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IDC: SaaS Growth Coming

NEW YORK — The Software as a Service (define) business model is changing the way software is purchased and deployed by enterprise customers, experts told an audience of technology professionals here at the IDC Software as a Service Summit earlier this week. Subscription software has been available on the Internet for years. What’s new is […]

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Alex Goldman

Mar 27, 2009

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NEW YORK — The Software as a Service (define) business model is changing the way software is purchased and deployed by enterprise customers, experts told an audience of technology professionals here at the IDC Software as a Service Summit earlier this week.

Subscription software has been available on the Internet for years. What’s new is the willingness of companies to put key data and business functions on the Internet, a change made possible by technologies collectively know as “the cloud” or cloud computing.

Robert Mahowald, director of on-demand and SaaS research for IDC, said that the terms “cloud” and “SaaS” are often used interchangeably. He said that IDC views the cloud as core computing technology that enables the delivery of software as a service, or SaaS. Together, they enable “shared business and consumer services delivered over the Internet within industry-standard service management frameworks, using virtualized management, accessed over the Internet by people and other services.”

In other words, the applications rely upon on-demand computing resources and industry standards to deliver software to anyone and also to other software applications.

Adoption is broad. Only 25 percent of companies IDC surveyed are late adopters of SaaS or are choosing to not adopt it at all, said Mahowald.

Enterprise customers are potentially eager to take advantage of a delivery platform that promises both lower costs and greater ease of deployment, because CIOs are being asked to do more with less resources. One strategy is outsourcing. But rather than outsource the IT function, companies use SaaS providers to virtualize it. There’s still an IT manager, but that manager is supported by a team from another company managing servers off site.

Speaking of support, IDC said traditional IT consulting companies are being challenged by new ones focused on SaaS.

“Companies like Bluewolf and Appirio are beating Accenture, PWC, etc.,” said Mahowald.

SaaS adherents like Jonathan Snyder, say it provides more flexibility than traditional software.

“SaaS is practical,” said Snyder, CTO of mortgage vulture fund Dreambuilder Investments LLC, a company that deals in distressed mortgages it buys at discount

He said that when the Dreambuilder Investments was formed seven years ago, its founder saw himself as an information manager rather than a finance specialist. The company stored massive amounts of data concerning every mortgage it bought. SaaS allowed it to develop a system that could scale even as it grew from handling 25 mortgages per month to over 500.

Dreambuilder Investements had to rebuild its database, splitting one table into nine, but the SalesForce Force.com platform made it possible to do so in one month.

Since then, Dreambuilder has adopted a multitude of other SaaS vendors including hosted PBX provider Broadview Networks, Mozy Pro for backup, and Mi8 for hosted Exchange.

Develop a strategic vision

Mahowald said most companies use SaaS for tactical purposes, such as to fill a need for a CRM system or a phone system or Internet conferencing, and fail to develop a strategic vision for SaaS. But he suggests companies would do well to consider the broader potential SaaS has for all sorts of applications, just as Snyder has.

IDC’s own vision is that SaaS has a bright future.

“We expect sales of SaaS to grow at a rate of 40 to 42 percent this year,” said Michael Fauscette, IDC group vice president for software business solutions.

“Public SaaS companies have just published their annual reports and reported a 30 percent or higher growth rate for last year,” he noted. “Salesforce had its best year ever.”

Company’s no less than computer giant Dell (NASDAQ: DELL) see a strong trend towards greater SaaS adoption.

“CIO’s are shifting non-differentiated IT activities into the cloud to reduce the roster of applications that they need to manage in-house,” said Paul D’Arcy, Director of Marketing, Services for Dell, in an e-mail to InternetNews.com.

“By eliminating cost, complexity, and the need for IT staff that is primarily dedicated to the time consuming task of maintaining IT environments, cloud services enable CIOs to shift resources – both people and budgets – to more strategic projects.”

This article was first published on InternetNews.com.