SaaS: A Blue-Chip Enterprise Solution?
A new study looks at the experiences of corporate SaaS adopters and finds satisfied customers who are looking for more enterprise-ready features.
By Bill McNee, Bruce Guptill and Mike West, Saugatuck Technology
Jul. 28, 2008
Already entering its third wave, Software-as-a-Service (SaaS) is now spreading throughout the enterprise, delivering mission-critical solutions well beyond the basic software functionality of first-wave SaaS offerings. In just a few short years, SaaS has evolved from simple subscription-based application solutions at the margins - email, web conferencing, and CRM -- to offering core application solutions such as HR, Finance, BI and Procurement, as well as IT infrastructure solutions delivered as cloud-based services. In this sense, SaaS has been steadily moving from the edges to the core, and in another few years will increasingly bring ERP, Supply Chain and GRC solutions to the enterprise.
On-demand infrastructure solutions are evolving and maturing even faster than SaaS solutions have. IT-as-a-Service spans more than networks, raw compute and storage capabilities to include systems management solutions, security, mobile device management, performance management, problem management, configuration/change management, vendor SLA compliance monitoring, and capacity planning.
But is SaaS truly "enterprise ready"? There are two sides to this question. The first concerns the evolution and maturity of a SaaS solutions and the platform that delivers it - as well as the underlying value proposition being provided. The second concerns how the buyer or user organization manages its SaaS solutions, and whether it adopts SaaS solutions on an ad hoc basis or takes a more proactive (managed) posture toward including SaaS within its application portfolio and application architecture.
This article highlights some of the key findings and conclusions from Saugatuck's latest 42-page research report, Enterprise-Ready, or Not: SaaS Enters the Mainstream published July 10, 2008 - which focuses on whether SaaS is now ready to participate as a blue chip solution in the business portfolio.
SaaS and the Enterprise - Changing Expectations
In many regards, SaaS is one of the few IT advances that has lived up to its hype. Its low cost and ease of adoption provide it with a multitude of paths into almost every user enterprise. SaaS has moved well beyond its tipping point; now that it is in the enterprise mainstream, expectations and demand are beginning to challenge SaaS providers' ability to deliver on features and functions that will enable SaaS solutions to stand alongside on-premise solutions. So while today's user satisfaction with SaaS providers and offerings is extremely high, the push to spread SaaS and its benefits throughout the enterprise could deflate that satisfaction significantly unless platforms and solutions evolve to meet user expectations.
With approximately 40 percent of companies worldwide adopting at least one Software-as-a-service (SaaS) solution by year-end 2008, SaaS is expanding well beyond its early low-cost, easy-to-deploy niche application roots to become an important business computing force that is fully integrated with enterprise architectures. SaaS is growing up, and going global, with an increasing focus on core financial and human resource management systems of record - not just on the early poster-child solution categories such as CRM, sales force automation and collaboration.
At the same time, SaaS is moving beyond the delivery of a variety of front-office, back-office and niche solution categories - as it increasingly plays a major role in the transformation of IT itself (and in the evolution toward a new Cloud-based platform that will support a significant portion of tomorrow's workload).
As Figure 1 highlights, SaaS continues to grow in successive waves of evolution and adoption, and its complexity and capabilities are accelerating. A confluence of business and technology tides has combined to raise a fourth SaaS wave - a wave that threatens to sweep IT and business up together (and forward) in ways not previously experienced.
Figure 1: From Waves to the Cloud: Four Stages of SaaS Evolution
Source: Saugatuck Technology Inc.
In the short-term, however, accelerating user acceptance of SaaS will move rapidly to widespread user expectation of ever-increasing SaaS capabilities and functionality directed at linking and interoperating with on-premise systems. And as SaaS becomes more integral to user business, user needs and demands for customization and more unified and integrative platforms increase - all hallmarks of Wave III (and beyond)-style SaaS offerings.
At the same time, as the use (and value) of SaaS grows within user enterprises, so does the need for management, both technology-driven and in terms of ongoing internal management controls and processes. This is especially important, as SaaS is embraced as a centralized and enterprise-wide solution by large enterprises.
In fact, as recently as two years ago many large enterprise CIOs and their staffs were skeptical and in some cases wary of SaaS - even as it was being adopted by business-units for a variety of niche oriented requirements. However, a huge learning curve has occurred over this period - with many CIOs now recognizing that SaaS is merely another arrow in a quiver of solution options available to deliver business value. In fact, our research suggests that large-enterprises see the potential for (and increasingly plan to use) SaaS for mission critical workloads in the 2009-2012 timeframe, as SaaS itself becomes more enterprise-ready.
As Figure 2 highlights, some of the fastest growing SaaS solution categories are around "core" systems of record, such as HR / Benefits, Finance / Accounting and Procurement & Sourcing through (see Red for emphasis).
Figure 2: SaaS Application Adoption (Worldwide) - 2008-2010e
Source: Saugatuck Technology - SaaS Survey Research 2008 (n=418) - % of companies deploying
Longer-term, however, SaaS is one just piece in the new "Cloud Computing" architecture that is emerging - as it evolves into a series of converged platforms for the delivery of on-demand infrastructure services, SaaS solution enablement and cloud-based development. At the center of this vision is the emergence of a variety of "Platform-as-a-Service" (PaaS) offerings from both next-generation and traditional software providers (see Figure 3).
Figure 3: Cloud Computing and Platform-as-a-Service (PaaS)
Source: Saugatuck Technology Inc.
In many ways, Cloud Computing actually becomes - in a very short time - "Cloud Business." It is the natural progression of SaaS, the IT utility concept, and business process outsourcing and transformation. It enables the delivery (and refinement) of optimized IT and business simultaneously, in real-time and on-demand, or more likely, as parts of selective outsourcing strategies in a hybrid IT and business environment.
Market Impact:
Partial / Select List of Strategic Planning Positions (SPPs): - By YE 2010, at least 65 percent of businesses (worldwide) will have at least one enterprise-level SaaS solution installed - with the US achieving an even higher adoption rate exceeding 75 percent.
- Between 2009 and 2012, at least 40 percent of mid-to-large enterprises will seriously evaluate SaaS-based "core" financial systems of record, as well as broader operational requirements (e.g., order management, procurement, ERP, HR).
- Through 2010, SaaS presence within user enterprises will be under-reported, and therefore under-managed, by at least 25 percent. As a result, through 2010, SaaS management costs will be at least 25 percent greater than necessary.
- Through 2012, Virtualization and Multitenancy, both common components of these SaaS Platforms, will offer advantages and have limitations; both, however, will also offer the promise of "Green" IT, as they consume fewer resources relative to the traditional on-premise data center for any given workload.
- Through 2012, the ability to capture, access and manage data - aggregating and channeling customer data, analyzing and understanding operational data, and assessing Ecosystem partner data - will be key to the success of the Ecosystem/Marketplace/Platform system, as Master Brands assert control over their customers, their partners and their platforms.
- Cloud computing will account for half of all new enterprise IT, and 25 percent of all user business processes, by YE 2015.
- Expanded use of mobile devices (e.g. smart phones, PDAs, tablets) will drive most initial cloud computing growth in user enterprises. Mobile-focused cloud infrastructure, integration, and business services will account for more than two-thirds of cloud computing adoption by user enterprises through 2012.
- By YE 2012, 80 percent of software providers worldwide will either have a significant SaaS component to their portfolios, or will be fully SaaS-focused with a dwindling legacy customer base.
- By 2012, roughly half of the companies considered "SaaS Master Brands" will be pure-play SaaS providers; the remaining will be traditional Master Brands who have repurposed their businesses.
User Impact:
Overall, user satisfaction with SaaS is exceptionally high, with 84 percent of more than 400 users surveyed worldwide citing that they are either "satisfied" or "very satisfied" with their SaaS solutions. This suggests that SaaS will continue to gain great acceptance within user organizations, as SaaS "penetrates and radiates" all corners of the enterprise, and across all size companies, in all regions of the world.
This also suggests that customer retention rates (often exceeding 90 percent for category leaders today) will likely remain strong throughout the planning horizon, as high user satisfaction - combined with SaaS becoming increasingly embedded into broader enterprise architectures - makes it difficult to dislodge once engaged. In this sense, SaaS may end up being just as much of a long-term lock-in as many traditional on-premise systems have historically been.
Most user enterprises continue to pursue "point-solution" SaaS, deploying SaaS to fill specific needs in specific processes or departments. As their use of SaaS grows in these areas, the benefits of SaaS become more evident to other areas of the enterprise, and SaaS begins to spread. Many SaaS-using organizations are now feeling the need for extending governance processes to include SaaS, particularly in regard to personalization, customization and integration with on-premise offerings. The key challenge of this Third Wave of SaaS will be incorporating SaaS into enterprise workflow as just another business asset.
Extending governance will also further improve user satisfaction with SaaS, and enable more value from SaaS in more areas of the enterprise. Proactive discussions with SaaS providers regarding critical "enterprise ready" capabilities such as personalization, customization, integration and workflow will lead to more satisfactory solutions. Governance is a key means of making SaaS enterprise ready, and making the enterprise ready for SaaS.
Vendor Impact:
SaaS as a market phenomenon has evolved from point solutions to enterprise-level systems and platforms - whether or not SaaS offerings, and their providers, are entirely ready to respond to user expectations.
Users increasingly expect enterprise-level capabilities - such as personalization, customization, integration and workflow - and continuingly increasing value from SaaS solutions and providers. In order to deliver, SaaS providers need to develop enterprise-ready SaaS platform capabilities.
And while many SaaS providers and solutions are more than capable of delivering enterprise-level value to their customers, Saugatuck's survey data regarding SaaS satisfaction indicates that users are, on average, barely satisfied with many of these. SaaS providers need to look more deeply at customer data to determine where, and why, users are less satisfied, and find ways to improve offerings and their underlying platforms.
Bill McNee, Bruce Guptill and Mike West help lead Saugatuck Technology's subscription research and market strategy consulting practice. This op-ed summarizes some of the key findings from a new 42-page Research Report that was published this month as a deliverable of Saugatuck's CRS subscription research service, entitled "Enterprise Ready, or Not: SaaS Enters the Mainstream." It is available by visiting Saugatuck's website at http://www.saugatech.com/460order.htm www.saugatech.com/460order.com or by visiting http://www.saugatech.com/crs.htm. This Op-Ed was originally published as a Research Alert on July 11th, 2008. To register to receive Saugatuck's complimentary RAs, go to http://research.saugatech.com/cgi-bin/order/signup3.pl