Software as a service is making headway, but can't yet be called a game-changer in the enterprise software market. Here's what must happen for SaaS to gain wider acceptance in 2009.
Software as a service has made headway in the past few years as an alternative to traditional licensed software, but it can't yet be called a game-changer in the enterprise software market. InformationWeek has identified six things that must happen for SaaS to gain widespread acceptance in 2009.
1. Get Solid, Believable Commitments From Microsoft, Oracle, And SAP.
SaaS continues to gain momentum, but pure-play SaaS companies such as Salesforce.com, NetSuite, Workday, and even Google aren't likely to steal a big chunk out of the enterprise software market within the next few years. Most large, global companies won't walk away from their heavy investments in companies like Microsoft, Oracle, and SAP, which enjoy massive customer and partner ecosystems and consistently good earnings and revenue growth.
The big software companies still have the upper hand, and SaaS won't destroy it. Rather, the success of SaaS in 2009 will depend on to how much support it gets from the established vendors.
So far, support of SaaS among the big three has been riddled with occasional missteps and self-contradictions, but this could change in 2009. SAP made a big deal out of the Business ByDesign SaaS ERP suite for midsize businesses it launched a year ago, but has since slowed down the rollout, saying it's having a difficult time making money off of it. In the coming year it plans to develop SaaS functionality modules that hook into customers' on-site SAP ERP systems, helping to protect its profitable software-licensing model while offering SaaS to customers in areas where it makes sense.
Microsoft this year released SaaS CRM and collaboration services. It's also planning a SaaS version of Microsoft Office, but details are vague. Like SAP, it's sticking to a "software plus services" approach, in hopes of keeping that traditional software revenue coming in. In sum, it's still unclear how Microsoft's SaaS strategy will play out.
Oracle offers a SaaS version of Oracle/Siebel CRM and promotes its databases and servers as a good infrastructure choice for SaaS software vendors, but hasn't ventured much into the application side of SaaS. CEO Larry Ellison has been vocally critical of the profitability challenges of SaaS, but he may be having a change of heart: During a quarterly earnings call with press and analysts in December 2008, Ellison specifically pointed to a large SaaS customer win over Salesforce.
The big three vendors are taking tentative and occasionally unsteady steps toward SaaS. If they are to be believed, however, the pace will pick up in 2009. And that's what SaaS will need to transition from niche to necessary.
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