THINK IT Services

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.

In May, I blogged about “Silicon Valley’s first phone company” which was creating a new market opportunity for Software-as-a-Service (Saas) in the voice communications sector.

Today, BT announced its intention to acquire that “Telco 2.0″ platform company, Ribbit, for $105 million in cash. Not bad for a company which just closed a “small” B round of funding, according to the company executives I chatted with this afternoon.

This acquisition clearly demonstrates how far SaaS has come.

SaaS is no longer viewed as just a cheaper and easier alternative to traditional, on-premise applications. Instead, SaaS is becoming recognized as a way to fundamentally transform businesses processes and various industries, such as telecommunications.

My roots are in the telecom industry. I helped to launch IDC’s communications industry research program in 1983 at the time of the original AT&T divestiture. I also enjoyed my most satisfying and successful years in the ‘real-world’ working at International Network Services (INS) in the mid- and late-1990s, which helped incumbent and insurgent telecom companies deploy router-based networks to support a new generation of business applications.

I’ve always viewed BT as among the most visionary of the major telecom companies. It acquired INS in February 2007. It has built a strong working relationship with Microsoft as a hosting company and purveyor of their Software-Plus-Services.

At the time of BT’s acquisition of INS, I wrote in the Web Hosting Industry Review (WHIR) that SaaS could enable telecom companies to escape the commodity business of traditional transport services and create new, application layer opportunities.

BT boldly stated in today’s announcement that the Ribbit “acquisition will accelerate BT”s strategy to transform itself into a next- generation, platform-based, software-driven services company.”

BT not only gets an innovative company, it also gains inroads into the Salesforce.com world of AppExchange partners and its Force.com development platform.

In order to minimize the risk of ‘killing the golden goose’, BT plans to operate Ribbit as a separate subsidiary retaining its name and management team so they can continue to pursue the promise of a new generation of voice-as-a-service solutions.

Microsoft is finally recognizing the fundamental ways in which people’s lives and work-styles are changing, and it as a company and its technologies must respond to these changes.

Welcome to the world of Software-as-a-Service (SaaS)!

Live Mesh is Microsoft’s attempt to catch up to the Web 2.0 movement which has quickly evolved into an Enterprise 2.0 migration process in which a rapidly growing number of companies of all sizes are shifting their IT strategies from on-premise products to on-demand services.

This trend is being led by Salesforce.com and Google, and being supported by hundreds of other start-ups and established vendors, including Cisco Systems, Dell and EMC.

Salesforce.com and Google’s alliance which produced a new set of integrated services last week is the most recent challenge to Microsoft’s dominance in the workplace.

Cisco Systems has been talking about the melding together of network-centric business processes for years, and has elevated its vision of the market to include new collaboration opportunities to showcase its WebEx acquisition.

Dell is seeking to redefine how companies will manage their servers, desktops and other devices by leveraging web-based managed services.

EMC is repackaging its storage systems into SaaS solutions, led by its Mozy acquisition.

By coincidence, I attended Salesforce.com’s Tour de Force roadshow in Boston yesterday where Marc Benioff and a series of guest speakers spoke persuasively about the power of its Force.com platform. In order to make the point that its platform capabilities can appeal to any software developer in any type of business, the event speakers included:

• Cheryl O’Connor, Worldwide CRM strategy manager of Analog Devices.
• Narinder Singh, Co-Founder and CTO, Appirio
• Jeremy Roche, CEO, CODA

Microsoft is now trying to define this trend in its own terms. Conceptually, it is hard to argue with the company’s view that the world is changing. Its latest initiative goes beyone the “Software Plus Services” ideas it has been promoting for the past two years. Practically speaking, it will be interesting to see how far Microsoft is willing to go to respond to these changes, and how successful it will be convincing corporate and consumer customers that it has the right portfolio of web-based services to satisfy their changing requirements and preferences.

For years, I’ve been advocating that hardware and software vendors along with their channel partners and telecommunications carriers have the opportunity to leverage Software-as-a-Service (SaaS) solutions and managed services models to generate powerful benchmark statistics and produce valuable best practice studies that can enhance their customer relationships and strengthen their position in the market.

Today, TriActive and THINKstrategies published the first of a series of benchmark studies which clearly demonstrates this unique capability.

The study examines end-user software utilization patterns across over 125,000 endpoints in 460 companies managed by TriActive’s Asset Management Suite™. The study found many companies where Microsoft Office installations are underutilized or not used at all. This means that many companies have more software licenses than necessary or have purchased higher than necessary versions of the software to meet their needs.

Based on this actual software utilization data, the study found that many companies can save 50% or more on their Microsoft Office software licensing costs by better matching their purchases to actual useage levels.

Ironically, many of the companies studied had deployed TriActive’s Asset Management Suite via managed service providers (MSPs) and value-added resellers (VARs) because they were concerned that they may have illegal copies of Microsoft software in their businesses and expected to have to ‘true-up’ to ensure they were in compliance. Rather than pay more, many of these companies will actually experience significant cost-savings as a result of TriActive’s Asset Management capabilities and findings of this study.

The TriActive-THINKstrategies study illustrates the power of today’s SaaS-based managed services not just as a more economical method of managing IT operations and tracking real software utilization, but also as a means of delivering a new level of value to customers.

Having helped launch META Group’s (remember them?) benchmarking practice in the 1990s, I’ve had first-hand experience grappling with the costs and complexities of traditional benchmark methodologies which too often failed to generate meaningful information or insight.

In contrast, today’s SaaS solutions permit service providers (xSPs) and channel companies to obtain actual useage statistics that can provide actionable data for individual companies and powerful perspective for a broader community of customers.

While I was running International Network Services’ (INS) strategic marketing group in the late 1990s, we launched an industry research program which generating survey findings and gave us tremendous visibility in the market that catapulted INS to the top of Yankee Group and UpSide Magazine’s leading IT consulting company list in 1999–above Anderson Consulting, CSC, EDS, HP and IBM. That designation led to INS being acquired by Lucent for 12 times revenues or $3.7 billion, the most ever paid for an IT services company and surpassing what IBM paid for PWC Consulting. (INS is still doing its industry surveys as a part of BT today.)

Innovative SaaS and managed service providers can achieve even greater thought-leadership and win greater mindshare today by capturing and compiling valuable activity data through their ongoing interaction with customers. They can utilize this data and analysis to better serve their customers and better position themselves in the market.

I look forward to working with more companies who recognize this exciting opportunity. Contact me if you want to discuss this opportunity further.

With the Software-as-a-Service (SaaS) event season in full throttle, I’ve found myself consulting with a new generation of aspiring SaaS players who are trying to learn about the fundamentals of this rapidly evolving marketplace quickly so they can respond to changing customer requirements and capitalize on new market opportunities.

Starting with SoftLetter’s SaaS Sales and Marketing Seminar in Atlanta which has been upgraded to the SaaS University for Waltham, MA in June, and continuing with OpSource’s SaaS Summit last month in San Francisco, a widening array of incumbent software vendors (ISVs) and old-line technology vendors have approached me seeking help in their efforts to join the SaaS movement.

Some of these companies have lived well for years in niche markets, others have enjoyed cashcow businesses at a mass market level with hardware-based solutions. Now they see a combination of market forces fundamentally changing their worlds and they are trying to transform their business models quickly to respond to a rapidly changing competitive landscape and customer preferences.

Although established SaaS companies clearly understand the differences between the old and new worlds of on-premise software products versus on-demand software services, these new arrivals are still learning about the challenges, as well as opportunities associated with SaaS.

What all of these companies have in common is that they can’t afford to discard their legacy software business in order to capitalize on SaaS opportunities. Instead, they must adopt a hybrid strategy that can support the needs of their existing customers while satisfying the changing expectations of a new generation of software user, without ripping themselves apart in the process.

What these companies are learning is that living in a hybrid world requires two different approaches to software development and delivery, two different go-to-market strategies, two different sales and marketing methodologies, and two different types of personnel.

Agile development replaces the long upgrade cycles of the past. Hosting replaces packaging issues when it comes to software delivery. Online marketing and telesales are more important than direct sales or traditional resellers. And, business-oriented customer support becomes essential rather than tech support to ensure customer loyalty and reference-ability.

Underneath these tangible differences is the more fundamental and subtle differences in attitude between the on-premise and on-demand worlds. In the old world, making the software work was the customer’s problem. The customer bought the software before they were sure it worked, hired the consultants and staff to get it up and running, bought the infrastructure to properly support it, and notified the vendor if something went wrong or they needed more help.

In the new world, making the software work is the SaaS provider’s responsibility. The customer can try it before they subscribe to it. They don’t have to hire additional staff or purchase more servers. They may still hire a few consultants to help with a smaller assortment of deployment issues, or to help with change management and training requirements. And, the customer expects the SaaS provider to keep the software service up and running, and continuously enhance it.

Can traditional software and technology vendors straddle these two worlds?

I think the answer for many of these vendors must be the same as the famous line in the movie Apollo Thirteen, “Failure is not an option.”

The big ISVs–Microsoft, Oracle and SAP–have the deep pockets to finance this balancing act. Other ISVs like Business Objects and Callidus Software are also demonstrating that hybrid models can work.

The smaller firms will have to make sacrifices in order to traverse this transition process. Many are fortunate that they are privately-held companies that don’t have to satisfy Wall Street’s short-term time horizons, especially in today’s frantic economic climate. Others are equally fortunate to have a loyal installed base of customers who will patiently work with them to ensure that the migration process is successful.

But, in each of these cases there will be plenty of potential landmines which will require careful planning and cautious execution. Thoroughly understanding these potential pitfalls will be essential if these new SaaS players are going to succeed in the on-demand marketplace.

Last week’s OpSource SaaS Summit was a milestone event for the on-demand services market on a number of levels.

The first SaaS Summit in Silverado in 2006 was a gathering of industry pioneers to discuss the potential of the on-demand movement. Last year’s Summit in Monterey was an opportunity to celebrate the growing success of the SaaS movement. This year’s Summit offered a chance to take stock of what it will take to scale SaaS to meet the needs of the mainstream market. The theme was platforms and web services, but the event also raised other issues.

With over 600 registered attendees, this year’s SaaS Summit was the largest vendor-oriented conference focused entirely on the rapidly growing Software-as-a-Service (SaaS) market to date. While Salesforce.com’s Dreamforce user conference is still the biggest SaaS event of all, OpSource’s SaaS Summit has represented the benchmark for vendor-oriented conferences since its inception in 2006.

This year’s Summit marked the first time that many of the leading names were overshadowed by lesser known players with far more compelling messages.

Microsoft’s General Manager of U.S. ISV and System Integrator Partner Businesses, Greg Urquhart, outlined the company’s SaaS enablement capabilities but did little to convince the conference attendees that Microsoft is committed to quickly delivering its own SaaS solutions.

By the same token, Salesforce.com’s President and Chief Customer Officer, Jim Steele, wasted an opportunity to convince the Summit attendees that Salesforce.com is a leader in the rapidly evolving cloud computing market by dwelling too long on the basic virtues of SaaS.

Everyone I spoke with at the Summit agreed that it was Josh James, Co-Founder and CEO of Omniture, who stole the show. James provided an engaging and enlightening presentation about the factors which have led to the phenomenal success of his company. James provided valuable information and insight, punctuated by a key takeaway that every successful company should have a ‘number’ that drives its growth. In the case of Omniture, it is a monthly statistic based on a formula calculating sales growth specifically for its web performance metrics business.

I was privileged to moderate a panel of journalists that concluded the Summit. The panel consisted of Eric Knorr, Editor – Infoworld, John Pallatto, West Coast News Editor – eWEEK.com, Ben Worthen, Staff Reporter – The Wall Street Journal, and Aaron Ricadela, Writer – BusinessWeek. These prominent business and tech industry writers offered their candid perspectives regarding the state of the SaaS market and the key obstacles that must be overcome in order for SaaS to become truly mainstream.

Ironically, Forrester Research issued a new report prior to the Summit suggesting that the SaaS market will cool off in the small- and mid-size market in 2008. A drop in the rate of growth is conceivable because of the law of big numbers, but is unlikely because there are so many vertical and horizontal market segments still to be addressed.

As is often the case, the real value of last week’s SaaS Summit was the opportunity it gave attendees to network with their peers and get a reality check about industry best practices from informal discussions rather than formal presentations.

My guess is next year’s SaaS Summit will be far bigger someplace in Vegas and we will be discussing an even broader array of business opportunities and challenges.

In the meantime, this month’s SaaScon user-oriented event will be the next opportunity to gauge the state of the SaaS movement.

Until then, we should all be thanking OpSource for making the SaaS Summit possible and using it to help drive the success of the SaaS industry.

Google made two announcements this week which received limited attention because they had been anticipated for some time. Nonetheless, these two new offerings will still have an impact on the Software-as-a-Service (SaaS) and managed services markets.

Google’s first announcement unveiled a series of security “products” based on the email message filtering, encryption and archiving capabilities Google acquired when it purchased Postini. Although Google refers to these offerings as products, they are being sold on a subscription service direct to customers or via channel partners who can package these capabilities into managed services.

Google’s objective when it acquired Postini was to fortify its messaging and archival capabilities so it could appeal to a broader cross-section of business customers, especially large-scale, publicly traded enterprises who are facing stricter compliance requirements. Google’s new Message Filtering, Security and Discovery offerings provide a solid, yet simple and economical solution to respond to these demands. Anyone who doubts the scalability of these capabilities should note that Postini’s solutions are already being used by nearly 40,000 customers and 14 million users a day.

These new offerings represent a double-edge sword for managed service providers (MSPs). Google’s growing role in the delivery of managed security services helps to validate this business and should expand the market opportunity. But, it also raises the bar by lowering the price points for these services. MSPs must demonstrate how they add value if they are going to compete against Google’s lower cost services.

Google also unveiled its new Apps Team Edition for business customers and schools. This new suite of free applications are clearly aimed at dislodging Microsoft Office as the de facto standard for business solutions. Not only is Google challenging one of Microsoft’s cash-cows from an economic standpoint with its free offerings, it is also challenging Microsoft Office by emphasizing the greater collaborative qualities of its web-based apps.

Google has also borrowed a best practice from Apple and other technology leaders who have learned that the best way to win marketshare is by targeting customers when they are young. And, the best place to gain their attention is in the schools. It is no accident that Google emphasizes the benefits of Apps Team Edition for both business users and students in this week’s announcement.

Google has also established a clear service roadmap that enables users of this new suite of free services to easily upgrade to Google Apps Standard, Premier or Education editions which include administrative controls for setting access and sharing options, business integration capabilities and 24/7 support, including phone support.

So, while Microsoft is seeking to usurp some of Google’s power in the online search world with its proposed acquisition of Yahoo!, Google is escalating its efforts to undercut Microsoft’s dominance in the productivity software market.

Rather than view this escalating battle as a parlor game, aspiring SaaS vendors and MSPs as well as IT/business decision-makers should pay attention to how Google and Microsoft’s moves are reshaping the software and services markets. There are many lessons to be learned from their maneuvers and new market/sourcing opportunities that can be capitalized upon.

Microsoft’s proposed acquisition of Yahoo has gained plenty of attention because of its blockbuster pricetag and obvious attempt to blunt Google’s success in the online search advertising business.

However, I think the acquisition also has significant implications for the future of on-demand services. Yahoo’s popular portal will certainly be a great new channel to market for Microsoft’s on-demand games and Zune entertainment initiatives.

I’ve also been saying for the past two years that Yahoo and other major online outlets will become the new channels to market for Software-as-a-Service (SaaS) solutions and managed services. This is because many corporate customers are gaining confidence in SaaS and managed services as a viable alternative to traditional on-premise products result of their overall comfort with consumer-oriented on-demand services like Amazon, eBay, YouTube and iTunes. This consumer to corporate buyer crossover makes Yahoo an appealling outlet for on-demand business services.

Yahoo has been offering services to small businesses for a number of years that help them “Get Online”, “Sell Online” and “Market Online”. While these services only include simple hosting and email today, they could easily be expanded to include a broad array of SaaS business applications and a broader set of managed services powered by Microsoft and its ISV partners.

Leveraging the Yahoo portal as a channel to market for Microsoft’s “software plus services” solutions and partner offerings built on Microsoft’s platform would give them greater visibility to a broader audience of potential customers.

However, this assumes two things:

1. Microsoft has to successfully acquire and integrate Yahoo into its corporate structure and culture. Although no definitive data exists, most studies suggest that 50-80% of corporate acquisitions and mergers fail to achieve their original business objectives. This is especially true with mega-deals that place big bets on producing a strategic impact for the companies involved and more often create a major disruption in their operations.
2. Microsoft has to convert its “software plus services” strategy into a real portfolio of competitive offerings. Although Microsoft can make a compelling case for customers extending the functionality of its current products via web-oriented extensions, a growing proportion of businesses are looking for true web-based solutions that eliminate the hassles and inherent shortcomings of premised-based applications. Microsoft’s current strategies and solutions do not recognize these changing attitudes or satisfy customers raising expectations.

Unless Microsoft can overcome these challenges, it will not be able to fully capitalize on the Yahoo acquisition.

Salesforce.com rolled out its Force.com Software-as-a-Service (SaaS) enablement platform last week after plenty of fanfare at its Dreamforce conference in September. The launch of the platform has sparked a new round of debates regarding the merits of Salesforce.com’s application development toolkit and its service delivery capabilities.

I’ve said many times in this blog and elsewhere, there is no more important or innovative player in the SaaS market than Salesforce.com. Every SaaS user and SaaS provider owes a debt of gratitude to Marc Benioff and Salesforce.com for pioneering the on-demand software services market and setting the standard for enterprise-class SaaS solutions.

While some elements in Salesforce.com’s strategies and solutions can be criticized as self-serving or ineffective, the company’s overall impact on the growth of the SaaS market cannot be denied.

Salesforce.com has set the bar for designing simple yet effective web-based business applications. It has shown how business applications can replicate the simplicity of popular on-demand services, while proving that SaaS can still meet the rigorous requirements of today’s corporate compliance regulations. It has also devised successful sales strategies for selling these applications to business end-users rather than IT departments.

Salesforce.com could have easily kept these accomplishments to itself in order to build its lead in the SaaS market, but wisely recognized that its long-term success depended on its ability to build an ecosystem of third-party applications and services around its core offerings.

This is the same strategy which has made every software company before it successful, including Microsoft, Oracle and SAP. These companies, and others, built their ecosystems and expanded their market penetration by making it easy for third-party developers to build applications on their software architectures. That is exactly what Salesforce.com set out to do with its AppExchange and is now extending with its Force.com platform.

Others may bicker about the iterative way in which Salesforce.com has evolved its platform capabilities and branding strategy from its AppExchange roots to its current Force.com form. But, what other company has created the same runway for SaaS solutions?

When it comes to SaaS platforms and partner ecosystems, the established players are still getting their acts together. Microsoft is a work in progress. Google is an enigma. Oracle is seen as primarily a database company. And, IBM is primarily good for middleware and hosting services. But, none has created a comparable set of platform tools and partner programs to match Salesforce.com.

Disclosure: Salesforce.com commissioned me to produce whitepapers regarding the Force.com and AppExchange.

Since the holidays are traditionally a time for people to take stock of the year past and offer their new year forecasts, here are my top ten predictions why the shift from packaged products to Software-as-a-Service (SaaS), utility computing and managed services will accelerate in 2008:

1. Services are Recession Proof: Escalating oil prices, the uncertain political landscape and faltering financial institutions beset with the aftereffects of the sub-prime lending debacle could mean a tough year for the economy. In this tenuous climate, consumer and executive confidence could decline, leading to an economic slowdown. As a result, many companies could hold back on their capital investments to mitigate their risks. The ability to adopt on-demand services on a pay-as-you-go basis will be a perfect sourcing strategy for businesses seeking greater cost-controls and flexibility.

2. Everyone’s Going Virtual: Most industry pundits and participants view virtualization as a technology trend, but it is also a business trend. Employees are increasingly working outside the four walls of a traditional office. Gen Y workers are always on the move and online. Traditional, on-premise applications and centralized servers sitting behind a firewall can’t effectively serve today’s mobile workers. SaaS and managed services are perfectly suited for these new, virtual business requirements.

3. Amazon, IBM and Google Bet on Utility Computing. After experimenting with its Elastic Compute Cloud (EC2) for the past year, Amazon has found plenty of demand for its computing power on-demand platform from startups, as well as established companies seeking a ‘sandbox’ for their new initiatives. Amazon is now confident it can deliver its computing power in a reliable and cost-effective fashion to a broader market of business users. So, expect more aggressive PR and marketing efforts to promote and sell this powerful utility computing service.

IBM Blue Tune: IBM originated the term on-demand and then walked away from the utility computing market seeking new opportunities among the avatars. When Amazon proved that the utility computing concept could become a reality, IBM repackaged its autonomous computing ideas in the form of a new ‘blue cloud’ initiative. Big Blue will push the idea hard in 2008.

The GooglePlex Makes It Move. Google is tired of sitting on the sidelines while Amazon’s success and IBM’s new ‘blue cloud’ initiative, Google has initiated a PR campaign to promote its ‘cloud’ computing capabilities and strategies. The GooglePlex has long been considered the prototype for a new large-scale computing architecture. Now Google’s incredibly scalable and economical computing engine is getting the attention of business pubs like BusinessWeek, the Wall Street Journal and other mainstream pubs.

4. Nick Carr Returns: In truth, he never left us. It was Carr who gave utility computing a major push with his seminal article in the Harvard Business Review and follow-on book questioning whether IT mattered. Despite venomous criticisms from many IT pubs and professionals, Carr became a popular speaker at corporate events because his message resonated with business executives and end-users. Now, he is putting the finishing touches on his second book, The Big Switch: Rewiring the World, from Edison to Google, which will be published on January 7, 2008. Although IT folks love to hate him, Carr has never lost his luster among corporate executives and end-users who agree with his basic premise that IT is a needless hassle and should be as easy as electricity and as reliable as a utility.

5. SaaS Solves SOX: A year ago, most publicly traded companies and other large-scale enterprises rejected the idea of SaaS because they thought they needed to take greater responsibility for their own compliance requirements. Now, they view the process controls, auditability and offsite hosting features common in most SaaS applications as a perfect solution for their Sarbanes-Oxley (SOX) needs. As a result, enterprise adoption of SaaS will accelerate.

6. Managed Services 3.0, Unified Communications Services and Service Automation: In the 80s, managed services were really outsourcing agreements offered by carriers to their largest corporate customers. In the 90s, a new generation of standalone MSPs promised managed services for SMBs. Neither model succeeded.

Today, we are entering a new age of managed services. Managed Services 3.0 combines the experience of the past with powerful new technologies to respond to growing customer demand. Cisco Systems will be pushing its IP communications and WebEx capabilities hard, while Microsoft promotes the virtues of its various “software plus services” solutions. The two are on a collision course in the unified messaging and communications market, but that will mean that they will each spend plenty on market education and channel sales programs.

At the same time, Dell will be leveraging its SilverBack Technologies and Everdream acquisitions to deliver a new set of automated, remote desktop and server management capabilities through channel partners and direct support services. Expect to hear more from HP and others.

7. Carriers and Channel Companies Find Success With New Services: Carriers have been perplexed about how to package, price and promote profitable managed services. VARs have been afraid that SaaS would ‘dis-intermediate’ them by eliminating their consulting and custom application development business. Carriers now see an opportunity to deliver an integrated package of IT managed services and SaaS business solutions to add value to their commoditized dial-tone services. Channel companies are also discovering that there are still consulting and customization opportunities in the SaaS market. As a result, carriers and channel companies will lend their marketing and sales support to managed services and SaaS.

8. Failure Doesn’t Matter: NaviSite suffered an extended outage in November and the on-demand services movement didn’t miss a beat. The trade press is now looking for horror stories rather than success stories regarding SaaS and managed services, but the vast majority of stories have been positive. In fact, my third annual SaaS survey in conjunction with Cutter Consortium found 100% satisfaction among the companies currently using on-demand software services. The upcoming SaaScon conference will highlight some of these customer success stories. THINKstrategies will also spotlight these stories throughout 2008.

9. IT Discovers Services are the Solution: In the past, the IT department was the biggest barrier to managed services and SaaS adoption. Many IT professionals were afraid these on-demand solutions would eliminate their jobs. Now, a growing proportion of IT people see managed services and SaaS as a way to out-task mundane work or overcome complex application/technology deployment and maintenance responsibilities. As they learn to take advantage of these on-demand solutions, IT departments will finally be able to put their daily firefights aside and focus on addressing the strategic needs of their business users.

10. Wall Street Buys Into Services: Some of the most successful IPOs of 2007 were in the SaaS market. Wall Street loves the predictability of subscription services and now that it has a solid set of market ‘comps’ to measure business success in the services market, it will be encouraging more privately held companies to go through the IPO door. At the same time, private equity funds will be encouraging publicly traded software companies to go private to enable them to shift to a SaaS model without the public market pressures. And, the investment bankers will be pushing a wide array of M&A activity. Expect the offshore IT/business process outsourcers (IT/BPO) and business services companies to buy SaaS vendors. Look for more consolidation in the managed services market.

Bonus Driver of Services Growth in 2008: THINKstrategies will be expanding its consulting and marketing programs aimed at educating IT/business decision-makers about the benefits of on-demand services, and continuing to help software and technology providers develop and deliver successful service solutions. Stay tuned to the SaaS and Managed Services Showplaces for more information and insight about these new programs and features.