TRENDS

May 9, 2006

Continued from Page 1

SaaS in the Enterprise

And it’s value that more enterprise-level companies are recognizing.

Jeff Kaplan, principal analyst with THINKStrategies, based in Boston, says that SaaS vendors are winning contracts with “large brand-name companies.”

“SaaS has sunk its roots into the very fabric of how companies operate,” he says.

The reason, he adds, is that in many cases, the functionality of on-demand software “exceeds legacy applications.”

But gaining sales among enterprises with legacy on-premise systems won’t be easy.

Mark Hilderbrand, general partner at Onset Ventures, cautions that SaaS vendors will displace existing on-premise vendors, but only over time.

Moreover, he says, they would have to deliver new types of services, “not simply offer the same thing as on-premise only better.”

Haykin of Outlook Ventures believes the path to enterprise-level sales will come through the department level.

“A departmental decision maker can sign off on the budget without having to get approvals from multiple divisions or departments,” he says.

But SaaS vendors are also finding an appetite for more mission-critical applications.

“Critical but non-core functions are ripe for SaaS,” agrees Ritter.

So Just How Far Will SaaS Go?

According to several observers, “traditional” SaaS vendors face an imminent threat from vendors of open source solutions, such as SugarCRM.

“That’s an exciting and very disruptive model that could be quite threatening to the software as a service vendors,” says Hilderbrand of Onset Ventures.

The open source model allows customers to download most of the software for free. Open source vendors such as SugarCRM earn revenues from professional support and customized enterprise editions.

SugarCRM provides its solution on-demand, but will also install it on premise, or even sell customers a server with its solution pre-installed.

John Roberts, CEO of SugarCRM, openly disparages the Salesforce.com model of providing SaaS.

“The reality is they want to lock you into a proprietary code base to force you to pay their prices for their products,” he told internetnews.com.

He added that software should be provided however customers want it.

“We treat on-demand as a deployment option,” he said. “Placing restrictions is not going to withstand the test of time.”

Adapted from internetnews.com

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