THINK IT Services

THINKstrategies’ fourth annual Software-as-a-Service (SaaS) customer survey, in conjunction with Cutter Consortium, revealed that 63% of the responding organizations are using a SaaS solution, almost double the 32% who were using SaaS solutions in 2007!

Over the past four years, THINKstrategies and Cutter have been charting the growth of the SaaS market with a series of yearly customer surveys. Our surveys were the first to find widespread interest and substantial adoption of SaaS in 2005.

In 2006, we began to see businesses of all sizes adopting SaaS solutions specifically designed to meet their vertical market needs, as well as their horizontal application requirements.

In 2007, we found customers were beginning to examine the platform capabilities of SaaS vendors as they sought to identify those vendors that could serve as strategic sources for their SaaS requirements. We also found growing acceptance of SaaS solutions by IT professionals who were beginning to adopt SaaS solutions to help them better manage their IT operations.

This year, our vanguard research has uncovered a new round of important market trends that have implications for IT and business decision makers, SaaS providers and independent software vendors (ISVs), channel companies, integrators, and investors. In addition, our survey found customer satisfaction has risen to a whopping 97% of responders!

Click here to obtain the first of a series of three Executive Update reports based on our latest SaaS survey results. Contact me if you’d like to discuss the implications of our findings on your company, or to learn more about our services aimed at helping companies capitalize on SaaS to achieve their business objectives.

One of the topics which leading Software-as-a-Service (SaaS) vendors and industry analysts are most vehement about is that software vendors cannot survive and succeed supporting a ‘hybrid’ model.

This issue arises every time an incumbent software vendor–my definition of a “ISV”–rolls out a SaaS solution while also trying to sustain its legacy, on-premise application. There are plenty of impediments to success in this balancing act across the entire lifecycle of a product extending from software development and delivery to sales and support. These technological and organizational challenges are major obstacles to success for ISVs trying to keep pace with the SaaS movement.

However, despite growing interest and adoption of SaaS as well as other ‘cloud’ computing alternatives among organizations of all sizes, many IT and business decision-makers continue to feel that they must make an ‘either/or’ judgement when it comes to on-premise versus on-demand solutions. This often confronts with an unnecessarily polarized set of options rather than giving customers a variety of complementary choices that enable them to locate their applications wherever they like.

I believe that this no longer needs to be the case. Instead, I think SaaS and cloud computing vendors should adopt a different attitude toward the hybrid model to better respond to their customers’ preferences. If vendors adopt this new approach, it could remove one of the last barriers to broad-based acceptance of SaaS and cloud computing among small- and mid-size businesses (SMBs), as well as large-scale enterprises.

As I’ve written, and many others have stated elsewhere, building and selling a traditional software product is fundamentally different than delivering and supporting a SaaS solution. Supporting these two differing models creates internal redundancies and external conflicts which are costly, inefficient and doomed to failure in most cases.

Having said that, I’m becoming convinced that some ISVs can survive and will succeed by offering customers the choice of an on-premise and on-demand solution. In fact, I think it will be necessary to do so in order to satisfy the demands of those customers who are not comfortable with relying on a ‘cloud’-based solution to meet their IT or business needs.

While customer concerns about where a software solution, or even the application data, resides may not be entirely rational at times, it may not be necessary in the future for ISVs to have to convince them to part with their data or depend on an application hosted in an unknown location.

Instead, a variety of players in the SaaS and cloud computing market are leveraging an ‘appliance’ approach which permits customers to deploy the vendor’s on-demand solution behind the firewall where it is regularly updated and upgraded via a synchronization process similar to that which has become acceptable in a variety of other situations, such as managed storage, back-up and security services. It is also becoming possible with Google Docs offline and Adobe Air.

This idea is already being demonstrated by companies like Cast Iron Systems in the data integration arena; NTRglobal in the remote support management services business; and St. Bernard in the security solutions realm.

Although none of these companies are delivering major enterprise applications, they are all offering customers the choice of deploying their equally important solutions in the ‘cloud’ or behind the firewall.

And, if Google, IBM, Microsoft and others can modularize their data center capabilities into ‘pods’ which can be deployed anywhere, what is to prevent Salesforce.com or other enterprise SaaS vendors from doing the same thing with their applications.

(I’ve been hearing rumors for a while that Salesforce.com is already allowing some of its largest customers to host its applications behind the firewall.)

Now, it is important to note that this approach still requires an ISV to evolve its software design to sit on a single multi-tenant style architecture and code base in order to be operationally feasible and cost-effective.

But, the enabling technologies are quickly evolving to satisfy these requirements. And, customer demand definitely exists to make this approach readily acceptable and profitable.

Let me know if you think I’m crazy or if you know of other examples which support my argument.

I had the privilege of being a columnist for the Web Hosting Industry Review (WHIR) for nearly three years from its inception in 2004 to mid-2007. (Click here to read these columns.) During that time only a handful of hosting companies saw the potential of the rapidly evolving Software-as-a-Service (SaaS).

The majority of those hosting companies who saw the SaaS market opportunity primarily focused on pushing their managed services and co-location capabilities. OpSource was the first to recognize a broader set of business opportunities and became a thought-leader in the industry offering a wider array of services, augmented by set of third-party technologies.

Other hosting companies may have been generating greater revenues from independent software vendors (ISVs), but didn’t pursue the broader array of business opportunities associated with SaaS. As a result, OpSource won the lion share of industry attention and ‘mindshare’.

Now that the SaaS and wider ‘cloud computing’ movement is accelerating, a growing number of hosting companies are focusing their attention on this market. Their escalating efforts to prove that they are viable suppliers of SaaS enablement services is not only being driven by the exponential growth of the SaaS/cloud computing market. It is also being driven by the emergence of various ‘platform’ vendors who are promising a similar set of hosting and service infrastructure capabilities.

SAVVIS unveiled a new SaaS enablement program yesterday and it has come with a new twist. In addition to offering a set of Core Infrastructure Services and full range of Lifecycle Services, SAVVIS is seeking to differentiate itself in an increasingly commoditized hosting industry with a new “Marketplace” which promises to give ISVs access to its larger population of enterprise and ISV customers. In essence, SAVVIS is offering to be a channel to market for its SaaS ISV customers in addition to being their enablement partner.

The marketplace idea can also benefit SAVVIS’ enterprise customers who can gain access to an assortment of SaaS solutions which can help them address specific business requirements and achieve their corporate objectives.

I’ve been suggesting this idea to a number of hosting companies over the past year and will be interested in seeing how well SAVVIS is able to deliver this new level of value to its customers.