Has SaaS Enterprise Software Reached Its Peak?

A Forbes article posted the morning of August 4 begins,

“Few doubt that, if all business software currently in use were available through the Software-as-a-Service model 10 years ago, the percentage of SaaS implementations would be much higher today.”

I guess I'm one of the few. The sentence read quickly might mislead you in your enterprise software and information technology (IT) investment decisions. I let the author, Dan Woods, off the hook because he explains the meaning of “all business software” further down when he describes the industry-centricity of the leading ERP packages. I just hope you haven’t rushed off to bet on a so-called SaaS vendor before you have read the whole Forbes article.

In fact, all business software available through the SaaS model today WAS available 10 years ago; FROM the same so-called SaaS suppliers mentioned in the Forbes article in a tone that implies that the idea is something new in the last few years. And software was also available as a service 10 years ago from the enterprise software market leaders—SAP, Microsoft (MSFT) and Oracle (ORCL)—mentioned in the article.

I don’t even believe the term SaaS vendor is a good one to use in thinking about IT investment but for the sake of my blog post, take the list of top SaaS vendors according to conventional wisdom: Salesforce.com (CRM), NetSuite (N), Concur (CNQR), Taleo (TLEO) and RightNow (RNOW). Salesforce.com is exactly 10 years old and the rest are older.

Although Salesforce.com was founded in 1999, there were plenty of other CRM functionality services available before that. For example, just using this list, RightNow was formed in 1995 and its service rolled out in 1997. NetSuite was founded in 1997 and played with various enterprise-software distribution options in addition to SaaS over the years including selling its software indirectly though Oracle, whose founder and major shareholder is also NetSuite’s supermajority shareholder. Concur is 16 years old and has offered its functionality as a service almost from the beginning, most notably via Automated Data Processing (ADP). Taleo was formed 10 years ago but on the back of 1996 Canadian start-up, Viasite.

Scratch most any other so-called SaaS supplier and you’ll most likely find a similar story.That’s because the idea basically dates back to the mists of IT market history with the terms timesharing (the business model, not the computer design concept), service bureau, application service provider, and so forth used at various times to describe the same basic idea.

That’s why I’d turn the first sentence in the Forbes article into a question and ask,

“Since all business software has been available through the Software-as-a-Service model for many years, why isn’t the percentage of SaaS implementations much higher today?”

The fact is that the percentage of what you might call SaaS adoption is already very high in certain industries, community banking and healthcare delivery in particular. The reasons presented in the article as explanations for slow SaaS adoption are pretty accurate (except for the thing about how it is sold) but they are decades-old problems, not current events. The IT investment research question is whether SaaS—or whatever you called it over the years—has reached its peak or whether it has room to grow in other industries.

I also wouldn’t rush out and buy shares in the listed enterprise-software market leaders based on the prescription Forbes offers on how they can “catch up with NetSuite and Salesforce.com." SAP and Microsoft have had programs to do all the things recommended also for as long as a decade. See the late 1990s SAP joint venture with Intel (INTC) called Pandesic and the reason Microsoft gave investors when it bought Great Plains in December 2000.

As for Oracle, I think its strategy is to wait and see how NetSuite does and then just fold it – or refold it – back into the corporate structure. But that's even a side bet. Already Oracle is claiming to be the second largest SaaS vendor after Salesforce.com, based on its $700-million OnDemand revenue stream. (That claim is directionally correct but the numbers are not an apples-to-apples comparison. But that’s another blog post if anyone cares.)

Comments

[SaaS Practi...:]

Has SaaS Enterprise Software Reached Its Peak?

Have you answered the question?

Aug 04 10:34 AM

[JamesApple:]

SaaS has not peaked more a victim of the fact that the enterprises are mostly not ready for SaaS than any other reason. SAP and Microsoft are mature products but the adoption of these 2 products is difficult and costly because of the lack of quality seasoned employees and consultants. SAP clients can attest to the many misled and terribly configured, implemented, and misused SAP instances due to hiring the wrong kinds of people and firing the good ones due to office politics. SAP is already the global leader in ERP and Netweaver type of web application server based products. As economy improves enterprises of all sizes will deploy SAP but here is the point: quality seasoned people are a must for selling SAP and SaaS systems. The problem is enterprises do not know how to solicit these quality seasoned people and keep them, and the enterprises do not empower these people to make these software do their work.

How now, my cow?

Aug 04 12:12 PM

[contracontr...:]

SaaS today and even more in the future can be hardly compared to SaaS 10 years ago in terms of speed,quality of the offerings and real world usability. A similar question would be: Why wasn't everyone using the internet in late 80s,when it has already existed for decades?

Aug 04 01:40 PM

[AKinSS:]

The quality of the software had less to do with lack of SAAS uptake in the last 10 years than the next 10 years. The big challenges were in delivering the software over the web in a consistent manner with a user experience that was at least equal to using it on the desktop if not better. Case in point is Google docs. Using online docs is feasible now not because google docs are better than word docs but rather because of the ubiquity of high bandwidth connections. As delivery models improve with faster and reliable delivery (e.g. Akamai, etc) and security questions get answered SAAS can only go up. Which vendors succeed is a different question but the advantages of SAAS far outweigh any arguments to not use it.

Aug 05 10:20 AM

[Brian K.:]

Couple of points to make:
1. SaaS models work within certain industries (as pointed out above) as well as within certain functions - take Human Resources. A good portion of HR software is now delivered via SaaS model (full disclosure - my firm is in this market). This happens for many reasons including cost, complexity and focus of internal IT to supporting lines of business rather than internal functions.
2. SaaS models are more accepted now due to the fact that business models are ever more complex than years ago, data is ever more readily available now and the context in which decisions are made and analysis conducted is quite dynamic. SaaS models allow users of software to shift the burden of changing the software to fit the analysis of the day from the company itself to the vendor that provides the service. This allows companies to not hire big IT staffs to configure software and shifts the true issue - managing complex data - to the vendor as well.
3. SaaS is lower risk - from cost and delivery standpoint. It is lower cost upfront and ongoing staff is not needed to "make it run". From a risk standpoint, a company is not stuck with software that does not work and/or shelfware that never gets used. When working with SaaS vendor, if software does not fit need or is no longer valid, companies stop using the software and end relationship.

Aug 06 03:14 PM

[SaaSBear:]

You are talking nonsense. SaaS is the most important model for IT, because it enables value-at-scale - versus business-as-usual IT - which, in large enterprises, is just a corrupt relationship between business-illiterate IT people (CIOs, etc.) and their friendly, useless suppliers (SAP, Microsoft et al). You are just an IT guy with a limited understanding of what service v. software really means. I'm fed-up with people like you making these unsubstantiated claims.

Aug 07 09:27 AM

[jezzaman:]

I like the fact that the author has a memory of historical activities in the software world. Most times articles aren't given enough thought, or the authors are too young, to realize SaaS has been a wave in the making for quite some time. Multi-tenancy and cloud computing and usage based subscription models are quite new to enterprise software and all things culminated to become what SaaS is today.

So I ask, what's next?

Aug 07 10:03 AM

[I_saw_SaaS_...:]

You may be the lone voice among the in the site full of BJ-for-hire SaaS promoter. You will (or have) get your share of attack from them. You have great insights and offer a refleshing and reasonable analysis, unlike the SaaS craps that are published around here. Really enjoy reading your piece.

Aug 17 06:32 PM