Get Ready for SaaS 2.0
A new study reveals seven key trends as software-as-a-service evolves beyond its current focus on cost-effective software application delivery toward an integrated business service provisioning platform.
By Bill McNee, Saugatuck Technology
May 08, 2006
Software-as-a-Service (SaaS) is one of the most compelling and challenging IT and business innovations of the past two decades. Not surprisingly, SaaS is generating tremendous interest, heated debate, and a broad spectrum of opinion regarding its impact on users and vendors.
A new study from Saugatuck Technology, SaaS 2.0: Software-as-a-Service as Next-Gen Business Platform, shows that SaaS is at a fundamental "tipping point" between the current generation of software functionality delivered as a cost-effective service - or "SaaS 1.0" - and the emerging generation of blended software, infrastructure, and business services arrayed across multiple usage and delivery platforms and business models or "SaaS 2.0."
The move to SaaS 2.0 will bring with it new business trends and key points of caution for users and vendors alike.
What is the SaaS Shift?
Saugatuck research indicates that SaaS adoption has begun a pronounced acceleration, particularly among small to mid-sized businesses (SMBs). This acceleration coincides with the emergence of the SaaS value proposition that Saugatuck refers to as SaaS 2.0. Figure 1 below illustrates this confluence of SaaS adoption and evolution.
Figure 1: Software-as-a-Service Evolution
Source: Saugatuck Technology
While pundits similarly forecast rapid Application Service Provider (ASP) growth in the mid-to-late 1990s, hindsight indicates that the market was not yet ready for widespread adoption. Not only was the technology immature, with significant performance, security, customization and integration issues, but most user companies were not yet ready to buy mission-critical software as a hosted solution.
Further, the economics behind ASP single-tenancy models, including the lack of an aggressive on-demand, utility-style user environment, were just not compelling enough to tempt potential customers to make the leap to the new model in sufficient numbers to reach critical mass.
Three Cornerstones Support SaaS Adoption
Today, progress has been made across virtually every front. Saugatuck research and analysis indicates that SaaS is now entering a period of accelerated adoption, supported by three "cornerstone" business and technology factors.
First, the shift to SaaS 2.0 is being driven increasingly by the acceptance of SaaS as a viable software delivery model. User executives surveyed by Saugatuck indicate that 12 percent of U.S.-based companies have at least one major SaaS application installed (as of the first quarter 2006), with an additional 13 percent currently designing, prototyping or implementing their first SaaS application. Another 14 percent are planning to do so later in 2006 or in 2007. Given such strong adoption rates, Saugatuck expects continued strong provider growth over the next 18 months, especially among such leading and emerging SaaS application providers as Employease, NetSuite, PerfectCommerce, Right Now Technologies, and Salesforce.com.
Second, SMBs will lead SaaS 2.0 adoption (see Figure 1), after largely taking a "wait-and-see" attitude in the earlier part of this decade. Contrary to conventional wisdom at the time, Saugatuck's previous pay-as-you-go research found that large enterprises would be the most prevalent early SaaS adopters through 2005 - as many have sought to supplement existing enterprise applications, in addition to deploying point solutions. This latest research confirmed this trend, along with highlighting the "tipping point" toward accelerated SMB adoption 2006-2008. Most importantly, SMBs are now embracing SaaS for mission-critical workloads at twice the rate as large enterprises.
Third, due to the highly decentralized and fragmented procurement model of SaaS (often sold to business rather than IT buyers), Saugatuck found that most executives substantially underestimate current SaaS deployment and uasage, suggesting that the penetration rates noted above might be very conservative. Interviews with 40 U.S.-based user firms indicated that most executives at firms with greater than $1 billion in annual revenue initially believed that they had 3 to 5 SaaS applications deployed. Closer examination tended to reveal much greater SaaS presence, however. In fact, recent Sarbanes-Oxley compliance audits at two very large firms revealed that they had, respectively, 22 and more than 45 actively-deployed SaaS applications. Prior to the audits, they both believed that they had less than 10 actively deployed SaaS applications.
A new study from Saugatuck Technology, SaaS 2.0: Software-as-a-Service as Next-Gen Business Platform, shows that SaaS is at a fundamental "tipping point" between the current generation of software functionality delivered as a cost-effective service - or "SaaS 1.0" - and the emerging generation of blended software, infrastructure, and business services arrayed across multiple usage and delivery platforms and business models or "SaaS 2.0."
The move to SaaS 2.0 will bring with it new business trends and key points of caution for users and vendors alike.
What is the SaaS Shift?
Saugatuck research indicates that SaaS adoption has begun a pronounced acceleration, particularly among small to mid-sized businesses (SMBs). This acceleration coincides with the emergence of the SaaS value proposition that Saugatuck refers to as SaaS 2.0. Figure 1 below illustrates this confluence of SaaS adoption and evolution.
Figure 1: Software-as-a-Service Evolution
Source: Saugatuck Technology
While pundits similarly forecast rapid Application Service Provider (ASP) growth in the mid-to-late 1990s, hindsight indicates that the market was not yet ready for widespread adoption. Not only was the technology immature, with significant performance, security, customization and integration issues, but most user companies were not yet ready to buy mission-critical software as a hosted solution.
Further, the economics behind ASP single-tenancy models, including the lack of an aggressive on-demand, utility-style user environment, were just not compelling enough to tempt potential customers to make the leap to the new model in sufficient numbers to reach critical mass.
Three Cornerstones Support SaaS Adoption
Today, progress has been made across virtually every front. Saugatuck research and analysis indicates that SaaS is now entering a period of accelerated adoption, supported by three "cornerstone" business and technology factors.
First, the shift to SaaS 2.0 is being driven increasingly by the acceptance of SaaS as a viable software delivery model. User executives surveyed by Saugatuck indicate that 12 percent of U.S.-based companies have at least one major SaaS application installed (as of the first quarter 2006), with an additional 13 percent currently designing, prototyping or implementing their first SaaS application. Another 14 percent are planning to do so later in 2006 or in 2007. Given such strong adoption rates, Saugatuck expects continued strong provider growth over the next 18 months, especially among such leading and emerging SaaS application providers as Employease, NetSuite, PerfectCommerce, Right Now Technologies, and Salesforce.com.
Second, SMBs will lead SaaS 2.0 adoption (see Figure 1), after largely taking a "wait-and-see" attitude in the earlier part of this decade. Contrary to conventional wisdom at the time, Saugatuck's previous pay-as-you-go research found that large enterprises would be the most prevalent early SaaS adopters through 2005 - as many have sought to supplement existing enterprise applications, in addition to deploying point solutions. This latest research confirmed this trend, along with highlighting the "tipping point" toward accelerated SMB adoption 2006-2008. Most importantly, SMBs are now embracing SaaS for mission-critical workloads at twice the rate as large enterprises.
Third, due to the highly decentralized and fragmented procurement model of SaaS (often sold to business rather than IT buyers), Saugatuck found that most executives substantially underestimate current SaaS deployment and uasage, suggesting that the penetration rates noted above might be very conservative. Interviews with 40 U.S.-based user firms indicated that most executives at firms with greater than $1 billion in annual revenue initially believed that they had 3 to 5 SaaS applications deployed. Closer examination tended to reveal much greater SaaS presence, however. In fact, recent Sarbanes-Oxley compliance audits at two very large firms revealed that they had, respectively, 22 and more than 45 actively-deployed SaaS applications. Prior to the audits, they both believed that they had less than 10 actively deployed SaaS applications.
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