SaaS Explodes and Takes New App Directions

In a recent blog, Nicholas Carr writes that "large companies appear to be jumping en masse onto the software-as-a-service bandwagon, according to a new survey of CIOs by management consultants McKinsey & Company. The survey found that 61 percent of North American companies with sales over $1 billion plan to adopt one or more SaaS applications over the next year, a dramatic increase from the 38 percent who were planning to install SaaS apps in 2005."This conclusion should not surprise anyone who's been watching the sales increases at Salesforce.com or the growing traction of newer SaaS players. What's significant is not that SaaS is growing, but that SaaS is gaining acceptance within businesses that rejected SaaS only a few years ago. Indeed, I remember a meeting at a particular company back in 2003 when I was told that "We will never use an application we don't own." In 2006 that company implemented three SaaS-based applications. So, I guess you should never say "never."

In addition to the data points from the study Carr cites, other industry analysts are coming to the same conclusion, as I found on Zoli Erdos' blog:

"A new study by Nucleus Research confirms these findings: 63 percent of companies with over 1,000 employees adopted some On-Demand solution, vs. 46 percent of those with less than 1,000 employees. The study turned up a few more surprises, perhaps the most striking one being the market share of particular types of applications. Salesforce.com is the poster-boy of SaaS… yet CRM [the largest single category] appears to have a relatively low adoption rate amongst SaaS customers [overall] at only 32 percent. Project Management comes close, with 23 percent of responding organizations having deployed PM solutions."

Nucleus put collaboration and e-commerce at 10 percent of SaaS deployments each, while content management represents 5 percent of all SaaS deployments.

Buying patterns for SaaS are moving away from the more traditional uses of SaaS, such as sales force automation / CRM, to applications that have not yet been on the radar screen, such as project management. This trend will continue, if you ask me. The market for SaaS applications will sync up with what is currently valuable within the enterprise -- project management, accounting, e-commerce, HR, etc.

In fact the world of SaaS is a bit funny right now. You have mega-players such as Salesforce.com and NetSuite, who are at the top of the SaaS stack, and then 2,000 other SaaS players, many of which have yet to hit the $10 million mark and thus don't get noticed. Collectively, however, they are building markets and diversifying the types of SaaS applications that enterprises consume.

There are companies providing SaaS-enabled versions of project management applications, background checking applications, B2B applications and other apps that will become more prevalent in years to come. Some may catch up with the largest SaaS players of today. I see a few more Salesforce.com-like plays out there; SaaS companies that start from scratch and bloom into publicly traded powerhouses within a short period of time. This will occur as more and more enterprise applications are outsourced. Now, we will see it at the user interface level. In the future, we'll see it at the services level. Mark my words…I mean my blog.

Application integration and service oriented architecture expert David Linthicum heads the SOA strategy and implementation consulting firm The Linthicum Group.In a recent blog, Nicholas Carr writes that "large companies appear to be jumping en masse onto the software-as-a-service bandwagon." He cited a McKinsey survey that found that 61% of North American companies with sales over $1 billion plan to adopt one or more SaaS apps over the next year. What's significant is that SaaS is gaining acceptance within businesses that once rejected SaaS.