SaaS Making Headway (Again)

By Allen Bernard

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Some five years ago application service providers (ASP) were almost as common as dot-coms. Today, unlike dot-coms, which exist in abundance, ASPs are not as noticeable.

But all that may be changing as the likes of IBM, Microsoft, SAP and Oracle continue to throw their weight behind the model. Of course, the name has changed many times since the early part of the decade so you may not have noticed that ASPs are now providers of hosted solutions, software-as-a-service (SaaS), On-Demand software, and managed services (to name a few iterations).

It also helps that for years Oracle's Larry Ellison has been touting SaaS as the new delivery platform for software where customers no longer have to tie themselves down with cumbersome and costly infrastructure, and ongoing licensing and maintenance costs.

Such high-profile companies such as Salesforce.com and Right Now Technologies have also done a good job of trumpeting their customer wins bringing the model much-needed positive publicity.

"That's what some players in the market have been able to do," said Vincent Deschamps, CEO of Echopass, a provider of on-demand contact and call center solutions. "I think Salesforce has done a good job of that, I think Right Now has done a good job of that, I think we've done a good job of that, is show customers the results and show them what the ROI is."

New Technologies

But there are other factors that may be more important in driving the model forward in ways that could only be dreamt of five years ago.

Web services and service orientated architectures (SOA), for example, are making the inside of corporate IT far more accessible and flexible than ever before. This enables outside solutions providers access to data once only available inside the network, said Susan Eustis, president of WinterGreen Research.

"The SOA fits into there because it makes the web browser applications far more flexible and far more easily adapted and changed to an existing user," she said. "Nobody's without existing software, nobody's without legacy systems. The old ASP model was, 'Well, we're going to do everything for you' and SaaS now is becoming more integrated with the existing infrastructure."

Ubiquitous broadband, WiFi, 3G and other high-speed data transport networks have been (or are being) built out considerably since Y2K. And the need for cost savings has driven many companies, fed up with the high-cost of mainstream software models, to seek alternatives.

Since Y2K outsourcing of at least some parts of IT has become the norm. This has led to a greater comfort level with the idea of turning over parts of the corporate infrastructure to outsiders. ISVs have also been active: re-architecting their products to be delivered either as a service or in the traditional licensed model.

To capitalize on these changes, In February, IBM announced an expanded program for it's 5,000 or so ISV partners to help them migrate their products onto an SaaS delivery platform. The program includes technical and sales help and referral fees of up to 10%.

"Is it going to meet the hype this time? I don’t know," said Dave Mitchell, director of SaaS Strategy at IBM, "but I think things like that all lend themselves to driving more adoption."

And the hype, once again, is pretty high-flying. According to the IBM press release, Pacific Crest said the SaaS market will grow at 25% per year through 2010 and AMR Research shows that 78% of survey respondents are either using SaaS or planning to.

Name Game

Of course, it all depends on your definition of was SaaS is. According to WinterGreen's Eustis, the pure-play market of SaaS providers—those companies whose business models are based on selling subscriptions to hosted solutions—is really only $70-to-$100 million in revenue per year.

The billion-dollar figures cited by other analyst firms include things not traditionally considered SaaS like subscriptions to anti-virus updates delivered via the Web, business process outsourcing services, and telecom service pushed out to cell phones like games and ring tones.

"It's certainly not the pure-plays ... ," she said. "The pure plays have no way to drive the market that big, into the billions of dollars."

It is the IBM's of the world that will drive the market forward, said Echopass's Deschamps, who is plenty happy to have the big boys on board.

"Market awareness is what I think is needed here," he said. "And when the big companies say this is a trend that has legs, it gives the market some momentum and I think the other (factor) is safety because, if these companies are saying it’s a good thing, then it must be safe for customers to dive in here."