TRENDS

March 24, 2005

Software-as-a-service is alive, well, and thriving, writes guest columnist K.B. Chandrasekhar of Jamcracker. Here's why.

Software-as-a-service (SaaS) is back. Only a few years ago the "ASP" (application service provider) model was being hyped as a revolutionary transition for the software industry — hype that was quickly deflated with the bursting of the dot-com bubble.

Now that the hype is over, an evolutionary market shift is truly underway. The Gartner Group has declared SaaS as one of the top five technologies for 2005 and IDC predicts that by 2008 subscription license revenues will hit $43 billion.

Why is the demand of SaaS on the rise? A major factor is the shift in the attitude of companies since the late '90s.

The attitude then was one of skepticism based on both the classic fear of being an early-adopter and on internal IT organizations thinking they could build and run it all.

Today, those attitudes have changed from skepticism to acceptance of SaaS. There has been a significant increase in the consumption of software in an on-demand model and vendors are scrambling to provide it.

Why Now

We are all aware of the economic and business challenges driving the current adoption of SaaS: the huge expenditures on past implementations that were under-utilized or didn't work at all, tough economic times, and the pressure on CIOs to provide "value."

As for the initial barriers to SaaS, it is worthwhile for CIOs to take a deeper look at them and how they have been overcome.

These barriers included a mismatched economic model (from both the supply side and demand side), security concerns, the simplistic nature of the early offerings, and the "build-and-own" philosophies of IT organizations that were much better funded than they are today.

Economic Models In Sync

When SaaS was introduced in earnest in the late '90s the SaaS providers were working on such thin margins that there were no significant cost savings compared to traditional software implementations.

On the demand side, the companies consuming the software were flush with money.

Today, with improved on-demand delivery and management solutions, software providers have gained significant efficiencies-of-scale in delivering SaaS, which in turn helps make for some very attractive price points.

On the demand side, companies have faced severe economic challenges over the last five years, forcing CIOs to do more with less, and to focus on bringing more discernable value to their companies.

SaaS pricing coupled with the experience of CIOs burned by massive implementations that didn't deliver promised value, means the SaaS supply and demand sides have both moved 180 degrees to where they are now in sync.

Page 2: Improved Security

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