SaaS to co-exist with on-site solutions

More than two decades ago, when Sun Microsystems stated “the network is the computer”, it gave an inkling of what is now unfolding as SaaS. The growth of SaaS has freed companies from the need to own expensive hardware and manage several different systems. The SaaS brigade is being led by Salesforce.com. RightNow, and NetSuite. These companies offer access to their services over a web browser. Writely, which was taken over by Google in March 2006, offers office productivity applications.

Analyst firm IDC believes that global spending on SaaS is set to grow at a CAGR of 21% and it will go past $ 10.7 billion in the next 3 years. Industry watchers and players such as Jeff Kaplan, M.D THINKStrategies and Zach Nelson CEO NetSuite are among the many who feel that the appeal of SaaS lies in its ease of use and cost effectiveness as compared to on-site applications.

Yet, in the near future packaged applications that can be customized to meet a customer’s demand will co-exist with SaaS solutions. ISVs will continue to keep both alternatives in their portfolio. SaaS vendors are working on wooing large enterprises and hope to get rid of the “SMBs only” tag. Companies such as Salesforce.com are adding sophisticated customization abilities that will enable on-demand software to work in sync with mission-critical applications used by large companies. NetSuite, for example, enables BPM processes to be executed via SuiteScript and communication between NetSuite and third-party systems can be carried out through web services.

Similarly, AppExchange by Salesforce.com will allow users to connect to a host of legacy applications and third-party programs. Large companies are increasingly preferring the advantages of SaaS over the time and effort that goes in implementing and integrating on-site CRM solutions. Nobel Learning Communities, which runs 150 private schools in America, is one of the larger clients of NetSuite’s SaaS offering. Nokia and Yamaha are large businesses that use Salesforce applications while the on-demand corporate expense management software offered by Concur Technologies is used by companies such as Citigroup, Dell, and Ford. Marc Benioff, ex senior V.P Oracle, faced criticism when he was starting with Salesforce.com.

The business model that back then attracted skepticism is now being adopted by the major legacy CRM players such as Oracle and SAP. These companies are now remodeling their applications to make them suitable for web based distribution. SAP is making use of its NetWeaver platform for giving its on-demand product a standardized data model and architecture; this enables users to connect their on-demand and on-premise applications and easy integration of data with SAP back-end systems.

Shifting to SaaS by the vendors of traditional software vendors entails getting used to a scenario where regular licensing fees may be a thing of the past. Companies such as Microsoft that have earned substantial amounts from packaged software licensing; Microsoft’s partners are now hosting its on-demand CRM package. Microsoft allows its partners to deal in both on-demand and on-premise solutions; thereby reaching out to its customers with varying short-term and strategic long-term requirements. Another aspect, which traditional vendors who are moving toward SaaS need to consider, is that by moving too fast with SaaS they may end up cannibalizing their existing revenue streams. The big players are hoping that their on-demand offerings will take market share away from the pure-play SaaS vendors and not from their legacy offerings.