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December 15, 2005

SAN FRANCISCO – On-demand or software-as-a-service (SaaS) will continue to disrupt traditional software models, industry watchers said.

Still, most enterprises will pick and choose where they want to implement it, rather than make wholesale changes. That was the feeling of several software executives and investors speaking at a conference here Wednesday sponsored by “Red Herring” magazine.

“Nothing disappears, we still have mainframes, and years ago, we heard they were all going away,” Arnie Berman, chief technology strategist at SG Cowen, told internetnews.com. ” I think you’ll find SaaS successful in niches where companies have specific needs and uses and can save money.”

Berman mentioned a hosted expense report application as a cost-effective example. “If it doesn’t work, I have to wait longer for my reimbursement, no big deal, but if a hosted app running your business doesn’t work, that’s a big problem.”

But far more bullish comments were made by Marc Benioff, one of SaaS’s most outspoken proponents. While there had been some discussion of a hybrid model, where hosted applications like salesforce.com co-exist with traditional on premise applications, Benioff, founder and CEO and SaaS vendor Salesforce.com (Quote, Chart) said that’s not the future.

“The only successful hybrid technology is made by Toyota,” he said. “Customers want new technology.” Benioff asserts that large, established companies like Microsoft and Oracle talk about SaaS, but they “all have a psychosis about maintaining the status quo and convincing people what they really want is the old stuff. Microsoft has hypnotized us into believing they will create the best software [even if they don’t get it right the first time].”

Benioff talked about companies like Writely and Num Sum that offer hosted versions of productivity applications, disrupting the “Microsoft desktop monopoly” on productivity applications, because they make it easier to collaborate while using the most current version of the application.

Moderator Alex View, publisher of the “Red Herring,” questioned how even a group of companies could make a serious run at the 150 million users of Microsoft Office. He noted, among other difficulties, that few offer the broad multilingual versions Microsoft does.

“What other countries need is a breakthrough in the cost and complexity of the big software packages,” Benioff retorted. “Thank god for Google and Steve Jobs [for challenging the status quo].”

Scott Dietzen, CEO of startup Zimbra, said big apps like PowerPoint and Photoshop weren’t going to become hosted any time soon, but smaller apps with an additional level of richness, auto-updated via the Web, and with a strong security model, are eating away at traditional software’s hold on the market. Zimbra offers e-mail client/server collaboration software.

Greg Gianforte, founder and CEO of another on-demand CRM provider, RightNow Technologies, also took aim at Oracle, noting how many companies the software giant has purchased. “Oracle is undertaking the biggest computer science project in the history of the universe, trying to integrate all these companies,” said Gianforte.

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