Strategic CIO // Executive Insights & Innovation
Commentary
2/28/2008
03:45 PM
John Soat
John Soat
Commentary
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Suddenly SaaS Is A CIO's Best Friend

As recession looms, fingers are pointing to software as a service as a viable, fiscally responsible option for upgrading application portfolios. Is recession-driven SaaS another notable turning point for technology?

As recession looms, fingers are pointing to software as a service as a viable, fiscally responsible option for upgrading application portfolios. Is recession-driven SaaS another notable turning point for technology?Technology trends emerge for a variety of reasons. In consumer technology, plenty has been written about the role pornography likely played in driving the adoption of the VCR. On the IT side, an argument can be made that it was the Y2K "bug" that drove the adoption of ERP software by forcing companies to overhaul their legacy software infrastructures.

In that same cause-and-effect model, is the weakening economy likely to drive the widespread acceptance of software as a service? To judge by the most recent financial results from Salesforce.com, the leader in SaaS, it appears that might be the case.

Not only did Salesforce announce record revenue and profits for its fiscal fourth quarter (4Q rev: $217 million; 4Q income: $7.38 million), but company officials are predicting that this year will be even better -- and better than they had predicted late last year (revenue between $1.030 billion and $1.035 billion, up from the company's November forecast range of $1.0 billion to $1.02 billion).

A Reuters story about the Salesforce financials explains the economics behind the surge to SaaS:

Analysts say that Salesforce.com and other software makers that specialize in the software-as-a-service model are set to outperform the rest of the industry in a recession because the upfront costs of buying their products are relatively low.

"There is less upfront and ongoing capital investment, less risk," with software that is delivered as a service and sold via subscription, said Rebecca Wettemann, an analyst with Nucleus Research.

So SaaS seems well on its way down Main Street Computing USA. But is there a wider implication to this technology trend?

Software as a service is sometimes seen as the tip of the iceberg known as "cloud computing," a metaphor for computing resources available over the Internet. Those resources are exemplified by the data centers both Microsoft and Google are rushing to build, at least in part to offer a wider and deeper array of online services.

Certainly that's how Nicholas Carr sees it in his new book The Big Switch. Carr wrote the controversial Harvard Business Review article "IT Doesn't Matter" (later turned into a book with a question mark: Does IT Matter?), and he's a big believer in the economic and technological inevitability of cloud computing, which will dispense computing services, both hardware (compute cycles) and software (applications), in a utility model like that for electricity or natural gas. SaaS is a step in that direction.

But as my colleague Rob Preston pointed out in a recent column, there's still a big leap from SaaS to cloud computing, mostly because the complexities involved in doing compute-intensive applications using big, expansive data sets in an online distributed computing environment aren't trivial.

So whether SaaS leads to a wider shift in computing trends, namely cloud computing, remains to be seen. But it seems like we may be at one of those turning points in computing trends you so often hear about after the fact. This time, instead of looking in the rearview mirror, fasten your seat belt and turn on your blinker -- and keep an eye out for the bend in the road.

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