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October 12, 2006

Software as a service (SaaS) will constitute 25 percent of new business software delivered by 2011, analysts from research firm Gartner contend in a new report.

The analysts presented the report at the Gartner Symposium/ITxpo in Orlando, Fla., this week.

The event included keynote speeches from Microsoft CEO Steve Ballmer, Cisco Systems CEO John Chambers, and Intel CEO Paul Otellini.

Gartner analyst Robert DeSisto said Gartner defines SaaS by three chief characteristics: It is hosted by the provider or a provider's partner; it is used in a one-to-many model, so that every company accessing it is using the same code base and data model; and it is purchased on a pay-for-use basis, or as a subscription based on usage.

DeSisto cautioned that the latter definition of SaaS is not to be confused with a utility-based subscription, where users use so much and pay a bill once a month.

"There is a commitment for some level of usage," DeSisto told internetnews.com. "In a Salesforce.com automation case, you're signed up to pay $100 per user per month no matter how much they use it, so that's not a true utility."

SaaS, which Gartner currently puts at 5 percent of the total business software sales in 2005, is trending upward for a number of reasons, the analyst said.

For one, the space is beginning to solve business complexity problems.

SaaS providers are trying to make life easier for harried information workers, enhancing their software functionality and improving the ease with which companies can tailor software to meet business needs.

SaaS also differs from traditional license plans in that SaaS licenses factor into the operating budget many times, whereas traditional software license plans usually require a capital budget that appreciates over time with maintenance.

"That's a big difference that has propelled this SaaS growth, because business users can be more autonomous in their decisions," DeSisto said.

One trend remains consistent.

While some vendors, like Salesforce.com, boast installations of more than 1,000 users, most SaaS deployments are employed for fewer users in departmental chores, such as sales-force automation, e-recruitment for human resources and Web conferencing, where DeSisto says it is almost the standard deployment model.

SaaS vendors don't tend to offer the depth of functionality or process management capabilities to completely compete with traditional on-premise software, DeSisto said.

But the thing is, they originally weren't meant to; the complexity of software applications created in the late 90s by on-premise providers forced companies to turn to more basic solutions like SaaS.

"People have stepped back and said 'What is the bread-and-butter stuff I really need to get done?'" DeSisto said. "The SaaS vendors have designed their software to that design point and not over-engineered it."

That's why SaaS is largely lacking complex, cross-department flows like order-to-cache and opportunity-to-order, which is the specialty of on-premise packages or proprietary software.

But suppose SaaS firms do manage to pull even with traditional package providers in functionality.

Could the convenience of software that doesn't get tangled up with the other software systems on your network doom on-premise packages from big guys like SAP (Quote) and Oracle (Quote).

DeSisto said this is unlikely.

While certain niches, such as human resources, have shown some advanced utilities, he has not seen a whole lot of complexity built into major money-making areas such as CRM.

Barring some major technological breakthroughs or other market-changing factors, SAP and Oracle are safe, with SaaS complementing the on-premise packages.

"Rolling a SaaS replacement out for those large systems is not a trivial exercise," DeSisto said. "It takes a long time just to upgrade systems of that nature because of the dependencies."

Gartner's report "On Premise Software Will Be Challenged By SaaS Software Delivery" is available on Gartner's Web site.

News courtesy of internetnews.com

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