This article is from Alex Barnett’s blog

To kick off the new year, I presented to around 40 or 50 members of Utah Technology Council (UTC) last week. The title of the topic they asked me to speak about was “Trends in Software as a Service Platforms”. I searched around for some ideas and came across two recent posts predicting trends in SaaS for 2008, one by Phil Wainewright “Eight Reasons SaaS Will Surge in 2008” and Jeff Kaplan’s post “Top Ten Reasons Why On-Demand Services in 2008“. I decided to borrow liberally from these (thanks Phil and Jeff) and mash these two together (along with a couple of thoughts of my own) and present “8 Trends in Software as a Service Platforms” to an audience made up of CTOs and VPs of engineering and development for software companies in the Utah area.

In preparation for the presentation, my boss Martin Plaehn at Bungee Labs suggested I write up my presentation as notes blog them afterward, so here they are.

8 Trends in Software as a Service Platforms

1. SaaS is just part of the web mega-trend
   
2. Mainstream opinion says “Yes” to SaaS
   
3. Software vendors stampede into SaaS
   
4. All is being virtualized
   
5. Explosion of Web APIs
   
6. Economic factors favor SaaS
   
7. Enterprise and SMB IT embraces SaaS
   
8. SaaS platforms proliferate (PaaS)
   

1. SaaS is just part of the web mega-trend

Most of us have witnessed and many of us have been a part of the transformation in the way goods and services have been digitized, virtualized, delivered and consumed. Software, the data behind that software and the functionality that software provides is no different – software is subject to the very same forces transformational forces.

Just think about how even a class of product that is natively digital – such as software – has been transformed in the way it is delivered and consumed. For prosperity’s sake, I’ve still got a few of those ZX81 software cassettes stashed away somewhere, gathering dust, looking ever more antiquated with each passing year. How will today’s mode of software delivery and use look to us in a few years from now?

The web wants to connect things, and that’s interesting. But connecting and interacting with “live” data, information and remote functionality make things more interesting.

At the fundamental level, the web connects things. It connects people to people, businesses to businesses, and people to businesses. Since the early 90’s, the web has enabled the connection of so many things to so many other things at an ever accelerating rate, and yet we crave even more connectivity. But we increasingly also want the ability to interact with those things.

And it is the nature of these connected things that have changed since the early internet. The early web was good at connecting to static views of information and accessing limited and rigid functional services, very much a read-only mode. Then, as we learned a) the ability to read more dynamic-type information – at least regularly updated, and b) access richer remote functionality, we created whole new opportunities for ourselves. Next, we grew our ability read and write against dynamic, near real-time data and information and to program against remote functionality to create a new class of web applications leveraging those capabilities – and hence a new order of business and experiential opportunities have emerged. Some label this as “Web 2.0”.

At it’s essence, it is the “liveness” of these real-time read-write data, information and functional sources available as “always on” services and the increasing ease to connect to, interact with – specifically change those resources available as live, programmable services that allows us to create new value out of those resources, opening up brand new market opportunities for businesses and the compelling, rich “live” end-user experiences of tomorrow.

2. Mainstream opinion says “Yes” to SaaS

Not surprisingly, Wall Street loves the the predictability of subscription services. It’s good for cash flow, forecasting and business planning.

The venture firms also relish the opportunities that are opening up in a software as services-oriented economy. The ability to circumnavigate the incumbent software players with new disruptive technologies and propositions that are significantly easier to try and access for prospective customers compared to traditional software evaluation, along with usage and subscription-based business models verses the old licensing model makes investing in services-based software companies very compelling propositions from the venture firms’ point of view. We should also see healthy M&A activity based on these similar opportunities in the coming year.

And then there’s the trend for offshore / IT business process outsourcing. These providers will surely get in the game and make their plays through investments in and acquisitions of SaaS vendors that align well with their current core businesses.

Add to that the excitement we’re reading about the SaaS space from the IT Analysts, journalists and bloggers, plus the new book by Nick Carr (author of “IT Doesn’t Matter”) –  delivered by Amazon to me last week: “The Big Switch: Rewiring the World, from Edison to Google”. I think there’s little doubt Carr’s excellent analysis of the computing industry as an analogy to the electricity industry’s shift to a utility model will be on business bestseller list for much of 2008. His messages resonates with corporate executives and end-users agree with him:

• IT is a needless hassle,
  
• it should be as easy as electricity and
  
• be as reliable as a utility

3. Software vendors stampede into SaaS

The Big Software Players are following the early SaaS successes

CRM as a case in point. If you’ve been following the CRM software market, you’ll know about the noises Oracle-Siebel, SAP and Microsoft started to make in the 2007 about what they are are lining up for the 2008 in terms of CRM as a service. Their efforts to emulate Salesforce.com‘s success delivering CRM as SaaS will be key strategic bets from the incumbents’ point of view – and loud, price and functionally competitive propositions from the point of view of their existing and prospective customers.

CRM is just one of the multiple horizontal solution categories to transform from on-premise with traditional licensing model to a service-based delivery and subscription-based revenue model. ERP, supply chain, e-commerce, HR and many more…the horizontal solution list goes on. And then there are the vertical solution players…

Here’s another data point to consider regarding the move by traditional software vendors to a SaaS model:

“15-20% of application ISVs have already either begun new skunk works initiatives or gained access to SaaS assets and development experience through M&A activity”

(Source: Key Trends in SaaS: 2008 and Beyond, Saugatuck Technology)

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