Progress Software:  Pointing Toward SaaS 2.0

What Is Happening?  Saugatuck recently attended analyst briefings by Progress Software. While Progress' business and product portfolio are currently built around a strong SOA foundation, it is now clear the company is moving strategically into Software-as-a-Service and vertical SaaS ecosystems -- an important indicator of what Saugatuck has been referring to as SaaS 2.0.  Given Progress' history of adapting successfully to the evolution of IT paradigms, Saugatuck sees the company's movement as a clear sign of industry SaaS 2.0 advancement.

Why Is This Happening?  SaaS is quickly migrating beyond its roots in delivering low-cost, quick-to-install horizontal applications in the cloud -- what Saugatuck calls SaaS 1.0 -- toward more integrated and functionally-rich infrastructure and business-services delivery, which Saugatuck refers to as SaaS 2.0.  Saugatuck sees SaaS 2.0 is a natural evolutionary step for many software and services firms, but not all.

For the past twenty-six years, Progress Software has survived, grown and prospered through a continuing evolution of IT paradigms from mainframe host-centric to client/server to the Web to SOA.  Each of these technology waves has seen tools and infrastructure companies rise to a peak and fall, some the darlings of the media and analysts for that moment in time -- Cullinet, Sybase, Software AG, Texas Instruments, Gupta, PowerSoft, and Netscape among them.  Progress Software, meanwhile, has flown under the radar, growing steadily through wave after wave of innovation and change by recognizing market shifts and positioning itself adequately. Based on this track record, Saugatuck believes that Progress Software may serve as a bellwether for where IT markets are heading, specifically SaaS 2.0.

Progress Software is poised to apply its engineering and business skills to supporting SaaS in its extensive and still-growing ISV customer base.  In 2006, Progress Software enabled over 50 ISV partners, providing them with tools and business expertise to enter this burgeoning market.  Progress Software has already SaaS-enabled over 160 of its ISV partners with over 400 applications in 17 countries.  In 2006, those SaaS partners realized more than $300 million in sales.

The most recent SaaS initiative for Progress Software is enabling vertical SaaS ecosystems, targeting specific niches, such as Healthcare, Legal, Financial Services and Travel in the SMB segment.  While Progress Software has not officially announced its vertical ecosystem plans, we believe formal announcements will come in the current year as these marketplaces are ready to go live.

Market Impact:  As Saugatuck Technology first predicted beginning in April 2006, SaaS is migrating relatively rapidly toward the richer and more integrated functionality and infrastructure services of SaaS 2.0.  In 2007, Saugatuck Technology expects to see vertical SaaS ecosystem and business marketplace initiatives rolled out -- some of which will be led by industry leaders who have brand permission from the ultimate business buyer.

Master Brands such as IBM, Microsoft, Oracle and SAP are likely to be among them over time, but may also struggle with business model challenges, the momentum of the installed base, other attractive business opportunities and ongoing technology investments that must be maintained.  Pure-play SaaS vendors such as SalesForce.com have commitment and credibility, and nimble players such as Progress have the advantage of being able to move more quickly, but the deep pockets of Master Brands (and their brand permission) will ultimately prevail should they choose to enter the SaaS market decisively.

IT markets are moving past the SaaS "tipping point," both in terms of accelerating customer adoption of SaaS, and a fundamental shift beyond SaaS islands-of-automation toward fully-integrated SaaS ecosystems and business services marketplaces.  [Full Disclosure: Saugatuck Technology has provided research, analysis and consulting to Progress Software and other vendors in this area.]