'How Mature is the SaaS Market?'

I ran across this article in Computer World entitled "Nine things you need to know about SaaS." Pretty normal SaaS 101 stuff, but I was interested in number seven, "How mature is the SaaS market." The answer offered, as quoted below, came from SaaS expert Mike West, Vice President at Saugatuck Technology, a boutique management consulting and subscription research company focused on disruptive technologies.

The market is in its early high-growth phase, having passed the inflection point in the typical high-tech market scenario, West says. It's characterized by large numbers of fairly small vendors, with more entering constantly. In this case, the growth in the number of providers is being aided by some very large organizations, including Microsoft Corp. and IBM, and some small middleware vendors such as Progress Software Corp., which are helping business partners, particularly independent software vendors, move into the market.That's as a good of a description as any, and I agree. However, to add my own two cents, the growth in the SaaS market has largely been around the bigger SaaS guys getting bigger while the remainder of the SaaS providers are still struggling a bit. The analysts don't like to point this out because it makes the market look a bit monopolistic and, thus, less interesting, but that's the way it is.

Why is this? It's really a matter of brand names in the SaaS space. While it's easy to get funding for a Salesforce.com subscription for CRM capabilities, it's much tougher to get funding for a lesser-known vendor providing, for instance, HR application services. This is analogous to the search engine world. While Google leads the way with Yahoo and MSN being a distant second and third, most people are on Google on-demand products and will only move to the 2nd stringer if there is a compelling reason to do so. The same pattern has emerged in the world of SaaS; you have a few big guys and then everyone else.

I don't see this mix changing anytime soon. The fact of the matter is that vendors like Salesforce.com are good at holding onto and expanding market share, and any share that's lost is quickly scooped up by those in the second and third positions. Thus, there's not a lot left for the smaller players, and they are still positioning in the marketplace, finding their niches in which to gain share.

What will change this situation over time is need and acceptance. As SaaS gains acceptance in the enterprise, the smaller players can exploit niche applications, such as travel expense reporting or foreign exchange management - things that the larger players have missed. While not the 800-pound applications such as CRM or ERP, they will indeed have clear value. From there they can expand upon the capabilities of the offering and expand their presence.

If you don't think this will work, just remember the history of Google.

David S. Linthicum is a managing partner with Zapthink, a consulting and advisory organization dedicated to SOA planning, implementation, training, mentoring and strategy. He is a well-known application integration and SOA expert who has authored 10 books on related topics. Write him at [email protected]The growth in the SaaS market has largely been around the bigger SaaS guys getting bigger while the remainder of the SaaS providers are still struggling a bit. The analysts don't like to point this out because it makes the market look a bit monopolistic and less interesting, but that's the way it is... What will change this situation over time is need and acceptance. As SaaS gains acceptance in the enterprise, the smaller players can exploit niche applications...