Talk about taking off: The percentage of companies using software as a service climbed 13 points in just 11 months, from 47% in our 2010 survey to 60% this year--one of the biggest adoption increases we've seen for any technology category in such a short period. The roster of SaaS providers set to take on giants like Microsoft, Google, and Salesforce.com has grown as well. In our 2011 survey, when we asked about SaaS vendors being used, we received more than 60 write-ins across just about every functional IT area, in addition to our list of a dozen big-name vendors. Such a rich applications landscape was the stuff of dreams just a few years ago.
But that doesn't mean SaaS is a no-brainer for companies to adopt. Many of the 275 business technology professionals responding to our InformationWeek Analytics 2011 SaaS Survey, all of whom are involved in their companies' enterprise applications strategies, express concern about features and functionality. Integration is still a big problem. Perhaps most significant, in tandem with the jump in SaaS use over the past year, overall satisfaction levels took a dip. In our 2010 SaaS Survey, 85% of respondents said SaaS met or exceeded expectations. Now only 74% feel that way. Still not a bad percentage, but can SaaS vendors arrest this downward momentum?
It won't be easy. SaaS providers' profit margins are razor thin, and as the customer base expands and enterprises start demanding customization, providers will have their work cut out for them. For vendors offering both licensed and subscription as-a-service products, it's a balancing act to offer world-class enterprise software while catering to a clientele that's fixated on speed of delivery. The responsibility for delivering a highly available service, fast, is very different from shipping code and having customers take responsibility for maintenance and support.
Software vendors that pushed their SaaS offerings hard may end up wishing they'd devoted some of that marketing effort to the old-school model.
SaaS will not spell an end to internal IT operations, dire predictions aside. But it will be transformative. For midsize businesses, SaaS has become a competitive differentiator; if you're a CIO looking to help your company grow, the SaaS model lets you equip employees with the same multimillion-dollar BI applications used by enterprise rivals, without the capital costs. Enterprise IT teams are more focused on shedding the drag of managing commodity services like e-mail.
But it's still a lot easier to use SaaS for applications related to new business functions than to shift from in-house software, given the data migration headaches and sunk capital investments.
Download the March 2011 issue of InformationWeek