaaS-driven enterprise RSS solutions

Qualys - SaaS based IT security

...Throw in a benefits provider (i.e., Trinet) and i've just assembled probably over 70% of what I need to run a good sized (50-250 person) company....

And I never installed software......;-)

Beast of Burden

I've been reading around about SaaS - and I stumbled upon this whitepaper over at OpSource.

The point that caught my eye was this:

"Finally, SaaS transitions the burden of deployment and management from the end user to the software vendor, and forces vendors to take responsibility for the performance, security, and stability of their applications. "

That's an interesting point in relation to Sam's "shift in value" theme -- the end-user (enterprise) is just plain *tired* of carrying the burden of deployment and *management* of software packages.

SaaS-y Money

I've been reading Sam Ramji of Microsoft's Emerging Business Team as of late....

One of the posts that really caught my eye was one on VCs and SaaS. Quoting:

John Hummer actually said it more directly, at the SDForum event on SaaS back in March 2005: "If you are going to pitch me a software deal, it had better be Software as a Service." Emergence Capital is a $125 million fund established solely to finance SaaS plays. BAVP made their interest clear way back in 2003.

Add to this the fact that many partners I've spoken with have said that the software side of their portfolios currently include between 1/3 and 1/2 SaaS plays, and the reason to focus on this is obvious: the trend is only accelerating. IDC forecasts the delivery segment (not "market") to reach $10.7B by 2009.

It can be argued that this is a new bubble, but unlike Web 2.0 (which sure smells like a bubble right now but perhaps it's an echo boom) it is a software value shift that is fundamental and easy to grasp, whether or not you're a member of the digerati.

The numbers and VC money and market sizing is fun - but that last sentence is really important. What we're all seeing is a "software value shift" -- as enterprises grow to be more and more networked, they are being forced to remove friction from all possible points. Software as a product to be integrated into an existing IT environment carries with it tremendous friction. Software that delivers a result and can virtualize management, so as to *appear* to be running within my organization has an inherently lower bar of friction.

The importance of this should not be underestimated. Look at Open Source (the other side of the value shift coin) - open source software is removing friction around pricing and proprietary code (i.e., its commoditizing easily chunked off pieces of the stack). Similarly, SaaS is *just beginning* to remove friction around delivery and user experience.

In some senses, SaaS is riding a wave similar to the one that Apple is on. The markets (ie, end-users) have gotten over the larger chasms of technology adoption -- user experience and delivery of results is now far more important than it ever has been.

The value in software is shifting from the value locked inside the lines of code to the value released by an easy to install, set up, use and maintain application.

The Wizard of Ozzie

Microsoft's entry into the world of SaaS (what they call "server=service") certainly got plenty of press coverage, but the thing that really caught my eye was Dave Winer's posting of Ray Ozzie's internal memo to Microsoft around the whole thing.

Doing a little document digging, one can find statements like:

Software that Just Works
"It is now 2005, and the environment has changed yet again – this time around services. Computing and communications technologies have dramatically and progressively improved to enable the viability of a services-based model. The ubiquity of broadband and wireless networking has changed the nature of how people interact, and they’re increasingly drawn toward the simplicity of services and service-enabled software that ‘just works’. Businesses are increasingly considering what services-based economics of scale might do to help them reduce infrastructure costs or deploy solutions as-needed and on subscription basis."

On Achieving Scale
"And the work of these startups could be improved with a ‘services platform’. Ironically, the same things that enable and catalyze rapid innovation can also be constraints to their success. Many hard problems are often ignored – the most significant of which is achieving scale...Intuitively there seems to be a platform opportunity in providing such capabilities to developers in a form that retains the speed, simplicity and loose coupling that is so very important for rapid innovation."

Ozzie then goes on to outline hints for the division within the company - ways to think about "service-enhanced software."

The letter ends by emphasizing the "disruptive potential of services."

more on the forces that make SaaS disruptive in the coming days....