For Cloud, SAAS Vendors, Economy Is Great

Tough economic times aren't always tough on everyone. There are companies and sectors that benefit from recessions and downturns as struggling businesses search for ways to cut costs and adapt business models.

Among the sectors serving the IT world that are doing well in this economy are web-based business software. From internetnews.com:

Gartner Research now expects 2009 sales of so-called cloud-based software to grow 22 percent to a record $8 billion, a touch higher than before, the firm said on Tuesday.

"We are still going strong," said Gartner analyst Sharon Mertz, who advises IT managers on software purchases. "The model is pretty solid, even in these tight economic times."

This puts pressure on established software companies such as Microsoft, IBM, Oracle and SAP to play catch-up, after standing on the sidelines for most of the past decade as Salesforce (NYSE: CRM) and others gained credibility with corporate clients.

Providers of cloud-based software and Software-as-a-Service (SaaS) host the technology in their own data centers, allowing customers to access it via ordinary Web browsers. That saves clients the cost of buying licenses in advance and running programs on their own computers.

Thus, SaaS sales have outperformed traditional software as the economy worsened. "It has low cost and low risk," said Rebecca Wettemann, an analyst with Nucleus Research, which helps IT managers evaluate software programs.

For me the real question is whether web-based business software will continue to flourish even when the economy rebounds. I believe enterprises have an innate desire to host their own data, but if the web-based model proves to be sufficiently secure and less costly, many more companies may be willing to abandon the old model.