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 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 (INTL) 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.)
-- Dennis Byron