Trend Radar 2008: SaaS in the Enterprise

A Gartner report from August 2007 predicted that SaaS adoption in the Enterprise will be rising at a 22% CAGR through 2011.

Worldwide total software revenue for software as a service (SaaS) within the enterprise software markets is projected to surpass $5.1 billion in 2007, a 21 percent increase from 2006 revenue ($4.2 billion), according to Gartner, Inc. The market is poised for strong growth through 2011, when worldwide revenue will reach $11.5 billion.

In the last few days, several analysts have voiced their reasoning on why SaaS will do very well in the enterprise this year. Jeff Kaplan begins his argument with Services Are Recession Proof. I happen to agree, and if you see me recommending SaaS stocks to investors despite the recession rumblings, you know why.

The early adopter applications that have already gone the SaaS way are Web Conferencing, eLearning, and CRM. These, acc. to Gartner, are in the 60-70% range of total market revenue. The laggard applications are Content Management and Search, where adoption is only at 1-2% of total market revenue.

In between, however, there is now a vast range of specialized applications like Concur (Travel), Omniture (Web Performance), Taleo, SuccessFactors (HR), Qualys (Security), etc. where adoption is already high and gaining ground rapidly in the enterprise.

Then, there are exciting new applications like InsideView,
which streamlines sales prospecting and qualification.

Today, enterprises that are ahead of the curve have already deployed anywhere between 25-50 SaaS applications. The majority of enterprises, however, are in the 0-5 range.

Expect, in 2008, this distribution to change. The number of enterprise IT shops with 25-50 SaaS applications will definitely increase, as On-Demand Computing becomes widely embraced. [Nick Carr’s advocacy of Utility Computing is worth a read.]

To me, it seems like a no-brainer. Why hire hundreds and thousands of people (even if it is low-cost labor in India) to implement, customize and maintain commodity software? The real outsourcing is when the processes are streamlined and best-practices are encapsulated into the outsourced solutions. In achieving that, I don’t see a better model than SaaS.

An example of the kinds of deals to expect from SaaS vendors is InsideView’s acquisition of Indian outsourcer TrueAdvantage, which did exactly the same thing manually for its 2000+ customers, that InsideView does as a Software-as-a-Service.

The pain felt by employees who do low-end, repetitive work when software replaces them is a story of the entire history of technology starting from the industrial revolution. This, by the way, is the same pain that US workers felt when their jobs were outsourced to India.

In this round, as SaaS replaces human IT workers, the Indians will feel more of the pain.

This segment is a part in the series : Trend Radar 2008