I was walking over to Moscone Center today to pick up my Salesforce.com Dreamforce conference badge and was greeted by the cutest blue sky / cloud ads plastered to everything that doesn't move (well, and to a bunch of things that do move as well). It reminded me of something Oracle CEO Larry Ellison said during a briefing to financial analyst during the recent Oracle OpenWorld event. When asked about "cloud" computing and what Oracle planned to do in cloud computing Mr Ellison said (I'm paraphrasing a little) "the software industry is the only industry that is more fashion conscious than women's fashion...for cloud computing I've instructed our marketing teams to put "cloud" on everything we do"...made me laugh then and still does but, I think, you get the point. I'm not a big fan of our shift to "cloud" computing over SaaS but whatever. Looking at all the happy little clouds and thinking about Dreamforce this week did get me thinking about the current state of SaaS and what I believe will happen over the next couple of years.
If you read my post on the financial crisis you know that I believe that the current market will actually drive more customers to consume software in the SaaS model (or cloud if you prefer). There's more going on here though. If you have tracked growth rates in SaaS for the last 2-3 years you would have seen that growth in the small and medium business segments (0-99 employees and 100-499 employees) has far outpaced (by 10-15%+) upper medium (500-999 employees) and enterprise (>999 employees). That's not a surprise, many SaaS vendors initially targeted small and medium business and the value proposition of SaaS (easy to implement, fast time to value, lower cost of ownership, less internal resources, etc.) is particularly appealing to SMB's. Over the last 9 months that has shifted and now enterprise and upper medium businesses are adopting SaaS faster than small and medium businesses (by 10-15%, SMB growing at around 40+% and upper medium / enterprise growing at 50-55%). I have for some time thought that the so called tipping point for SaaS would happen when enterprise growth / adoption of SaaS solutions accelerated / outpaced SMB's. To me, this signals the move of SaaS solutions to the main stream. So why the shift this year? Well, a combination of things came together around the same time, including last years subprime mortgage crisis, to start the shift. Add to that the visibility of SaaS vendors, the broader range of software available in the SaaS model, the general acceptance of SaaS and its value proposition and the fact that almost all of the major "names" in software are offering (or at least have announced offerings) in the SaaS model and it's easy to see why SaaS is now a mainstream offering. Today SaaS deployed software represents only about 3% of the total worldwide software market but at current growth rates it will be over 12% by 2012 2006-2012 CAGR of 33%). With the "new" financial crisis I think that number is to low though, SaaS solution growth will accelerate from calendar Q4 of this year through the next 12-18 months with CAGR for 2008-2012 looking more like 45%. That's very significant when we are lowering overall software forecasts to a 2007-2012 CAGR of 4.8% for application software...yes, SaaS is mainstream now.
