• Google announced the launch of its business-oriented software offerings as a paid-subscription suite known as Google Apps Premier Edition.  Businesses can subscribe for $50 a year per user account.  This announcement directly targets the enormous Microsoft Office installed base (and Office Live) currently in transition as the release of the Vista operating system and Office 2007 ripples through the marketplace.
• Salesforce announced the availability of the first in a series of financial services-oriented solutions that will target the financial services industry -- (e.g., Banking Edition, Capital Markets, Insurance, and Mortgage editions). Priced at $500 per user per month, the "Wealth Management Edition," is currently in use by 25,000 Merrill Lynch financial advisors and is aiming squarely at hardware-heavy proprietary services from Bloomberg and others.

Each of these four vendors is targeting a distinct market segment:  Microsoft positioning its BT marketplace toward SMB; SAP directing A1S toward businesses with between 100 and 1,000 employees; Google targeting the Microsoft Office installed base with Google Apps Premier Edition; and Salesforce focusing on the financial services industry (and the huge installed base of Bloomberg terminals) with Wealth Management Edition.  The broad appeal of SaaS not only makes it possible to target these distinct market segments, but makes it necessary.

Why Is It Happening?  Saugatuck research shows that SaaS is moving rapidly into the mainstream as user adoption increases. Last spring, in our Research Report SaaS 2.0: Software-as-a-Service as Next-Gen Business Platform, SSR-239, 26Apr06), Saugatuck termed this phenomenon SaaS 2.0, in order to distinguish this new wave of SaaS platforms, evidenced by these announcements, from the initial offerings of standalone business applications.  In the report, and in subsequent research (See Browse Related Research above), we wrote that SaaS would evolve through the development of business services platforms, suites, vertical ecosystems and new business models such as advertising-supported software.

The potential disruptive influence of SaaS has captured the attention of the established Master Brands, who must find ways to defend their installed base from emerging players while at the same time leveraging the potential of this new software deployment and licensing model.  As Microsoft CTO Ray Ozzie noted in a recent online Q&A, SaaS "very clearly caused an inflection point within our industry and within Microsoft of understanding advertising as an economic engine."  Google Apps for your Doman Premier edition only serves to underscore this statement.

Both Apps for your Domain Premier and the Salesforce.com Wealth Management editions are aimed at over-served customers who will be happy to pay significantly less for a service that gives them more of what they really need.  In the case of the financial advisors, they will have access to streaming Web video, Internet telephony services like Skype, market data, and custom applications built with Salesforce's Apex technology.  And this is what is available now, even before more applications are offered through the AppExchange business services marketplace.

SAP in the meantime, has acknowledged that the mid-market customer may also be over-served by its on-premise solution and has begun the hard work of re-architecting a solution that can be delivered under the SaaS model.  It remains to be seen whether they will also be delivering verticalized editions such as those offered by Salesforce.com or even NetSuite -- targeting the "S" of the SMB market with a series of vertical solutions -- or, instead, creating ecosystems of business services with a series of partners.

Unlike the other players, Microsoft's partnership with BT indicates that they recognize the importance of delivering business services through the cloud in a fashion that allows the creation of a "suite" of business services.  It also suggests that they recognize that the computing environment of the future will be hybrid in nature, combining web services with software installed on the computer (For more on this see The Hybrid Application Environment of the Future , MKT-153, 10Jan05.)

Market Impact:  These investments by four major players signal increased activity in the SaaS marketplace that is focused on specific market segments, rather than the market as a whole. Given the increased volume of activity in the market, the silence from other Master Brands, such as IBM and Oracle, is deafening. (We are tempted to ask, "Where's Waldo?")  Saugatuck believes this silence is only temporary, and we expect to hear from IBM and Oracle before mid-year.

In the meantime, users have an increasing array of choices to consider alongside their more traditional software and services options.  Vendors should expect those users will be asking for statements of direction now that the SaaS market has begun to accelerate.  Users will also have to consider the value propositions of the Master Brands' SaaS offerings versus those of the new wave of SaaS players in the context of vendor viability.

SaaS vendors should consider the growing importance of integration in a hybrid environment where on-premise business software solutions must interact with SaaS in the cloud.  SaaS vendors must also deal with the complexity of integration at the applications and data layers, while competing on value delivered at the business services layer.  Smaller SaaS players should decide whether to align themselves with the Master Brands, aggregate with other players in marketplaces and ecosystems, or go it alone.