Forrester: SaaS won't succeed with some apps

The analyst firm picks the winners and likely also-rans for SaaS

Given all the hype SaaS (software as a service) has garnered, you might be inclined to think every category of software will be delivered predominantly from the cloud at some point. Not so, says a new Forrester Research report.

In fact, SaaS will only be "a disruptive force" in software categories that account for about a quarter of global software spending and will have "little or no effect" on many of some 123 market segments studied, Forrester analysts Liz Herbert and Andrew Bartels write.

SaaS faces major obstacles in four broad sectors of software. They include lower-level elements of the stack, such as operating systems and databases; software for internal IT management and data management; "legacy, entrenched process applications"; and vertical applications, such as a securities transaction processing system, Forrester said.

Such systems make up 40 per cent of all software spending and the reasons they'll stay mostly in-house -- security concerns, existing infrastructure investments, the need to tightly integrate with other applications -- are "pretty obvious," Forrester's report states.

But SaaS is making inroads in mature application areas such as SCM (supply change management), particularly when the customer hasn't already purchased such functionality from an on-premises vendor, it adds.

Meanwhile, SaaS is starting to shake things up in areas like CRM (customer relationship management) and human resources, where it is replacing on-premises systems. SaaS is also making some inroads in GRC (governance, risk and compliance) and application development, Forrester added.

In still other categories, SaaS is now "the majority model for software sales and delivery," the report states. Those include e-purchasing, expense reporting tools and blogging and wiki platforms.

Still, products where SaaS has taken hold of at least 50 per cent of revenue amount to only three per cent of the total software market, Forrester said.

The report's final category focuses on software types where SaaS vendors are essentially the only ones in the game. This tends to be the case for fairly new types of applications, with examples including compensation management, services procurement and trade management, according to Forrester. The emergence of new product variants has also given SaaS vendors who sell them a chance to mature while legacy players catch up, the report adds.

There are clear and long-standing reasons why large software vendors have been slower to embrace SaaS, chief among them the lucrative and predictable streams of revenue provided by annual support fees for on-premises software.

SaaS, in turn, is typically billed on a subscription basis and is generally considered easier for a customer to migrate away from than an on-premises product, a situation compounded by the fact that many SaaS contracts are year-to-year.

Still, the likes of SAP and Oracle are now moving quickly to bring more SaaS products to market, particularly for their largest customers.

SAP is planning to deliver a series of add-on SaaS extensions for its Business Suite software, while Oracle has said its upcoming Fusion Applications will be available in SaaS form if customers desire.

Chris Kanaracus covers enterprise software and general technology breaking news for The IDG News Service. Chris's e-mail address is Chris_Kanaracus@idg.com

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Chris Kanaracus

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