Software Services Market: SaaS Adoption in Business

SaaS Customer Adoption
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The software services market is growing with the adoption of Software-as-a-Service (SaaS) in small and medium-size business with Google's web-based applications and Salesforce.com's CRM offering. What other areas are ripe for SaaS solutions? Are there specific vertical industries that are or will adopt SaaS faster than others?

Early phases of software services market adoption were marked by individual business users or business groups signing up for supplementary services that helped them better do their job, in many cases bypassing their IT or purchasing departments. This occurred with early adoption of Google applications, WebEx online conferencing services, and some Salesforce usage. A Cutter Consortium survey of the software services market from Oct/Nov 2007 showed that 68% of business respondents were either using or considering SaaS solutions. And according to an April 2008 survey of CIOs currently using SaaS, 76% of whom expect to expand their use of SaaS solutions, adoption is only going to grow further.

There is now more interest among IT departments to understand how SaaS solutions can allow the IT role to morph from a reactive, technology supportive function to a more strategic business planning function, matching available services with business needs. This aligns well with the changing role of IT from infrastructure provider to internal service business, with the trend toward IT outsourcing, and with the evolution of companies toward Utility Computing as outlined in Gartner Group's Infrastructure Maturity Model. A recent survey of IT departments by Cutter Consortium shows that 25% are currently using or considering SaaS solutions for web-based IT management.

Other business functions now benefiting from beginning adoption of SaaS solutions include content document management, collaboration and productivity applications, human resources, financial applications, enterprise resource planning (ERP) for small to medium-size needs, and even business intelligence. Moreover, as SaaS products evolve from individual point offerings to platform solutions (eg, Salesforce and NetSuite), they become more viable for larger enterprises to adopt, with their requirement of integration into an existing heterogeneous IT architecture.

SaaS offerings are also penetrating into vertical markets, with more than a fifth of respondents to the Cutter Consortium survey employing industry-specific SaaS solutions. Recent In-Stat research on vertical market adoption shows the healthcare market is currently most satisfied with hosted applications, with education identified as an important potential target market also.

Another interesting vertical trend is for service providers to bundle ISV or SaaS offerings into vertical business network solutions, providing an integrated suite focused on a particular vertical opportunity, as described by Colleen Smith of Progress Software. Healthcare, legal, oil and gas, and travel are four potential industries for this type of vertically integrated network, but I am sure there are others that would fit also.

It may take some time for SaaS solutions to be mainstream across the enterprise for large business, but some adoption is occurring, and certainly long-term strategies are being developed now. It behooves business software vendors to consider and plan for their longterm strategy in a services-oriented world with an optimized software business model, and marketing strategy to ensure your product is properly positioned for your business growth.

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