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Conventional wisdom says Software as a Service [SaaS] companies like Salesforce.com (NYSE:CRM) and NetSuite (NYSE:N) will perform well during a recession. Some pundits even think SaaS providers are immune to a recession.

I wouldn't go quite that far. But I do believe technology investors should focus on three markets in 2008. They are SaaS, managed services and open source. Here's why.

If the economy slows, chief information officers [CIOs] will surely take steps to delay or even cancel big internal IT projects — particularly complex application development efforts. In stark contrast, SaaS offerings from Salesforce.com and its rivals provide CIOs with predictable monthly costs and on-time deployments, and the risk of hidden costs is very low.

With these benefits in mind, SaaS remains a hot topic on Wall Street. Big software companies will surely follow Salesforce.com into the SaaS market. I continue to hear, for instance, that Symantec will launch the Symantec Protection Network in a matter of weeks.

Meanwhile, SaaS will continue to converge with managed services, as technology consultants meld their network management capabilities with application deployment expertise.

Peter Sandiford, CEO of Level Platforms, describes this convergence of SaaS and managed services in a recent blog entry for MSPmentor. The managed service industry is filled with small software companies that are hiring talent and mulling initial public offerings in late 2008 or 2009. Keep a particularly close eye on Autotask in Albany; Level Platforms; Kaseya; ConnectWise and N-able, just to name a few.

We're also seeing the convergence of open source with SaaS and managed services. SugarCRM, for instance, is a fast-growing application provider that ranks among the top 10 open source firms you should be watching. In fact, SugarCRM offers its software as either an on-premises or on-demand solution. Watch for an IPO in late 2008 or 2009.

On the managed services front, companies like Untangle are promoting open source security solutions as robust, community-enhanced alternatives to closed-source technology. Untangle has lined up about 50 new managed services partners since September 2007, lifting its partner ranks to about 60 companies — about half of which have already generated sales for Untangle.

Untangle, still privately held, isn't alone. Watch for Red Hat (NYSE:RHT) and Novell (NASDAQ:NOVL) to start talking more aggressively about SaaS and managed services in the months ahead.

So, are managed services and SaaS the perfect antidote to a sick economy? I think not. But if I had a few extra bucks for tech investments, the most compelling bets remain SaaS, managed services and open source.

Disclosure: None.

Source: Recession Proof Software? Try SaaS, Managed Services and Open Source