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Print Edition StoriesFriday, December 19, 2008
Looking ahead: Sector by sector surveys of the landscape ahead
SaaS model matured in 2008; economy could boost 2009
By Galen Moore
In their own words: Chris Dyl, CTO, Turbine Inc.
In their own words: David Chang, co-founder/VP of marketing, Snapmylife.com
In their own words: Michael Bayer, CEO, Utterli
In their own words: Sanjay Vakil, founder, LuckyCal Inc.
In their own words: Thomas Summit, founder, Genotrope Corp.
Among the evangelists who, early on, said software should move to the Internet, 2008 was the year to say “I told you so.”
The latest generation of web-based application developers credits its success to changes in market perception — not to any major technological leap. In some ways, they acknowledge, software-as-a-service, or SaaS, is old wine in a new bottle. But 2008 was the year, industry players and watchers agree, that web-based software hit the mainstream.
In October, Gartner Inc. predicted the global annual market for SaaS applications will be worth $6.4 billion in 2008, a 27 percent increase over the previous year. In the next three years, that market will more than double, reaching $14.8 billion by 2012, the Connecticut-based analyst predicts.
“Sometimes economic factors really give rise to or allow technology to flourish,” said OpenAir CEO Morris Panner. The company, which sold to California-based NetSuite Inc. (NYSE: N) in June for $26 million, has been in the web-based software business since 1999. “2008 was a year when people started asking very serious and hard questions about the economy and their future,” he said.
Web-based software is gaining acceptance with IT departments, watchers say, but SaaS startup MedCommons Inc. is counting on individuals to drive adoption, because they can pay by the drink for the company’s physician document-sharing service, said chief science officer Adrian Gropper.
In 1999 and 2000, first-generation web-based software companies called themselves ASPs — application service providers. “Basically, what companies were doing was (remotely) hosting traditional client-server applications that were designed to be hosted on premises,” said software consultant Jeff Kaplan of ThinkStrategies Inc. in Wellesley.
The SaaS model changed that with multi-tenancy, allowing many customers to use individual compartments within a single code base. But multi-tenancy isn’t new, said Sean Poulley, vice president of cloud services at IBM Corp. What’s new is how SaaS providers have been able to use other existing technologies, like agile development and increased broadband access, in a way that has only recently grabbed IT managers’ attention. Poulley likened it to how Apple Inc. built its iPod on e-commerce, high-speed bandwidth and mass data storage.
“None of those three things were that innovative when (the iPod) came around,” Poulley said. “What was innovative was the combination of those three things in an easy-to-use, easy-to-access package — and that was what caused the explosion.”
In June, NetSuite sought to exploit its cost efficiency over traditional software, offering its enterprise resource planning software to SAP AG customers for half of what they had paid SAP (NYSE: SAP) for its R/3 ERP software.
But even lean-operating SaaS providers shouldn’t expect price alone will do the deal, said Jim Geisman, founder of Wayland-based softwarepricing.com. “What’s your least favorite dish? Maybe you hate octopus. What difference does it make if octopus is only a buck a pound? You’re still not going to buy it.”
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