THINK IT Services

A year ago, I published a series of 10 predictions regarding how the Cloud Computing marketplace would evolve in 2011 in E-Commerce Times. Here’s a recap and assessment of my predictions:

1. The Cloud Computing market will grow more rapidly than analyst firms forecast as organizations move from asking “what is Cloud and why is it important” to “where and how can I capitalize on the Cloud today.”
   • I think I did ok on this one, although there remain plenty of organizations who are still trying to define the Cloud and determine why they should seriously consider employing it.
2. This accelerated growth will occur despite a major cloud computing service disruptions and/or significant security infractions, which will heighten customer concerns but won’t discourage wider adoption.
   • This certainly was the case as we watched Amazon’s Web Services (AWS) crash, jeopardizing numerous start-ups and other companies dependent on its Cloud capabilities, yet failing to dissuade more businesses of all sizes to adopt AWS and other Cloud services.
3. A wider array of appliances and applets will be offered by a growing number of Cloud vendors, which will permit users to “download” the functionality they need so they can work offline or deploy cloud-based solutions behind the firewall to satisfy their reliability and security concerns.
   • This wasn’t as prominent a trend as I expected. However, salesforce.com did acquire Navajo Systems, an Israeli-based startup with unique encryption capabilities that are the basis of salesforce.com’s new Data Residency Option (DRO) that permits users to retain control of their data behind their firewall, which could exponentially expand the addressable market for Cloud vendors.
4. Community clouds aimed at specific vertical markets and supply chain relationships will become more prevalent, as various organizations recognize the value of sharing cloud resources and services with their peers.
   • Although the number of community clouds grew in 2011, they didn’t proliferate as much as I expected as most organizations focused their attention on more binary public vs. private cloud alternatives. 
5. Corporate decision-makers will shift their focus from reliability, security and integration concerns to strategic and tactical governance issues, ranging from planning, selection, deployment, monitoring and evaluation to optimization and monetization of cloud initiatives.
   • This trend was more subtle because most corporate decision-makers continue to have serious reliability, security and integration concerns about the cloud, but are also developing corporate policies and procedures to govern their planning, selection, deployment, monitoring and evaluation processes.
6. The rate of cloud company failures and M&A activities will escalate as many startups are unable to keep pace with rising customer expectations and intensifying competitive pressures, and established players attempt to accelerate their development efforts via acquisitions.
   • The magnitude of the Cloud movement permitted the vast majority of startups and established players to prosper. M&A activity has escalated as the year has gone along, capped off with SAP’s acquisition of SuccessFactors, Oracle’s purchase of RightNow and salesforce.com’s recent Rypple buy.
7. Vendors that provide cloud integration tools and professional services, in particular, will be key acquisition targets because they represent a critical component in pulling the various cloud piece-parts together. The acquisitions of Cast Iron Systems and Boomi are just the beginning on the tools side. Consolidation among cloud integration service firms will occur in the coming year.
   • A series of acquisitions by Appirio were the clearest example of this trend on the professional services side of the integration world. But, the number of Cloud integration and consulting companies continues to increase in response to growing demand. The lack of integration tool vendor acquisitions was a bit of a surprise.
8. Social networking will become a required component of enterprise applications, driven by the success of Salesforce.com’s Chatter. By offering Chatter free to a broader population of end-users within its existing accounts, Salesforce.com is not only raising the bar for its direct competitors, but also expanding and redefining its role within the enterprise.
   • Salesforce.com’s intensive marketing campaign promoting the virtues of the ‘Social Enterprise’ have brought broader attention to this idea. It has not only forced other Cloud vendors and established players to promote their social networking capabilities, it helped fuel Jive’s IPO.
9. Datamarts will become a cornerstone of a new generation of cloud-based Data-as-a-Service (DaaS) and Business Process as a Service (BPaaS) solutions, as well as industry benchmark services.
   • Salesforce.com rebranded Jigsaw as Data.com and unveiled Database.com, but examples of BPaaS didn’t get as much attention because they are taking shape within specific vertical markets.
10. New channel programs will be introduced, new channel partners will emerge and new revenue streams will be established. Ironically, the leading cloud vendors — such as Amazon, Google and Salesforce.com — will continue to have the toughest time building successful channel programs because of their direct sales heritage.
    • The success of THINKstrategies’ first Cloud Channel Summit is an indication of the level of interest in building successful partnerships in the Cloud. Although, channel executives from Amazon, Google and Salesforce.com were prominent speakers at this event who have made significant progress with their channel development programs, they all readily admit they are still searching for the right formula for success.

For years, a variety of industry analysts and bloggers have suggested that SAP jumpstart its Software-as-a-Service (SaaS) and broader Cloud initiatives with a major acquisition, such as SuccessFactors. Today’s news that SAP will buy SuccessFactors for $3.4 billion shows that the company’s executives have finally admitted that they can no longer rely on internal development and organic sales efforts to gain a meaningful share of the rapidly growing SaaS/Cloud marketplace.

I can’t say that I’ve been among those advocating this type of bold move because I’ve been a part of a similar acquisition which failed to achieve its strategic objective, and I’m not convinced that SAP will be able to transform its business through this transaction.

Back in 1999, I worked for a fast-growing network professional services company, called International Network Services (INS), which was acquired by Lucent Technologies for $3.7 billion, or 12x revenues! Lucent’s goal was to transform the telco equipment vendor into a multidimensional services provider, like IBM’s Global Services unit. INS’ leaders were given responsibility to run Lucent’s services business in hopes they could reinvigorate the unit and gain market leadership. Despite all the grandiose promises made at the time of the acquisition announcement, deeply rooted corporate politics and a corporate culture which discouraged innovation within Lucent conspired to bury INS’ strengths. As a result, the acquisition couldn’t help Lucent avoid an inevitable death spiral which it never recovered from, and the INS unit was divested three years later for a penny on the dollar.

Today’s announcement states that SuccessFactors’ CEO and Founder Lars Dalgaard will assume responsibility of SAP’s SaaS and Cloud business, and SuccessFactors will continue to operate as an independent business unit. While both these moves are the right way to go for SAP, my guess is that a year from now the luster will be off the rose and many of SuccessFactors’ key executives and employees will be gone when their payouts are fulfilled or the SAP’s politics have driven them out to find new opportunities elsewhere.

This is not an indictment of SAP in particular, but a law of nature in general. There have been few corporate transformations in any industry, especially in the tech sector, fueled by bold acquisitions. Young, aggressive companies don’t fit well into old, entrenched companies. Executive and employee motives, and corporate policies and politics differ too severely to mix well. For example, you can bet many of the key personal at RightNow will also disappear from Oracle a year from now as many of their predecessors have done after past Oracle acquisitions.

I hope I’m wrong. SuccessFactors (and RightNow) has been an important force in the SaaS movement. I know plenty of people within SAP who sincerely want to deliver competitive SaaS/Cloud solutions to satisfy their customers’ changing needs and escalating demands. But, SAP’s leadership and legacy software, operating systems and salary structures will need to be significantly realigned to successfully absorb SuccessFactors and make it a real catalyst for change that will make SAP a market leader in the SaaS/Cloud marketplace.

It will take more than a bold-stroke acquisition to put SAP on a fast-path to success. It will require changing the deeply embedded dynamics which have stood in the way of the company fully accepting the reality of SaaS and magnitude of the Cloud. It will take a long-term and broadbased effort to make SAP a leader in the new world order.

The good news is that the SaaS/Cloud movement is just starting to gain broad-based acceptance and SAP has time to take advantage of the market momentum. But, any indication that the company isn’t truly committed to delivering competitive offerings will drive more current and prospective customers to its SaaS/Cloud-centric competitors, such as Workday.

Salesforce.com unveiled a series of important enhancements to its Software-as-a-Service (SaaS) service-desk management capabilities this week aimed at helping businesses more effectively track and respond to the escalating volume of data feeds from Facebook and Twitter.

The company’s Service Cloud 3.0 announcement coincided with its CloudForce 2011 event at the Javits Center in NYC, in the backyard of ‘Corporate America’, the financial services sector and the traditional media world to maximize its attention.

The new round of enhancements were primarily focused on enabling users of Salesforce.com’s service-desk management platform to better monitor Facebook and Twitter feeds, and track their response to comments, complaints and other service requests via these increasingly important social networks.

Salesforce.com made sure to brand each feature as a separate offer to ensure it gained as much attention as possible, including Salesforce.com for Facebook and Salesforce.com for Twitter.

The new monitoring capabilities are actually enabled by a third-party company, called Radian6, which is now selling its solution on Salesforce.com’s AppExchange as well. By coincidence, people I know at SAP also use Radian6 to track Facebook and Twitter data feeds. So, don’t be surprised to see Radian6 acquired quickly by one of the two companies if Google, Microsoft or another suitor doesn’t swoop in sooner.

Despite the fact that most of the enhancements unveiled by Salesforce.com this week won’t be available for another quarter or two, its announcement overshadowed SAP’s own attempt to assert itself in the SaaS and social networking arena by previewing a new portfolio of on-demand business applications at CeBit aimed at responding to Salesforce.com’s growing success and the overall acceptance of SaaS/Cloud-based alternatives to legacy, on-premise applications.

I had an opportunity to get a private briefing re: SAP’s new offerings before this past week’s announcement (as I did for Salesforce.com’s Service Cloud 3.0 announcement) and was impressed with their functional and social networking capabilities, as well as the company’s intensifying efforts to deliver cost-effective SaaS solutions. However, it still has a long way to go to convince customers and the broader marketplace that it can succeed in the SaaS marketplace after numerous false-starts.

Meanwhile, Salesforce.com isn’t taking its foot off the gas pedal as it extends its lead as an innovator, and market/mindshare leader.

Disclosure: Salesforce.com and SAP are THINKstrategies clients.

A series of announcements over the past week clearly indicates that Software-as-a-Service (SaaS) financial management and enterprise resource management (ERP) solutions are taking hold among organizations of all sizes worldwide.

The first was Intacct’s announcement that it had grown its customer subscription base 68% in 2010 and added more than 800 new client organizations. The company also reported 94.2% of clients surveyed indicated they would recommend Intacct to their colleagues, which is a perfect example of the customer-driven referral engine which is powering the overall growth of SaaS solutions. Intacct also said that 11 of the top 100 largest CPA firms in North America have joined the Intacct Accountants Program from CPA2Biz, showing that mainstream professional service firms are also adopting SaaS and recommending their clients take advantage of these solutions as well.

Plex Systems,  a provider of SaaS-based manufacturing ERP software, announced today its overall revenues grew 27% and its recurring revenue increased 26%. The company added 37 new customers in 2010. This may not seem like a lot, but Plex’s customers represent a cross-section of the most traditional of manufacturing companies who many would think are not likely candidates for SaaS or other Cloud-oriented solutions, but are increasingly interested in alternatives to legacy applications. Plex Systems also won its largest account in 2010, Invensys Controls, a London-based, technology company focused on industrial automation, rail transportation and controls. This illustrates the global growth of the SaaS market.

Today was capped off with NetSuite’s yearend results announcement which included 16% revenue growth overall and 18% in recurring revenues in 2010, and 21% year-to-year growth in the fourth quarter. It is also boasting a growing partner network and gaining momentum through its third-party channels.

These yearend results clearly show that CFOs and CEOs are increasingly adopting SaaS to run their back-office operations.

SAP’s renewed efforts to compete in the SaaS market with its latest version of BusinessByDesign will accelerate market growth because it will give it greater credibility and visibility. Oracle’s heightened emphasis on Cloud-based solutions will also lend further validation to SaaS-based, back-office solutions.

The year of the Cloud has come to a climax at Salesforce.com’s Dreamforce conference in San Francisco where over 30,000 registrants converged to celebrate the rapidly expanding world of ‘on-demand’ solutions and collaboration tools.

Salesforce.com used the event to beat back the recent efforts of Oracle and Microsoft to gain a share of the Cloud Computing market with a new round of initiatives aimed at building on its phenomenal momentum and success.

The two most significant announcements on Day One were Salesforce.com’s offer of free Chatter accounts across its customer base along with a public version of the social networking service in February, and a new Database.com offering as a spin out of its Force.com Platform-as-a-Service (PaaS).

Day Two began with the news that Salesforce.com plans to acquire the Open Source oriented, Ruby-based application development platform, Heroku, for $212 million in cash. Salesforce.com and BMC Software also announced that they are joining together to offer RemedyForce, a new Cloud-based IT service management and support offering built on Force.com. Salesforce.com also unveiled SiteForce, a new and improved version of its website design tool which was introduced previously.

Talking About Chatter

A year ago, Dreamforce attendees responded to the unveiling of Chatter with a lot of apprehension about why they should permit a Facebook-like social networking tool into their organizations. In response to this lukewarm reception, Salesforce.com put its marketing engine to work to overcome this hesitancy and has generated growing customer acceptance. 

Much of the opening session of Dreamforce was focused on the practical benefits of Chatter in corporate environments through a series of demos of use-cases and customer success story testimonials. Salesforce.com also emphasized how Chatter bridges the old and new worlds of the business user by linking to Microsoft Outlook and mobile devices.

Salesforce.com announced Chatter Free to extend its reach further into organizations beyond the sales and marketing departments. This initiative will permit Salesforce.com users to invite others within their organizations to utilize Chatter, in the same way Facebook users can invite friends to join their social networks.

With less fanfare, but possibly of greater significance, Salesforce.com plans to also roll out a public Chatter.com service in February aimed at popularizing Salesforce.com’s social networking capability in the open market. Both these moves will broaden Chatter’s footprint within organizations and brand equity in the marketplace. These moves will also make the folks at Facebook rethink whether they should have pursued the corporate market rather than relinquishing it to Salesforce.com. It will also get the attention of SuccessFactors which has been proclaiming that its Business Execution Software solution has a greater installed base of end-users than Salesforce.com.

Fortifying Force.com

Salesforce.com isn’t just seeking to permeate the enterprises via Chatter. It also wants to convince the developer world, both independent software vendors (ISVs) and internal enterprise developers, that Force.com is a credible PaaS for a new generation of enterprise-class, Cloud-based, mobile apps.

In its typical style, Salesforce.com unveiled Database.com as a new capability even though it is actually a part of Force.com which has been unbundled to create a new standalone offering and point of entry to Salesforce.com’s PaaS environment.

The standalone Database.com capabilities are being offered to respond to the changing way in which applications and databases are being architected in a more pluralistic fashion in the Cloud. The goal of Database.com is to democraticize database development, and give Salesforce.com’s customers and partners another reason to expand their use of its applications and PaaS. 

Salesforce.com has also been working hard to fend off competitive claims and developer concerns that its Force.com PaaS is too proprietary. It made a strong move in this direction with its alliance with VMware earlier this year, which produced VMforce.

Salesforce.com’s acquisition of Heroku reinforces this point, quickly giving Salesforce.com a strong foothold in the Open Source/Ruby application development environment, and immediate access to the rapidly growing Heroku developer community.

Heroku is considered by many to be the top Ruby platform in the Cloud market. The company has experienced 50% growth in application development activity in the past few weeks alone according to its Founder/CEO during his keynote presentation. Heroku will maintain its brand and become Salesforce.com’s seventh Cloud offering.

The Heroku acquisition and Database.com are geared to the new world of social, mobile apps. They are also intended to offset Microsoft’s aggressive efforts to gain customer and partner acceptance of its Azure PaaS, and undercut Oracle’s ‘false cloud’ offerings which it calls “Cloud-in-a-Box”. The Heroku acquisition is also a dramatic contrast to SAP’s purchase of Sybase, with Heroku representing the rapidly growing world of Cloud-based applications and Sybase viewed as an old-world development vendor attempting to recreate itself around mobile apps.

As Salesforce.com’s executives strongly stated during an industry analyst/press briefing, the message which the company is trying to convey to the market with this acquisition is that Force.com will be open and that Salesforce.com is going to be a platform company. A number of enterprise customers confirmed the importance of Salesforce.com’s PaaS efforts in their decisions to select the company as a strategic vendor.

SaaSifying IT Management

Salesforce.com’s announcement of RemedyForce in conjunction with BMC is significant for a number of reasons.

It is the company’s first attempt to provide a solution aimed specifically at the IT organization which is increasingly embracing SaaS-based alternatives to traditional IT management software. I’ve been telling clients and others about that the SaaSification of IT management and why this trend in the Cloud Computing market eliminates another barrier to greater customer adoption.

It is also the first time Salesforce.com has teamed with another company to launch one of its product-lines, or “Clouds”. This represents an important endorsement for BMC, as well as a risk for Salesforce.com. Teaming with an established ISV is an interesting choice for Salesforce.com. Like every established ISV which has attempted to add a SaaS component to its portfolio, it hasn’t been an easy road for BMC. But, the company has a highly committed CEO and has built a SaaS solution on Force.com which is gaining customer acceptance in the market.

This alliance puts Salesforce.com in the peculiar position of depending on a partner for the success of one of its product-lines. It also renews questions and concerns among its other partners about who gets preferential treatment within Salesforce.com’s ecosystem and why.

Closing Thoughts

One of the lingering complaints about Salesforce.com’s solutions is their premium price. Marc Benioff even joked about this point in his opening remarks at Dreamforce and got a hearty laugh from the audience. In an attempt to capitalize on this issue, Microsoft has launced a marketing campaign offering $200/user rebates  to Salesforce.com customers who jump ship in favor of Microsoft’s Dynamics CRM Online.  Benioff made light of Microsoft’s PR ploy by bringing the actor/model who is pictured in the Microsoft ads on stage during the Day Two morning keynote session and successfully convincing him to come back to Salesforce.com.

All joking aside, Salesforce.com’s premium prices hasn’t slowed its tremendous growth and hurt customer satisfaction/retention rates, or diminished the enthusiasm of the customers and partners attending Dreamforce this year.

The buzz and activity at Dreamforce 2010 is not only a clear indication of the Salesforce.com’s growing success, but also an impressive illustration of the widening movement to the Cloud.

[Disclosure: Salesforce.com paid for my hotel accommodations during my attendance at Dreamforce.]

Dell’s acquisition of Boomi today is the latest example of the tech industry’s herd mentality.

In the same way that Dell followed HP’s example when it purchased Perot Systems after HP acquired EDS, Dell is now copying IBM’s acquisition of Cast Iron Systems with its own move into the integration business.

Besides trying to keep up with other ’systems’ vendors, Dell is also attempting to fortify its Cloud Computing capabilities which hinge on helping potential customers cost-effectively migrate and integrate data from various legacy applications and databases into a new set of cloud services.

Dell indicated at an analyst briefing in Boston last week that it wants to ‘move up the stack’ and build a platform which can help enterprises and independent software vendors (ISVs) develop and deliver applications. Dell can’t compete with the other major Platform-as-a-Service (PaaS) vendors — including Salesforce.com, Google and Microsoft — from a software development standpoint. But, it can challenge them and others, such as Amazon and IBM, from an Infrastructure-as-a-Service (IaaS) point of view.

Why Boomi?

Because it is small enough for Dell to digest easily to test the integration market opportunities and requirements. It is still assimilating Perot Systems into its operations and corporate culture, and may not have been ready to acquire a bigger player, like Informatica or Pervasive.

Why is Boomi selling at this time?

My sense is they were at risk of becoming a victim of their own success and their rapid growth was creating operational strains which would take significant new investment to offset. Rather than make this investment, Boomi’s investors and management team felt that the Dell deal would not only give them a solid ‘exit’ but also the corporate resources necessary to ‘cross the chasm’.

It will be interesting to see if Dell is able to do a better job assimilating and growing Boomi’s business than it has with some of its previous Software-as-a-Service (SaaS) acquisitions — Everdream, SilverBack Technologies and MessageOne.

By coincidence, I heard about today’s news while attending Pervasive Software’s IntegratioNEXTconference, down the road from Dell in Austin, TX. You can bet there were a lot of smiling faces among the Pervasive staff who expect Dell’s move to trigger additional integration vendor acquisitions. I’m sure Pervasive’s counterparts at Informatica, which is also hosting a partner conference this week, were equally excited about Dell’s move.

While speculation about a Boomi acquisition has been rising since the Cast Iron Systems purchase by IBM, Dell was not high on the list of potential suitors suggested by various industry observers, including myself. Instead, the clearer candidates seemed to be HP, SAP, Oracle, EMC or even Microsoft.

All these companies continue to be likely acquirers for the handful of remaining integration vendors, including Hubspan and SnapLogic, in addition to Pervasive and Informatica. Not to be overlooked as potential buyers are also Google and Cisco Systems.

NetSuite has unveiled a great video to promote its new Hairball Institute for Business and associated Award program aimed at curing “Software Hairball Syndrome” (SHS).

The video is a fun and effective way to bring attention to the fundamental flaws of pulling together an enterprise resource planning (ERP) system, including the endless integration, customization and support issues.

However, NetSuite’s video and award program takes aim primarily at applications focused on the individual piece-parts of an ERP system in the small- and mid-size business (SMB) segment of the market, specifically inventory and project management represented by Microsoft Great Plains and Project, financials illustrated by Intuit QuickBooks, and eCommerce exemplified by Websphere. It also can’t help itself and includes its sibling rival, Salesforce.com, as a ’standalone’ CRM solution vendor.

Yet, the real culprits of this syndrome are the bigger players–SAP and Oracle–along with a myriad of like-minded legacy software vendors. Unless NetSuite has another video and award program up its sleeve, it has missed an opportunity to squarely attack the source of SHS.

This is unfortunate because NetSuite has attributed much its recent success to the inroads it has made penetrating the regional offices and other business units within large-scale organizations who were either fed up with their legacy enterprise applications or unwilling to go down the on-premise app path.

Unlike Salesforce.com which has always been very clear through simple and straightforward messaging about the on-premise vendors who it is seeking to displace, NetSuite too often obsures its message about its primary competitors while trying to set itself apart from other SaaS vendors, and undercuts its effectiveness.

But, this is a nuance which does not seriously diminish the terrific job NetSuite has done with its latest marketing program. Instead, the video and award program should strengthen its position in the market, and help the rest of the SaaS/Cloud Computing community articulate the shortcomings of traditional software.

One of the more interesting sagas in the Software-as-a-Service (SaaS) market has been SAP’s effort to develop and deliver a competitive offering.

After a series of fits and starts over the past three years, SAP is hoping the latest version of its SaaS-based Business ByDesign (ByD) system which was made generally available today will finally hit the mark.

As I reported in this space in May, I was briefed by SAP (a THINKstrategies client) at its Sapphire user conference about the significant investment it has made retooling the ByD service delivery infrastructure and user interface to make it more appealing, economical and competitive. On the infrastructure side, the 2.5 version of ByD boasts a truer multi-tenant architecture to make it more scalable. The user interface is more intuitive and easier to configure.

Today SAP unveiled three new ’starter kits’ in Feature Pack 2.5:

1. Customer Relationship Management (CRM) starter package which the company says can be implemented in approximately three weeks at a fixed implementation price of $13,500 (EUR 9,900) and subscription fee of $89 (EUR 79) per user.
2. Enterprise Resource Planning (ERP) starter package which can be implemented in approximately six weeks for a fixed implementation price of $37,500 (EUR 24,900) and subscription fee of $149 (EUR 133) per user.
3. Professional Service Provider (PSP) starter package which can be deployed in approximately eight weeks for a fixed implementation price of $45,000 (EUR 34,900) and subscription fee of $149 (EUR 133) per user.

While the latest offerings clearly illustrate the company’s determination to deliver a solid SaaS solution, the real measure of its success will be its market uptake from a customer and partner perspective.

Now that SAP has addressed some of the key technological and application design deficencies of ByD, it must overcome the go-to-market challenges in order to win over new customers and partners to prove it has regained a competitive edge.

For the past two weeks, I’ve been debating whether to respond to a commentary in InfoWorld by Neil McAllister which asked, “Is the SaaS Experiment Finally Over?”

But, I couldn’t hold back any longer when one of the many online publications where I’m a contributor, eBizQ, posed the question in a more provocative fashion, “Is SaaS Dead?”

I couldn’t bring myself to respond to McAllister’s column when it was first published because his argument was so ludicrous. He alluded to a variety of past SaaS and cloud vendor service outages to raise concerns about the overall viability of these rapidly expanding markets. And he used a series of Gartnerisms to warn against developer migration to the SaaS model.  

Yet, McAllister ignores the pervasive failures of traditional on-premise software which has inspired organizations of all sizes to explore and increasingly adopt SaaS alternatives to better meet their corporate needs.

The truth is that Gartner has been wrong about SaaS since the beginning. Even today, it has failed to fully recognize the current rate of SaaS adoption because they only talk to their traditional IT clients who are still trying to resist today’s trends because they see them as a threat to their jobs.

For instance, I reported earlier this year about Pacific Crest’s CIO survey which found that they expect to spend approximately 30% of their software budgets on SaaS in 2010, while Gartner is still predicting that organizations will only spend 25% of their budgets on SaaS by 2012.

Gartner also refuses to recognize the growing array of customer success stories which clearly illustrate the tangible and measurable business benefits being generated by SaaS and the broader cloud computing services.

Meanwhile, THINKstrategies has been recognizing SaaS and cloud computing providers nearly every week for the past year and a half which are delivering these business benefits worldwide through our Best of SaaS Showplace (BoSS) and Cloud Computing Business Value Award programs.

Rather than acknowledge the benefits of SaaS, and other cloud computing services, Gartner prefers to publish endless warnings which simply propose commonsense vendor selection and management principles.

The fact is that the SaaS ‘experiment’ is definitely over. It is now a mainstream movement.

Just take a look at the growth of Salesforce.com and SuccessFactors. Or, check out how NetSuite and Workday are encroaching on SAP. Listen to CIOs who are frustrated with being in the server business and want to shift into the services business.

And, pay attention to the major moves which the ‘legacy’ hardware and software players–led by IBM, HP, Microsoft, Oracle and SAP–are taking to transform and even cannibalize their traditional business to respond to rapidly escalating customer demands for change.

Yes, the SaaS experiment is over. It is now for real.

Seven weeks of traveling came to an end in Florida today after attending SAP’s Sapphire user conference and speaking to Tech Data’s TechSelect executives about the channel implications of the rapidly evolving Software-as-a-Service (SaaS) and Cloud Computing market.

Prior to this week’s events, I traversed the country from Boston to the Bay Area six times to speak, host and moderate sessions at SaaScon, Under the Radar, AlwaysOn OnDemand, Pervasive’s Metamorphosis and the SIIA/OpSource All About the Cloud conferences, and conduct strategy sessions with a wide range of clients in between.

The common theme of all these events and client meetings is that SaaS has become a viable alternative to legacy on-premise software across nearly every application segment, and a newer wave of Infrastructure-as-a-Service (IaaS) cloud computing services is quickly disrupting traditional data center models across nearly every industry.

Concerns about hyperbole outdistancing today’s realities are being pushed aside by a growing number of customer success stories which clearly illustrate the tangible and measurable benefits of these ‘cloud’-based services.

SaaS, IaaS and Platforms-as-a-Service (PaaS) are changing the way software and systems are designed, developed, packaged, priced, promoted, acquired, delivered, consumed and supported. 

At nearly every step of this process, the burden of success shifts from the customer to the vendor, with the potential of greater customer satisfaction, loyalty and profitability promising to offset the tremendously painful migration but necessary process for vendors, i.e. the classic ‘innovator’s dilemma’.

In response, a parade of incumbent software vendors (ISVs) are surrendering their efforts to fight off the ‘on-demand’ movement with FUD (fear, uncertainty and doubt) marketing campaigns, and replacing them with their own SaaS initiatives and cloud computing strategies.

CA and BMC have unveiled SaaS IT management solutions built on Salesforce.com’s Force.com PaaS. Software AG is offering a hosted version of its CRM solution, rebranded as update software AG.  (6/15: A spokesperson for update software AG has informed me that it is an independent company which is not associated with Software AG.) And, Microsoft is giving away a free version of Office…and suing Saleforce.com for patent infringements.

Few ISVs have more at stake and face tougher challenges as a result of this transformation process than SAP.

Over the past four decades, SAP has built a portfolio of complex enterprise applications which are at the heart of the operations of the world’s largest corporations, and thousands of others. It has created an equally vast internal organization and intricate set of channel relationships to develop, deliver and support its products, and serve its customers.

SAP’s shift to SaaS has been plagued by a series of perceptual, philosophical, developmental and sales missteps. The company underestimated the level of customer discontent with traditional software and their willingness to adopt ‘on-demand’ alternatives. It also discounted the architectural and operational requirements of developing and delivering competitive SaaS solutions.

After two false starts with its Business ByDesign (ByD) flagship SaaS offering, the company’s leaders are now more determined than ever to get it right. This week’s Sapphire conference was a coming out party to convince SAP’s customers and partners, as well as press and analysts, that ByD is now on the right path.

SAP has rebuilt the application with a new multi-tenant architecture to make it more scalable and economical. Even more importantly, ByD is being positioned as a part of a broader, corporate-wide portfolio of cloud solutions which the company’s leadership is hoping will be ”game-changing”.

As a guest of the company (SAP is a client, and paid my way to the conference) I had the privilege of meeting one-on-one with key corporate executives for a series of candid conversations about their new strategies. 

They intend to differentiate ByD, and the broader cloud portfolio, by embedding greater analytics into the solutions and offering an integrated suite of modules spanning nearly every corporate functional area across on-premise and on-demand environments, as well as various mobile devices.

Although ByD sits within the SAP’s Small- and Mid-Size Enterprise (SME) division, key executives are now willing to offer ByD to large enterprise (LE) divisions and regional offices as well.

While SAP has put a lot of investment into rebuilding the ByD architecture, it still has a long way to go to match today’s market leading solutions from a user experience perspective. ByD’s straightforward functional capabilities lack the type of dynamic, user-friendly interface common in most SaaS applications. As a result, it has limited user configurability and can be inflexible at times according to one customer I spoke with. Despite these limitations, ByD is winning more customers who are pleased with its operational and financial benefits.

I also got demos of the latest versions of SAP’s StreamWork collaborative decision-making tool and its Carbon Impact and Sustainability service. Both demonstrate SAP’s growing understanding of the type of dynamic user experience expect in today’s market, which will hopefully find its way into ByD soon.

Underlying SAP’s growing portfolio of SaaS and cloud computing solutions is the analytic expertise and skills of SAP’s Business Objects unit. Company executives are hoping they can also leverage the Sybase acquisition to fortify its in-memory capabilities to support its SaaS solutions and extend its mobility capabilities.

There is no question that SAP is determined to succeed in the SaaS and cloud computing arena. Ironically, the company’s biggest challenge will be the tendency of company executives and its army of developers to over-engineer SAP’s solutions.

In the past, SAP succeeded by focusing its vast resources on the enormous complexities of enterprise environments. Today, a growing number of SAP’s customers are seeking to streamline and simplify their operations, so they can become more agile and responsive to rapidly changing market requirements. In many cases, the customers are willing to accept less functionality if it improves their productivity, effectiveness and profitability.

SAP must recalibrate its efforts and solutions to match these changing requirements and expectations. If SAP’s leaders and staff can learn this lesson from the SaaS movement, they can become an important player in the maturation of the broader cloud computing industry.