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The Software as a Service Paradigm Shift—Did You Catch It?

Software-as-a-Service isn’t just a fad. If market watcher Gartner is to be believed, it’s a full-bore paradigm shift

• By Stephen Swoyer
• October 25, 2006

Software-as-a-Service (SaaS) isn’t just a fad. If market watcher Gartner Inc. is to be believed, it’s a full-bore paradigm shift. That’s the upshot of a recent study from Gartner, which found that even though SaaS offerings generated only about 5 percent of software revenues in 2005, they should account for a far larger share in the future. By 2011, Gartner projects, 25 percent of new business software will be delivered by means of SaaS.

This could have enormous ramifications for business intelligence (BI) vendors, only a few of which—Informatica Corp., Business Objects SA, Celequest Corp., and Salesforce.com, for example—have fully embraced SaaS.

“As SaaS became a viable delivery model from 2000 to 2003, most providers supplied ‘good enough’ functionality with core configuration capabilities. SaaS and solving business complexity were two phrases not associated with each other,” said Gartner research vice president Robert DeSisto, in a statement. “The trend has clearly begun to change. For example, SaaS providers are enhancing their software functionality and improving the ease with which companies can customize… SaaS software to meet business requirements."

Not surprisingly, Gartner finds, SaaS adoption tends to vary by market segment. SaaS CRM, for example, is a visible success story, with a host of competitors—Oracle offers an On Demand SaaS flavor of its Siebel CRM, for example—vying with on-premises vendors for market share.

At the end of 2005, SaaS-based revenues accounted for 8 percent of all CRM software expenditures, with fully 10 percent of CRM users adopting SaaS offerings. This year, Gartner projects, that total could rise to 12 percent. On the other hand, Gartner points out, some SaaS markets—such as those for ERP and supply chain management—typically have less than four percent adoption.

“The majority of SaaS deployments continued to be focused in individual departmental initiatives, such as sales force automation, except in small and medium size businesses,” DeSisto continued. “In SMBs, we are beginning to see vendors provide capabilities to support more end-to-end processes, such as opportunity to order and in integration as a service where companies are already using SaaS for large projects. However, no provider offers the functionality capability or process management capabilities on par with on premises software to support end-to-end cross departmental business flows.”

Over the last year, especially, SaaS BI has slowly picked up steam. Big name vendors, such as Business Objects (which announced a hosted version of its ubiquitous Crystal Reports software), Informatica (which notched a deal with Salesforce.com to offer hosted integration services and announced plans to SaaS-ify its integration stack), have gotten SaaS fever. Elsewhere, established BI players – including Celequest (which announced a SaaS-ified version of its LAVA dashboard appliance), and Visual Mining Inc., have introduced SaaS offerings, too. Finally, several start-ups—including Oco Inc., Ketera, and others—have foregone the on-premises market entirely to launch SaaS offerings.

Call it a case of good timing. As SaaS goes mainstream, Gartner says, the mechanics of its adoption will also change. Over the last few years, for example, line-of-business leaders have typically spearheaded the push for SaaS adoption. Increasingly, Gartner suggests, IT will take a leading role in SaaS roll-outs.

“The limited central IT involvement is changing as the IT organization realizes that SaaS solutions are here to stay and that they must look to leverage the upside potential of these approaches, rather than see them as a threat to their existing modus operandi,” DeSisto said. “Line-of-business leaders and central IT should be involved in the selection process and then in the ongoing management of a SaaS contract. Having both parties represented leads to better initial decisions being made and to more efficient, effective ongoing management.