What is Happening?  On November 18 2008, Saugatuck Managing Director Bruce Guptill presented at and participated in the 2008 European SaaS Forum in Rotterdam,

Netherlands. Organized by the Institute for International Research (IIR), the Forum included presentations and discussion regarding SaaS evolution, usage by enterprises, and go-to-market insights and advice for providers, ISVs, SIs and VARs.

The event emphasized the fact of SaaS’ mainstream positioning and adoption within European markets. (For more on this aspect of the event, please see Saugatuck Strategic Perspective MKT-528, “IR European SaaS Forum 2008: Waves beyond the “C’s”,” published 20Nov08). At the conference, Guptill was able to speak with more than 30 representatives from provider and user firms regarding European adoption of SaaS and cloud computing, and regarding their expectations of the effects of the worldwide economic squeeze on IT spending and use. Find below some key findings and insights from these discussions:

Catching Up – and Centralized. More than half of the executives interviewed at the Forum volunteered the view that Europe as a region is still somewhat “behind” the US when it comes to understanding and adopting SaaS as part of enterprise IT. And Saugatuck’s early 2008 SaaS user survey data indicated that, on average, European user firms did consider themselves somewhat “behind the curve” regarding overall SaaS learning and deployment.  However, our research does suggest that European firms are more likely than US firms to investigate and deploy SaaS more broadly within enterprises, and the SaaS Forum interviewees supported this view. The overwhelming rationale from the interviewees for this was that European firms tend to have much more centralized and uniform IT planning and control, resulting in increased enterprise-wide solutions and standardization. So when SaaS is adopted and deployed by European firms, it tends to be done more on an enterprise-wide basis.

Intra-Regional Differences. Interviewees expressed strong (and consistent) opinions on SaaS adoption differences within Europe, showing how widely adoption can vary within the region. The consensus was that these differences stem from a range of factors that all begin with country-specific business regulations and requirements, such as data ownership, transaction reporting, and business liability.

The 25 representatives interviewed from SaaS providers, software companies, VARs and consultancies was that the UK, Nordic countries, Benelux countries, and Germany represented the greatest opportunities and strongest demand for SaaS, currently and for the next 12 to 24 months. It was pointed out by several interviewees that these countries also have some of the highest networking bandwidth available at the lowest costs in Europe – a factor that has been emphasized in previous Saugatuck research as a key driver of SaaS availability and adoption (please see Saugatuck Strategic Perspective MKT-444, “Notes from the Road: SaaS Market Readiness and Growth in Asia-Pacific."   published 18Mar08).

Hard to Find? The six IT user executives present at the Forum that we spoke with all expressed their frustration at not fully being aware of all of the provider options available. This might be due to the fact that they were from the IT organization, rather than the business, who no doubt is being more directly marketed to.  Further questioning indicated that these executives felt that while SaaS was useful and desirable, and was expected to help them resolve business needs at affordable costs, most also felt that they did not understand how to acquire and implement SaaS, or how and where to find the right SaaS providers.

The very small sample of interviewees does not represent a trend by itself, and the nature of the event was such that one would expect attendees to have more questions than answers. But the uniformity of uncertainty in this small sample of senior IT executives may also indicate that SaaS providers still have a way to go in making their target audiences aware of their presence and offerings.

SaaS and the Economy. Of the general sessions, only Saugatuck’s presentation specifically addressed the current economic squeeze and its potential effects on SaaS adoption. Conversations with providers and vendors at the Forum indicated that all are concerned about the effects on their business. However, none indicated seeing any current, significant downturn or stoppage in IT spending.  All said that they expected to see some slowing of IT and overall business spending in 2009, but there was no consensus regarding the scope or duration of the expected slowdown. Each provider or vendor representative interviewed was convinced that any such slowdown would be good for their firm’s overall business, expecting that user firms looking to cut costs would be seeking SaaS (and other cloud-based) alternatives to traditional IT.

Why is it Happening?  Regional differences in SaaS adoption within Europe, and between Europe and the US, have been explored in a series of previously-published Saugatuck research. For example, in February of this year, we suggested that SaaS will follow a similar adoption path in Europe that many previous disruptive technologies have in the past (e.g., Client/Server, Internet) – with providers and user firms in Nordic countries (specifically Sweden, Denmark and Finland), the UK, and the Netherlands leading the charge.  (Please see Saugatuck Research Alert RA-434, “On the Road in Europe: SaaS Demand Grows,“ published 06Feb08).

Our conversations at the European SaaS Forum in Rotterdam support these core assumptions and expectations.  Awareness of SaaS benefits, along with a willingness to adopt and deploy SaaS, has grown substantially among European user firms over the past 6 to 12 months. The user executives we spoke with actually expressed dismay at their inabilities to find the right SaaS providers for their needs, rather than expressing uncertainty as to whether or not SaaS was right for their firms.

And our discussions with providers and users also support our previous assumptions regarding the intra-regional distribution of SaaS provision, adoption and deployment. There are increasingly obvious “pockets” of SaaS within the European region. While bandwidth is one factor that influences this, there are also very important per-country cultural and political factors that shape SaaS adoption, including privacy regulations, data ownership restrictions, and transaction/payment rules.

Saugatuck sees the expectations of European providers regarding increased SaaS adoption in the economic downturn as problematic. It seems obvious that in a slow or recessive economy, user firms will more aggressively seek IT capabilities and offerings that deliver low initial cost and that reduce their long-term spending, while enabling business flexibility.  SaaS – along with most cloud-based IT – can fulfill these requirements. These benefits will be increasingly important to users.

However, the breadth and depth of the economic slide worldwide is likely to mean a practical halt to new IT investment in many developed economies, including Europe. Where SaaS does provide comparable, provable benefits beyond traditional software and systems, we will see it gain significant wallet share and market share.

Market Impact:   SaaS has “arrived” as mainstream IT in most European markets – although demand across the wide range of discrete application solution areas is uneven. Its adoption and use is poised to grow dramatically, especially when compared to traditional software and IT. But within Europe, that growth will continue to vary by country, based on several predictable factors such business regulations, business/IT user culture, and bandwidth availability.

SaaS providers that can adapt and cater to these differences will find the greatest pan-European (and worldwide) opportunities. However, there will continue to be significant country-specific opportunities as well. Saugatuck’s 2009 worldwide SaaS survey, scheduled to be published in early Q2 2009, will examine these opportunities in more detail.

That growth will be tempered by economic reality. While European SaaS providers may not yet see significant decline in demand for their offerings, their customers and prospects will tend to be subject to the general overall economic decline. When and where user spending on new IT freezes or slows, SaaS providers will encounter increased competition for customers and for customer wallet share. Sales costs will increase while per-user spending will decrease. Due to their core one-to-many business models, SaaS providers tend to be better-positioned than most traditional software and IT vendors when it comes to managing sales costs.

But just as a rising tide floats all boats, so does a receding tide ground those that are anchored too close to the shore. European SaaS providers anchored to a specific country or market will find themselves in tough competition for precious IT spending over the next 12 to 24 months.

The author invites your comments and inquiries on this Research Alert. Please contact Bruce Guptill at bruce.guptill@saugatech.com.   For a PDF Version of this Research Alert please Click Here (Site Registration Required).

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