What Is Happening? A common belief among users and providers is that SaaS tends to enter enterprises through the “side door,” meaning that a user or a group of users, perhaps as a department or process team, will acquire and begin using a SaaS solution outside of formal acquisition/procurement guidelines. The typical assumption is that SaaS can be, and therefore is, acquired by business users without oversight or involvement by IT. As a result, SaaS is often seen as a disruptive influence within user enterprises, pitting business against IT.

Saugatuck’s latest SaaS survey program among user executives (see Note 1) confirms that a significant number of firms do allow, and even enable, SaaS to be acquired by users outside of  formal IT procedures. But the vast majority of firms subject SaaS acquisition to formal procedures, including both business and IT oversight.

Key points on SaaS procurement from Saugatuck’s research include the following (and are highlighted in Figure 1 below):

• SaaS is less of a “side-door” phenomenon than expected.
• A majority of firms – 86 percent – subject SaaS acquisition to formal guidelines and procedures.
• A plurality – but not a majority – of firms base SaaS acquisition on combined business and IT input. Larger firms are much more likely to include both business and IT in the process.
• The smallest firms are the most likely to base purchases primarily on business-user demands; the largest firms are the least likely to do so.
• Averages tell most of the story. Companies show great consistency in SaaS acquisition regardless of size in most areas.

Figure 1: SaaS Acquisition Patterns, 2008

Source: Saugatuck Technology Inc. 2008 worldwide SaaS user executive survey; n = 409

We see a clear trend toward the increasingly “official” status of SaaS within user enterprises based on SaaS acquisition practices. Figure 2 below confirms this, showing some significant increases among user firms regarding the increasing, formal involvement of both Business and IT in SaaS acquisition.

Figure 2: Increasing, Broader Business and IT Involvement, 2007 – 2008

Source: Saugatuck Technology Inc. 2008 and 2007 worldwide SaaS user executive surveys

The arrows on the right of the table indicate decreasing individual SaaS acquisition responsibilities and authority, and increasing inclusion and influence of both business and IT. There may be some increasing polarization between the two as evidenced by the year-over-year decline in the percentage of firms implementing combined business + IT oversight committees, and the notable increases in business-primary and IT-primary oversight.   Saugatuck’s upcoming report on SMB use and management of SaaS will examine differences by business sizes in more depth. Information on that study, and other aspects of our overall SaaS user research, will be included in upcoming Research Alerts and Perspectives.

Why Is It Happening?  Saugatuck sees the combination of formalized acquisition and general consistency in SaaS procurement as a continuing indication that SaaS has, indeed, joined the mainstream of IT and business, worldwide. As a result, SaaS can be considered less and less of a disruptive influence within user enterprises.  This, however, implies major disruption within software vendors, as noted in the Market Impact section below.

As regards the other, specific highlights noted above, we see the following:

• A plurality – but not a majority – of firms base SaaS acquisition on combined business and IT input. Larger firms are much more likely to include both business and IT in the process. Larger firms tend to have more formal structure overall, including long-standing and highly-refined policies and practices when it comes to IT and business interaction. This is a legacy of the “go-go” IT and business investment practices of the 1990s, when IT  and business groups frequently spent lavishly on point solutions and exciting technologies, only to experience inflated costs of integration, usage and management later on.
• The smallest firms are the most likely to base purchases primarily on business-user demands; the largest firms are the least likely to do so. The smaller the firm, the less likely it is to have a formal IT organization. Therefore business users will tend to rule the roost when it comes to IT decisions. Saugatuck research also indicates that the smaller the firm, the more likely that IT is seen as a functional asset or tool, rather than as a partner in the business.  The notion of IT as a partner is more frequently encountered in larger firms. This varies by industry and by geography. Future Saugatuck research will examine these differences in more depth.
• Averages tell most of the story. Companies show great consistency in SaaS acquisition regardless of size in most areas. More than anything, this consistency indicates to Saugatuck that SaaS is increasingly mainstream for both business and IT.

Market Impact

User Impact:  The formalization of SaaS procurement does not by itself mean that SaaS will always come in through the front door. Saugatuck fully expects to see continued growth in SaaS adoption via non-formalized channels. But the overall trend is clear; SaaS is part of the business and IT portfolio, and its presence and role will increase. SaaS procurement therefore must increasingly include more aspects of traditional IT procurement, including SLAs (please see Saugatuck Strategic Perspectives BP-467, “SaaS and User Satisfaction: Enterprise-Ready, or Not?” published May 28, 2008; and  BP-479, “Keep the Big Picture in Mind:  Best Practices in SaaS SLA Management,” published June 30 2008.)

Vendor Impact:  SaaS’ mainstream position within user IT and business procurement means that it is becoming less and less of a disruptive influence on user business and IT. However, this also indicates that SaaS is more and more of a disruptive influence on the business of IT.

There should be no doubt among software vendors that SaaS is mainstream, and that they should therefore move with all practical speed to include SaaS in their offerings, business models and revenue streams.

As has been discussed many times within Saugatuck research, this is fundamentally disruptive to most software vendors. It entails core business changes and software architecture changes, review and restructuring of partner and channel relationships, different sales and support capabilities – all aspects of the software vendor firm are affected, and most significant aspects must be changed.  (Please see Saugatuck Research Alerts RA-402, “ISV Transitioning to SaaS: Common Threads and Best Practices, published October 31, 2007; and RA-413, “Traditional ISV Transition to SaaS: Reinvent or Virtualize?” published December 12, 2007.)

Note 1
Saugatuck 3rd Annual SaaS Research Study Available

Saugatuck’s most recent Software-as-a-Service research study - “Enterprise Ready, or Not – SaaS Enters the Mainstream ” - is available for purchase and download at www.saugatech.com/460order.htm.