SaaS adoption will move beyond the "Tipping Point" in 2009. Enterprise customers are moving to the on-demand model for a variety of applications as concerns about its shortcomings decline.

When it comes to the topic of SaaS, many on-premise vendors appear to be living in denial, hoping that SaaS fails, and creating confusion in the market place to hasten its demise. In reality, these vendors are missing a significant opportunity to grow market share and reposition their companies for future success.

On-premise vendors still see SaaS as a loss leader due to huge ramp up and punishing revenue recognition rules
Most non-SaaS software vendors just want SaaS to go away. A shift to SaaS requires plenty of work with minimal return - not to mention the destruction of the current business model. In conversations with 61 vendors and building off of SaaS evangelist Jeffrey Kaplan's post (July 2, 2009, Seeking Alpha - "From the Vendor's Point of View: Why SaaS Sucks"), vendors who have made this transition or have started the investment put in heavy lifting in these activities must:

• Re-architect apps
• Find balance between configuration and optimization of SaaS platform
• Design product road map and rollout strategy
• Determine SLAs
• Identify a hosting strategy
• Craft pricing and licensing policies
• Harmonize SaaS pricing with On-premise and other models
• Create go to market strategy
• Alleviate channel conflict with partners, resellers, distributors

After all this work to be ready for SaaS deployments, vendors also discover that FASB SOP 97-2 software revenue recognition rules prohibit them from immediately recognizing multi-year contracts. Even worse, subscription revenue can only be recognized on a month-to-month basis - leading to a long road to profitability. In fact, vendors such as Lawson, estimated a 7 to 10 year break even period for a full SaaS model. No wonder Harry Debes was fired up on how SaaS could be a fad in his interview with Victoria Ho at ZDNet last year. In private, most software executives also echo such sentiments and wholeheartedly agree with his comments about the business model challenges.

Yet, SaaS adoption moves beyond the "Tipping Point" in 2009
However, the confluence of recessionary forces, stalled innovation from many on-premise software vendors, and success of early SaaS pioneers such as SalesForce.com and NetSuite has pushed Software-as-a-Service into the mainstream. Vendors can no longer resist the move to SaaS without negatively impacting their license sales and customer mind share. Additional facts highlight the shift:

• Forrester State of Enterprise Software 2009 survey results confirm significant adoption rates from 2008 to 2009. Of 1,000 IT executives and decision-makers, 24% were interested/considering, 11% implemented or planning to expand, and 5% piloting SaaS solutions (see Figure 1).

Continued...

Pages: 1 2 3

-