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SaaS Movement Accelerating
SaaS Movement Accelerating
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SaaS Movement Accelerating

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  1. Business Technology Trends & Impacts Advisory Service Executive Update Vol. 8, No. 22 SaaS Over the past three years, Cutter Microsoft, Oracle, and SAP — to Consortium has been charting the acknowledge that the SaaS move- growth of the software-as-a-service ment is real and to respond with Movement (SaaS) market by conducting a their own roadmaps for satisfy- series of annual surveys that was ing their customers’ escalating the first to discover widespread demands for SaaS alternatives to Accelerating interest and adoption of SaaS solu- legacy applications. tions among organizations of all sizes. This is the first of a new series of Executive Updates based on our lat- Our previous surveys dispelled a est SaaS survey results. Our findings by Jeffrey M. Kaplan, number of misconceptions sur- provide further evidence that SaaS rounding SaaS at the time. For adoption is continuing to grow and Senior Consultant, instance, many analyst firms and that SaaS users are continuing to be Cutter Consortium other industry observers viewed very satisfied with the business ben- SaaS as a peripheral trend that efits they’re generating. These SaaS might appeal to small and medium- users are quickly becoming SaaS sized businesses but would not gain evangelists who are encouraging acceptance in large-scale enter- their peers to adopt SaaS solutions prises. They also believed that SaaS to meet their IT and business objec- was only suited for simple, stan- tives. This is helping to accelerate dardized business functions and the growth of the SaaS movement. not complex, enterprise-wide deployments. DEFINING TERMS Cutter’s surveys have found widen- SaaS is one of those terms that can ing adoption and overwhelming mean many things to many people. satisfaction with SaaS applications, For the purposes of our survey, which range from collaboration Cutter Consortium defined SaaS as: and productivity tools aimed at end users to enterprise resource plan- A software solution that is ning (ERP) management and finan- hosted, supported, and deliv- cial management systems that can ered by a provider as a service, handle the needs of broad-based and can be accessed by users organizations. via the Internet, without the need to deploy and maintain additional on-premise IT In the past year, growing customer infrastructure. interest and press attention has driven the major independent soft- Purists, especially today’s Net-native ware vendors (ISVs) — including SaaS providers, might argue that
  2. 2 BUSINESS TECHNOLOGY TRENDS & IMPACTS ADVISORY SERVICE operating expense that they can SURVEY DEMOGRAPHICS adjust to meet fluctuating needs. They would also like to accelerate Cutter Consortium conducted its third annual SaaS survey via the Web in their application deployment capa- October/November 2007. The survey was completed by 95 respondents, bilities to better respond to chang- representing a broad cross-section of industries worldwide. ing requirements. In addition, they must make their applications and Approximately 30% of the respondents hold senior positions, and another corporate data available to employ- 17% are in IS/IT management. Nearly 40% responded with an enterprise-wide ees working outside the company perspective, and another quarter has responsibility for a single department. firewall. And, they must refocus their limited inhouse resources Approximately a quarter of the respondents works within companies with on strategic initiatives rather than annual revenues over US $1 billion. A fifth have revenues under $1 million, allowing them to be distracted by with the remainder in between. the day-to-day problems associated with supporting their applications. our definition is too broad. They mature industries into price- Broadband networks, Web 2.0 would prefer to limit SaaS to those sensitive, commodity markets. innovations, and virtualized data Web-based applications that are centers, along with a myriad of built on a “multitenant” architecture In this competitive environment, other technological advancements, and permit a “one-to-many” soft- customer loyalty has become have combined to permit a new ware distribution and pay-as-you-go more difficult to attain and sustain. generation of Web-based, Net- subscription fee model that is more Therefore, companies must work native applications to emerge that scalable, flexible, and economical harder to win and keep their provide a reliable and secure alter- than traditional software hosting. customers. Ironically, they must native to legacy software products. achieve greater customer intimacy The attractiveness and viability of We have intentionally made our while working to reduce their costs these SaaS alternatives is most definition more open-ended so they can compete on price as clearly seen in the rapid growth because we have found that the well as value. of Salesforce.com, which recently meaning of SaaS is in the eye of the announced that it has won its beholder. As our survey results will In order to respond to these com- one-millionth customer! show, customers are primarily inter- petitive and customer pressures, ested in how a SaaS solution can many companies are pushing their accelerate their time to value rather employees out of centralized CUSTOMER ADOPTION than how the solution is architected. offices into less expensive remote OF SAAS HOLDS STEADY offices and offshore locations. This Approximately one-third (32%) of trend is aimed at reducing costs the survey respondents are using THE FORCES DRIVING SAAS and moving employees closer to SaaS solutions and an even greater A combination of factors is fueling customers. But, it also creates a portion (36%) is considering SaaS the growth of SaaS, including: new set of management challenges (see Figure 1). for companies as they try to coordi- Competitive and customer nate their dispersed resources. The adoption level is consistent with pressures our past surveys. Sixty percent of Traditional, on-premise, packaged the respondents have been using a Changing business software was not designed to SaaS solution for more than a year. environments respond to these escalating busi- ness challenges. These legacy More important is that 80% of the Technological advancements applications require companies to respondents who are considering make a substantial, up-front capital SaaS are very likely to roll it out to Globalization and e-commerce investment and withstand extended their organizations within the next have fundamentally changed the deployment cycles. The software 12 months (see Figure 2). competitive landscape. While they was designed for highly centralized have both opened new market and relatively stable business opportunities for companies of all requirements. And, the software WHY COMPANIES ARE sizes, they have also lowered the depends on a dedicated support ADOPTING SAAS barriers to entry in nearly every staff to keep it up and running. industry. This has created intense Survey respondents rated the fol- competitive pressures that in many Given today’s business pressures, lowing four statements as their pri- cases have transformed numerous more companies are seeking to mary reasons for adopting SaaS convert their capital budgets to an (see Figure 3): Vol. 8, No. 22 ©2007 Cutter Consortium
  3. EXECUTIVE UPDATE 3 1. Accelerate deployment process Not considering Currently using 32% 32% 2. Subscription, pay-as-you-go model 3. Eliminate additional infrastruc- ture costs 4. Allow internal IT/application staff to focus on more strategic projects Currently considering 36% As Figure 4 indicates, current SaaS users are gaining clear business Figure 1 — Are you currently using or considering using software-as-a-service (SaaS)? benefits in these areas. They are generating greater ROI and cost- Less than 6 months effectiveness from their applica- More than a year 31% tions. They are lowering their staff 20% support requirements. And they are achieving better application reliabil- ity and performance. As a result, 100% of the survey respondents reported they are satisfied with their SaaS solutions, and 92% said they would recom- 6-12 months mend SaaS solutions to other 49% organizations. Figure 2 — When do you think your organization will adopt SaaS? 60% 57% 54% 52% 48% 50% Percentage of respondents 40% 31% 30% 26% 19% 20% 9% 10% 0% Accelerate Subscription, Eliminate Allow internal IT/ Receive Reduce risk Additional Other deployment pay-as-you-go additional application staff continuous of failed functional process pricing model infrastructure to focus on updates/ deployment capabilities costs more strategic upgrades projects Figure 3 — Why did you adopt/would you adopt SaaS to satisfy your software application requirements? (Please check all that apply.) www.cutter.com Vol. 8, No. 22
  4. 4 BUSINESS TECHNOLOGY TRENDS & IMPACTS ADVISORY SERVICE Additional functional Other Improved application International Network Services 13% capabilities reliability and performance (INS). Before his position at INS, 7% 20% Mr. Kaplan spent 13 years as a lead- Systematic updates ing industry analyst and market and upgrades research consultant at IDC, the 0% Ledgeway Group, Dataquest, and META Group. Mr. Kaplan is a frequent speaker Lower staff support Greater ROI and cost- at industry conferences and a con- requirements 30% effectiveness tributing columnist for Mass High 30% Tech, NetworkWorld, Business Communications Review, eWeek, Figure 4 — What is the greatest benefit of the SaaS solution you are using? InfoWorld, Computerworld, InformationWeek, and the Financial These customer satisfaction and These trends are likely to produce Times. He can be reached at referral levels are unprecedented greater growth for SaaS. They also jkaplan@cutter.com. in the traditional software world should generate greater customer where the complexities and costs confidence that adopting SaaS is of on-premise deployments and becoming an increasingly viable support have resulted in user frus- option for organizations that have tration and added expense. traditionally relied on on-premise, legacy software. WHAT THE DATA MEANS Our latest survey clearly shows ABOUT THE AUTHOR that the SaaS movement is gaining Jeffrey M. Kaplan is a Senior momentum. It is being fueled by Consultant with Cutter real customer needs as opposed to Consortium’s Sourcing & Vendor vendor hyperbole. It is also building Relationships practice, and he is on a track record of success rather the founder and Managing Director than false promises. of THINKstrategies, a strategic con- sulting firm that helps IT enterprise The result is that companies of all decision makers with their sourcing sizes are adopting an expanding strategies; solution providers with array of SaaS solutions to meet their their marketing strategies; and IT/business requirements. While venture firms with their invest- we will look at the specific types ment strategies. Prior to forming of SaaS applications being adopted THINKstrategies, Mr. Kaplan served or considered in Part II, we have as VP of Marketing and Business shown here that current customers Development at InterOPS are gaining tangible business bene- Management Solutions — an fit from their SaaS deployments. Internet operations management These are resulting in a quicker services provider. Prior to joining time to value at a lower total cost of InterOPS, he was Director of ownership (TCO), which is produc- Strategic Marketing at Lucent ing extremely high satisfaction lev- Technologies Worldwide Services, els and strong reference-ability. as a result of its acquisition of The Executive Update is a publication of the Business Technology Trends & Impacts Advisory Service. ©2007 by Cutter Consortium. All rights reserved. Unauthorized reproduction in any form, including photocopying, faxing, image scanning, and downloading electronic copies, is against the law. Reprints make an excellent training tool. For information about reprints and/or back issues of Cutter Consortium publica- tions, call +1 781 648 8700 or e-mail service@cutter.com. Vol. 8, No. 22 ©2007 Cutter Consortium

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