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by Joshua Greenbaum, Contributing Editor   | Abstract: | A crowded field of on-demand vendors signals a shift in pricing advantage to the consumer, who needs to decide when and how much to adopt. |
It looks like 2007 is going to be a great year if you want to save on IT costs. Every vendor worth its R&D budget is coming out with a software as a service (SaaS) offering, or enhancing an existing one. Or starting an entirely new SaaS company. The upshot is simple: SaaS isn't just here to stay, it should become an essential part of your strategy. The only questions are when and how much? Let's review the now-crowded field. There's Salesforce.com — the poster boy for SaaS persistence, having weathered the downturn in the market following the dot-com bust. NetSuite is another stalwart, having been in the market for umpteen years. Another veteran, surprisingly, is Oracle. Other than Salesforce.com, Oracle was the only other vendor to stay on course after the dot-com bust. According to chairman Jeff Henley, the company's SaaS offering grew at a healthy 70% last year, though much of that growth has come from its Siebel acquisition. Meanwhile, Microsoft revealed in early November that it is planning SaaS versions of its AX, NAV, SL, and GP enterprise applications. This would be a classic Microsoft partner play, but one with a lot of potential interest for small and mid-sized companies seeking a low-cost, high-value ERP offering. SAP is continuing to expand its own SaaS CRM product, and is expected to grow the scope of its SaaS offerings in 2007 as well. Meanwhile, just to keep things interesting, PeopleSoft founder Dave Duffield launched an SaaS-based ERP company, Workday, in early November. With its first offerings in human resources, finance, and asset management, Workday is at a minimum expected to garner a lot of attention for itself and for the SaaS market in general. As if more attention were needed. This embarrassment of riches removes the immediate strategic advantage of having such an offering in the first place, which is great for customers and lousy for the vendors' investors. I'm sure there can still be some arguments about which vendor's offering is more true to the spirit of SaaS, but the real competitive posturing should revolve around the five main issues that distinguish one SaaS offering from another: price, scope of functionality, scalability, ability to shift from on-demand to on-premise, and degree of integration with the rest of the enterprise software stack. The latter two distinguishing characteristics — the ability to shift from on-demand to on-premise, and the ease of integration with the rest of the stack — are going to be where the real competitive battle of the SaaS vendors is joined. Despite what some purists think about SaaS, for many it's a temporary, stop-gap strategy, and being able to shift to on-premise will be an important tie-breaker for many a deal. Integration with the back office is another big issue — in fact, often the shift from SaaS to on-premise comes precisely when the need to move up the functional food chain requires the kind of tight, often highly customized integration that SaaS offerings are hard-pressed to offer. So, when should you consider moving some of your IT assets to an SaaS model? I think the next 12 months is an advantageous time. The question of how much is a little more complex, but assuming that the five characteristics are met satisfactorily for your company's need, I think the answer is simple. As much as possible. |