One Year Later: SaaS Breaks Out - Saugatuck Research
One Year Later: SaaS Breaks Out
What Is Happening? One year ago this week, Saugatuck published research showing that SMB executives were embracing software-as-a-service (SaaS) as a business-critical, strategic investment at nearly twice the rate of executives at larger enterprises (please see SMBs Surpass Large Enterprises in SaaS for Critical Applications, RA-229, 08Mar2006).
This week, we update that research with results from our 2nd Annual SaaS Research Program (see Note 1), that shows a dramatic increase in the percentage of executives who plan on using SaaS for business-critical operations.
Figure 1 - SaaS Usage Plans 2006 v. 2007
Source: Saugatuck Technology, SaaS Survey Research Jan. 2006 (n=156) and Jan. 2007 (n=250). Key demographics for Jan. 2007 survey: North America -- 51 percent, Europe -- 32 percent, ROW -- 17 percent; less than $250Mil - 30 percent, $250Mil - $1Bil -- 26 percent, more than $1Bil -- 44 percent.
As shown in Figure 1, over the course of the past year, SaaS is now well beyond the "tipping point" -- and well on its way toward becoming a mainstay in business operations.
Why Is It Happening? The emergence of SaaS can be explained by three developments:
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The establishment and expansion of SaaS aggregation, development and integration platforms (SIPs) by leading vendors (e.g., Salesforce.com, Webex, Microsoft).
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The increase in the number of SaaS environments certified with regard to their integrity based on such auditable standards as SAS-70.
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Increasing verticalization and specialization of SaaS solutions.
Taken together, these developments not only increase interest among the small and mid-sized customers, who were already more willing to commit to SaaS as a core computing strategy, but have also made it possible for large enterprises to view SaaS as more than a niche computing strategy.
Figure 2 -- SaaS Usage Plans by Company Size
|
|
Small (Less than $250 mil) |
Mid-sized ($250 mil - $1 bil) |
Large (More than $1 bil) | |||||
|
2007 |
2006 |
2007 |
2006 |
2007 |
2006 | |||
|
For applications that support a widely distributed workforce. |
69% |
30% |
65% |
46% |
70% |
28% | ||
|
For applications that are back-end database-driven |
53% |
31% |
75% |
41% |
61% |
18% | ||
|
To supplement software deployed behind the firewall |
46% |
21% |
65% |
31% |
63% |
23% | ||
|
For mission-critical business applications |
41% |
23% |
49% |
29% |
53% |
13% | ||
In fact, as shown in Figure 2, large enterprises are now more likely than small companies to leverage SaaS in their core computing environments, even for business applications considered to be mission-critical. This is a significant change in just a year's time. However, the large-enterprise executives in our survey indicate that they do not plan for SaaS to replace on-premises software -- rather, it will predominantly supplement software deployed behind the firewall.
Market Impact:
Implications for Users
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Users are increasingly committing to hybrid applications environments in which SaaS complements on-premise software deployments. As hybridization, verticalization, and integration trends continue, users will begin to see even greater value in SaaS offerings. Certification will play an important role in SaaS solution selection.
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What is less clear to Saugatuck is which application attributes users will use to drive the decision around deployment models, and more importantly, whether those attributes will optimize business performance in the long run.
Implications for Vendors
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The level of acceptance of SaaS for business-critical computing is not unnoticed by the Master Brands. As noted in last week's Research Alert, (see Niche SaaS Markets Heat Up As Master Brands Begin To Weigh In, RA-323, 28Feb2007), these companies are already making investments and positioning themselves to capitalize on the SaaS trend. This means other software companies must get in now with a SaaS offering or risk being closed out of their target markets.
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With the increasing movement toward "enterprise-grade" SaaS implicit in these results, SaaS vendors may also find that the user buying center begins to shift, with IT executives becoming more involved, either indirectly through policy-setting, or directly in the purchase decision-making process.
Note 1:
Saugatuck 2nd Annual SaaS Research Program
Saugatuck will publish its newest original research report, "SaaS 2.0: Beyond the Inflection Point" on or around April 15, 2007.
Based in part on a new worldwide web survey of 250 senior business and IT executives, 20 briefings with leading SaaS providers and 15 deep dive interviews with early adopter SaaS users, the report will update our SaaS adoption scenario, and fine-tune our SaaS 2.0 vision in areas such as pricing and licensing, ecosystems and verticalization.
For more information about this report, please contact Chris MacGregor, Analyst and Media Liaison, at 203-454-3900, or at chris.macgregor@saugatech.com.
The author invite your comments and inquiries on this Research Alert. Please contact Mark Koenig at mark.koenig@saugatech.com
For a PDF Version of this Research Alert please Click Here (Site Registration Required)
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Gary E. Smith
SAAS Network Architect
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