SaaS is surging in the downturn, says IDC | ZDNet

http://www.zdnet.com/blog/saas/saas-is-surging-in-the-downturn-says-idc/644

Software as Services

SaaS is surging in the downturn, says IDC

By Phil Wainewright | January 30, 2009, 1:51am PST Market researcher IDC has published an upward revision to its market size projections for SaaS in 2009. At a time when most industries and economies around the world are slashing their growth forecasts into single digits or even negative territory, IDC now expects SaaS growth to surge by more than 40 percent in the current year. Thats a significant move up from its previous forecast of 36% growth, published back in July when most economists were still trying to deny the onset of recession. SaaSs counter-cyclical boom is entirely due to the enhanced attractions of the model when times are bad, says IDC: the harsh economic climate will actually accelerate the growth prospects for the software as a service (SaaS) model as vendors position offerings as right-sized, zero-CAPEX alternatives to on-premise applications. Buyers will opt for easy-to-use subscription services which meter current use, not future capacity, and vendors and partners will look for new products and recurring revenue streams. Dont you just love that definition of SaaS? Right-sized, zero-CAPEX alternatives to on-premise. The reports author, director of on-demand and SaaS research Robert Mahowald, adds an interesting observation that bears out the uprating: several key vendors finished the year very strong, reporting stable financials and inroads into new customer-sets. From my own conversations with privately held SaaS players, I can certainly confirm that business seems to be expanding with continued momentum. Yesterday I was on a call with Phil Fernandez, CEO of marketing automation vendor Marketo, when I heard a bell ring and some cheering in the background. We ring that bell whenever someone closes a deal in the sales team, he explained. Someones had a good start to their day, I commented, noting it was 10am in his timezone. Thats the third time so far this morning, he replied. Marketo, which launched its offering just ten months ago, has already signed up its first hundred customers, at subscription levels that start from $1,500 per company per month. Yesterday, collaboration vendor Central Desktop reported that in 2008 it had seen a 150% increase in user count and revenue over 2007, bringing its user base to the quarter-million mark. Growth continued througout Q4 and the company signed ten new customers in December alone, including urban planning consulting firm IBI Group and on-demand ERP vendor Workday. In a counterpoint to this weeks bleak employment news, Central Desktop says it tripled its workforce last year. Chris Cabrera, CEO of sales performance management vendor Xactly, which last week acquired its largest rival, blogged about the IDC finding yesterday and picked up on Mahowalds contention that many of these SaaS purchases are seen as tactical fixes which allow for relatively easy expansion during hard times. Cabrera counters: I will be surprised, very surprised, if an appreciable number of SaaS customers dump their on-demand applications in favor of on-premise solutions when the economy eventually rights itself. The excellent renewal rates enjoyed by SaaS leaders show that, once bitten by the SaaS bug, theres little impetus to go back to on-premise solutions. I side with that analysis, and its interesting that a mainstream market researcher like IDC, even when it cant deny the success that SaaS is experiencing, still feels it has to qualify it as some kind of blip in the normal scheme of things. I think Cabrera is spot on when he concludes that IDCs findings show that the tipping-point from conventional software to SaaS is now a lot closer than anticipated. And once tipped, no matter what brought you to that point, it will be counter-intuitive to go back. Kick off your day with ZDNet's daily e-mail newsletter. It's the freshest tech news and opinion, served hot. Get it.

Since 1998, Phil Wainewright has been a thought leader in cloud computing as a blogger, analyst and consultant.

Disclosure
Phil Wainewright's work as an independent consultant brings him into direct or indirect business relationships with several of the companies that he writes about, or their competitors. Phil is committed to maintaining the independent and opinionated stance that his writings are well known for and does not enter into contracts that would limit his freedom of expression in any way. However it is important in the interests of full disclosure to inform readers of those relationships so they can form their own judgement. Read the complete list of Phil's relationships.

Biography
Since 1998, Phil Wainewright has been a thought leader in cloud computing as a blogger, analyst and consultant. He founded pioneering website ASPnews.com, and later Loosely Coupled, which covered enterprise adoption of web services and SOA. As CEO of strategic consulting group Procullux Ventures, he has developed an evaluation framework to help ISVs and enterprises select cloud platforms, and advises US and European vendors on messaging, positioning and go-to-market. His newest role as an industry advocate is vice-president of EuroCloud. Popular on CBS sites: US Open | PGA Championship | iPad | Video Game Reviews | Cell Phones 2010 CBS Interactive. All rights reserved. Privacy Policy | Terms of Use

1 of 1

23-10-2010 11:12