A field guide to software as a service

Everywhere you turn, another company pops up offering SaaS (software as a service). Inspired by the success of Salesforce.com, SaaS vendors are hoping customers large and small will get the message: Browser-based, pay-as-you-go applications mean fewer servers for your IT department to maintain and less capital to shake loose from the CFO for software licenses and hardware.

For whatever such estimates are worth, IDC recently forecasted that worldwide spending on SaaS will reach $10.7 billion by 2009. But there’s so much SaaS running around already that we couldn’t help but wonder: Could you run a business entirely on hosted offerings?

That somewhat playful question was the genesis of this buyer’s guide to SaaS -- although we already knew the answer. Healthy enterprises need to develop their own unique applications, and any modern IT infrastructure needs to be fully integrated in a manner that can’t be achieved with SaaS solutions today.

But an urgent need to stop piling cost and complexity on IT is sowing the seeds of change. Although enterprises may not be replacing effective, large-scale systems with SaaS alternatives, the SaaS option suddenly becomes perfectly viable when it comes to adding new functionality. And, as Salesforce.com discovered, SaaS can be particularly successful at replacing in-house or off-the-shelf software that has failed miserably.

In our survey of hosted software offerings, we’ve divided the SaaS universe into four parts: back-office applications (ERP, purchasing, HR, and so on), messaging, integration, and CRM.

These rough groupings, however, hardly cover the whole territory. For example, hosted versions of Mercury’s software quality, performance, and availability solutions continue to increase in popularity. Meanwhile, Web analytics, another monitoring technology, enjoys more traction as a hosted service than as server-based software. Recently, InfoWorld reviewed three of the leading hosted content management systems, revealing a surprising depth of functionality. SaaS search and collaboration are also proliferating. BPO (business process outsourcing) vendors provide not just software but the staff to operate it as well. And we haven’t even touched MSPs (managed security providers), a world unto itself that we’ll cover in an upcoming issue.

The bottom line is that a growing number of companies are choosing the on-demand model instead of packaged software. True, no enterprise would switch all its systems to SaaS overnight. But the success of Google’s Gmail proves that the hosted model is viable even for categories such as desktop productivity apps, which were once the exclusive domain of commercial off-the-shelf vendors. Application by application, during the coming years enterprise IT will rely more and more on hosted services that deliver deep functionality with very little maintenance at a very low cost of entry.
-- Eric Knorr

Back Office

On the face of it, you might think the ERP, supply chain, and database applications your company relies on for essential operations would be the last things you’d want someone else hosting. Yet that’s exactly what big players such as Oracle, SAP, and Siebel are doing for as much as 8 percent of their customer bases.