Intelligent Enterprise

This article reports on Gartner's prediction that the SaaS market will hit $19.3 billion by 2011. That's in just a few years. SaaS has clearly come a long way.

"The worldwide software-as-a-service (SaaS) market reached $6.3 billion in 2006 and is forecast to grow to $19.3 billion by year-end 2011, according to Gartner. SaaS is hosted software based on a single set of common code and data definitions that are consumed in a one-to-many model by all contracted customers, at any time, on a pay-for-use basis, or as a subscription based on usage metrics."

However, all of the news is not good. As I've discussed many times here, the movement toward SaaS is problematic for many conventional enterprise software vendors. They are having trouble with both the technology and the price point.

"The scale of change involved in moving to a SaaS approach is proving hard for many vendors to manage. 'Due to the law of large numbers, traditional IT product models are becoming victims of their own success, while the relative smallness of new approaches facilitates growth much more easily,' said Ben Pring, research vice president for Gartner."

The end result of SaaS is a replacement of more conventional means of software delivery and the use of license and maintenance fees that have been driving enterprise application vendors for the last 15 years. Thus, there needs to be a huge shift in culture and sales approaches in order to make SaaS effective. Moreover, there are no more lucrative, long-term service engagements to get an ERP or a CRM system up and running. The try-to-buy model of SaaS, and the simplicity of delivery, means that not much latency occurs between wanting a SaaS-delivered product and getting it.

I see a huge shake-out in the next few years as some traditional enterprise application vendors move to SaaS and fail. Thus, the existing pure-play SaaS players become stronger, and perhaps even purchase existing enterprise application players for their customer base, moving them over to SaaS.

However, I don't think software-delivered applications will go away. Indeed, that model will always have some followers, and there are many companies that still won't allow SaaS for security and cultural reasons, and, in many cases, their enterprise applications are running just fine and don't need to be replaced.

The growth of SaaS will drive a movement, a shift in the way we develop, deploy, and deliver software. And according to Gartner, the growth is going to happen rapidly.

Application integration and service oriented architecture expert David Linthicum heads the product development, implementation and strategy consulting firm The Linthicum Group. Write him at david@linthicumgroup.com.