Get Ready For SaaS 2.0

What will the next generation of software-as-a-service look like?
Posted September 27, 2006

Andy Patrizio

SAN FRANCISCO -- Like products, it seems concepts are getting version numbers. First there was Web 2.0. Now there is SaaS 2.0.

High-tech officials floated the new term here at SaaScon, an event geared to foster discussion on the growing popularity of software-as-a-service (SaaS).

Whereas Web 2.0 is built around user-driven content and interactivity, SaaS 2.0 is an enhancement to the initial efforts of software services.

Bill McNee, CEO of research consulting firm Saugatuck Technology, introduced the SaaS 2.0 concept, noting that it is an expansion of the SaaS concept to further integrate software services into "premises-based" software, the term used at the show to describe installed, packaged software.

"SaaS 2.0 is about transforming business processes," McNee said. "It's closer to business service provisioning and a platform with programmable services on top of it."

SaaS 2.0 involves greater integration of these hosted apps into the enterprise, with extensive use of service-oriented architecture (SOA) (define) for scaling, configuration and tighter synchronization with back-end applications.

A part of this emerging SaaS 2.0 will be SaaS Integration Platforms, or SIPs. These are solution hubs that share, deliver and manage applications, and serve as an integration layer between the application services and the hardware and software platform.

SIPs will be needed to move beyond standalone silos of data and provide tighter integration between service applications and installed application.

Right now, SaaS is still about the application, McNee noted. "This market has to move beyond just delivering software. It's very much about information, not applications," he said.

SaaS is projected to grow at a 20 percent compound average growth rate for the rest of the decade to become a $15 to $20 billion market by 2010. However, that's still only 15 percent of enterprise application market.

"So packaged software is not going away," said McNee.

In surveying clients and various enterprises, some surprises emerged. First, large enterprises have been the quickest to adopt SaaS, which is unusual. Large firms are usually slowest to adopt new technologies.

The reason most cited by large firms for adopting software services: cost reduction. That's especially true for vertical apps, which are often much more expensive than general-purpose applications.

More notable: pre-existing relationships with vendors are the least important consideration for customers looking at SaaS.

It's no accident that the bulk of companies brought up in the keynotes were small startups, even if IBM (Quote, Chart) and Microsoft (Quote, Chart) were there. This shows that many software giants are significantly challenged to keep their customers, said McNee.

SaaS may not be threatening the existence of packaged software, but it's eating up most of the venture money.

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