The Future of SaaS (From the Horse’s Mouth)

On-demand, Software as a Service, SaaS, Web-based software…familiar with these buzz words by now? Wonder why you should care? They all relate to the idea of subscribing to software and accessing it over the Web, through a browser – instead of purchasing software and installing it from a disk or on a server in your company’s back room or datacenter. This fundamentally makes life easier and better for everyone – see our other posts on the topic here, here and here.

Quick example to make sure you know what we’re talking about: the SaaS version of email software is Gmail (also Hotmail,  Yahoo! mail and others) and the traditional or “on-premise” version is Outlook (also Lotus Notes).

That brings us to the topic of the day – the future of SaaS.

In her post on LinkedIn’s Software as a Service (SaaS) Group, Sarah Tan, Research Analyst at ICMG, raised the following question:

SaaS is rapidly becoming a solution for most small and medium enterprise clients. Does this trend coincide with what you are seeing in the your market place?

Sarah adds,

“SaaS is definitely growing. It is going slowly today due to economic crisis and everybody knows it is inevitable that SaaS will be the next standard.

Today SAAS is about 3 – 5% of the total world software market. This will grow rapidly to 70 – 80% in the coming years.”

Through its active community of more than 18,000 members, the conclusions below were drawn from the SaaS LinkedIn group. If you’re passionate on the topic, join the discussion on LinkedIn – but also let us know if this type of info is interesting or useful.

SAAS is a solution that is being adopted by all companies regardless of size (small, midsized and Fortune 1000 and 500 companies), even large Fortune 500 & 1000 companies are trying to REDUCE their IT support burdens and only focusing on maintaining mission critical apps. McKinsey IT Consulting company has done a ton of research and most of it is available via their Website on the growth of SAAS….SAAS accounts for around 5% of all software sales…SAAS companies have done a good job of improving their responsiveness (as they maintain the app/infrastructure) and also internet security has improved measurable which has lead companies to give SAAS a try.

ERP has always been the last bastion of resistance to SaaS. I’ve been asking SaaS questions in our annual ERP survey for 4 years. The percentage of survey participants willing to consider SaaS ERP has hovered between 23% and 26% for the last few years. Early results from the survey indicate this has jumped to 38% this year. Our survey is still live. We’ll be happy to send you the results as a thank you for participating: http://www.aberdeen.com/survey/0115-2010ERP/

Just to give you a reference point, we have launched a business app store a few month ago and over 80% of application providers that are registering are SaaS vs traditional on-premise software.  The market is booming and adoption by companies of all sizes, not only SMBs is getting easier (www.getapp.com).

I agree that SaaS’s popularity is increasing as vendors address customer concerns with this delivery model head-on. We still see numerous questions about security and IT managers do not like the idea of the vendor holding their data (they want to ‘hug’ their server) and I have even seen IT professionals nervous about the future of their careers should their organization move in this direction. From a SaaS vendor’s standpoint, we get requests daily from organizations who have SaaS listed as a requirement for their solution and I believe that as more and more organizations move toward this model, the experience garnered by peers with have the biggest impact.

THINKstrategies’ recent SaaS survey shows that this formula for success is working,

• 84.8% of our survey respondents using a SaaS solution said they are very satisfied.

• 80% said they would renew their services.

• 61% said they would expand their use of SaaS

• Nearly 70% said they would recommend SaaS to others

I work for a Managed Services specialist and SaaS provider and I have certainly noticed this trend. It has been very apparent for the last 18 months that organizations of all sizes are far more receptive to the idea of SaaS and Managed Services than they once were. Cloud computing is a term which now almost everyone recognises. We do come up against some resistance still as people struggle to ‘let go’ and relinquish some control but as is certainly true for e-know.net, a service providers environment is often far more secure and will offer much better resiliency than any in-house solution. We have been trading since 2000 and have never lost a customer though dissatisfaction.

I actually believe that younger SaaS companies (private and public) have very little to fear of the larger on-premise software providers, e.g., Oracle, SAP that are just now starting to understand the power of the SaaS model and adjust their strategies accordingly. Adjusting may take a long time as it involves changes to product strategy and business model. On the other hand, companies like Intuit have embraced SaaS and are reaping the benefits. This is why venture capital and private equity firms are so interested in funding SaaS companies, and the public markets have, by and large, rewarded well-performing SaaS companies.

We are seeing Europe aggressively adopting SaaS over the next 2 years. There is a lot of innovation and new European SaaS companies that are being started and we expect the pace to continue accelerating. This is the reason we are actively considering investment opportunities in new and existing European SaaS companies. We are also seeing Asia following Europe with the first SaaS companies starting to emerge in India and China.