November 6, 2006
As Winston Churchill so famously declared, "This is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning."
He could well have been talking about the long-predicted death of software.Various people have been anticipating the demise of traditional applications--what some people are now calling "location-based software"--since software-as-a-service (SaaS) first emerged in the late 1990s as something to be taken seriously. In fact, as Rick Whiting reports in his in-depth report on pay-as-you-go IT services, InformationWeek was the first to proclaim "The End Of Software," back in October 1999. (Salesforce.com, one of the early darlings of the SAAS industry, later adopted the phrase as its slogan.) Major vendors, including Oracle, IBM, and Microsoft, are now actively pursuing revenue opportunities using the SaaS model. Yet the promise has been largely unfulfilled. Even in the CRM arena, where SaaS has made the greatest inroads, services that deliver sales, marketing, and customer service functionality over the Web accounted for just 8 percent of revenues in 2005, according to Gartner. Although this is expected to increase by 50 percent by the end of 2006, that still represents just 12 percent of all CRM dollars spent. And a mere 4 percent of ERP and supply-chain management software revenues in 2005 came from services. If you focus in on the SMB marketplace, the numbers are considerably more impressive. On-demand CRM services account for as much as 30 percent of that market, according to the Yankee Group. Accounting functionality delivered as a service to SMBs is also booming. Companies like Intuit, NetSuite, and Sage Software are seeing revenues from online offerings skyrocket. Indeed, according to the Yankee Group, more than 60% of SMBs say they see on-demand services as their best bet for slashing costs and boosting employee productivity. In fact, in a singular reversal of the usual state of things, we're seeing smaller vendors lead the way with technical innovation. The benefits of SaaS have been widely touted. No massive upfront investment in technology that takes months, if not years, to implement. No need to purchase and maintain hardware infrastructure. The flexibility to move quickly to new technologies as they become available. But enterprise IT managers have also been understandably hesitant to try the SaaS waters. First up: performance. Can applications delivered over the Web consistently offer users in large corporations what they've come to expect from traditional location-based apps? Can the services scale appropriately? Also, although providing users with universal access to applications and data via the Web is an attractive proposition, it raises serious security issues. Finally, trusting that third-parties will keep their services always available--and corporate data secure--is not something that comes easy to IT managers. As it is, there have been a number of well-publicized outages on Salesforce.com that denied customers' access to its services. Despite all this, it's my own belief that SaaS is indeed the future of enterprise applications, especially as more vendors provide APIs and other ways to customize and integrate their services with other applications (both traditional and on-demand). Even Gartner, looking ahead, believes that within five years as much as 25 percent of new business software will be delivered as services. In short, we're nearing the end of the beginning of the first phase of SaaS adoption. It'll be interesting to observe how fast the end of the end comes. I'd personally be surprised if we don't see actual numbers exceeding current predictions by 2010. What do you think? Has your firm implemented SaaS? Are you considering it? Let us know your experiences by responding below.
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