They have made their point, perhaps to their own chagrin.
As the market for SaaS has opened up to enterprise-class customers and beyond customer relationship management (CRM) to a fuller array of solutions, traditional software vendors, such as SAP (Quote, Chart), IBM (Quote, Chart), Oracle (Quote, Chart) and Microsoft (Quote, Chart), are beginning to see the wisdom of offering software on demand.
Given their resources, some say, those companies are poised not only to participate, but even dominate the SaaS space.
Joshua Greenbaum, principal analyst at Enterprise Applications Consulting, told internetnews.com that even a market-leading pure-play SaaS vendor like Salesforce.com (Quote, Chart) cannot match the level of systems integration that an SAP or Oracle can provide their customers.
He noted that Siebel founder Tom Siebel had admitted that his company could not match SAP and Oracle in terms of integrating CRM with other back-end enterprise solutions.
"They hit a wall," said Greenbaum. "Both [SAP and Oracle] have this broader depth of functionality and broader view of an integrated enterprise, so without a doubt, Salesforce is very vulnerable," he said.
The market opportunity is there, and traditional vendors are already beginning to take part.
The many flavors of SaaS
More enticing yet for traditional software vendors, SaaS is now gaining acceptance in the enterprise beyond CRM and other partner-related solutions.
Pure-play SaaS vendors like nSite, with a business process management solution, Kana with on-demand knowledge management, and Agile (Quote, Chart) with product lifecycle management tools on demand, are beginning to encroach on the traditional bastions of on-premise enterprise software vendors.
Even such sacrosanct functions as security are being addressed by companies like Qualys and IBM.
This is happening because customers see an opportunity to reduce both cost and risk.
Philippe Courtot, chairman and CEO of Qualys, has seen the evolution first hand. His company boasts 22 of the Fortune 100 as customers.
"IT departments are under huge pressure to do more with less resources," he told internetnews.com.
Denis Pombriant, managing principal at Beagle Research, noted that SaaS vendors have not only reduced the cost of these solutions, but also the risk of purchasing and maintaining them.
On-demand software is "a paradigm that reduces cost and risk for any company that depends on software to do its business," he said.