SaaS: The early years

A Goldman Sachs report on IT spending -- based on a survey of 100 CIOs -- provides an interesting snapshot of SaaS adoption and market trends:

We are still in the early days of enterprise SaaS adoption, with 39% of companies still not deploying any SaaS solutions, while an additional 43% are deploying less than 5% of their software seats through SaaS.

None of the CIOs surveyed currently receive[s] more than 20% of their software licenses as a service.

However, over the next year, CIOs expect to begin shifting to a more on-demand environment, with over 30% of companies surveyed expecting to receive 6%-15% of their software on-demand and 7% expecting to have more than 20% of software seats delivered as a service.

We would expect to see the number of deployments grow significantly over the coming years, as SaaS deployments displace current on-premise applications in addition to expanding the market by lowering the barriers to adoption for the SMB market.

The applications most commonly cited for SaaS adoption (now and in the next 12 months):

1. Web conferencing
2. Sales force automation
3. Learning management systems
4. Customer relationship management (CRM) outside of sales force automation
5. E-mail

Somewhat surprisingly, giant IT vendors such as Oracle, Microsoft and Cisco dominated the list of top SaaS vendors, besting many smaller pure-play vendors. Asked which vendors the CIOs are currently using or evaluating for SaaS deployments, the CIOs most often cited:

1. Oracle
2. Salesforce.com
3. Microsoft
4. Cisco
5. SAP
6. Kenexa
7. Taleo

The Goldman Sachs analysis indicates that, down the road, the smaller players may be gobbled up:

While smaller vendors may be playing up the nimble nature of their applications, customers are reaping the benefits of SaaS solutions, while also gaining from the security and scale of purchasing solutions from a larger vendor. Rather than putting large vendors out of business, we believe that many SaaS providers will take some market share, but will eventually be acquired as their growth rates slow and larger companies can mine customers for their recurring revenue.

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Base: Survey panel of 100 IT executives at multinational Fortune 1000 companies
Source: Goldman Sachs IT Spending Survey, March 9, 2008, Goldman Sachs Group Inc., New York

Related:

• SaaS: No recession here either
• The future of technology for small businesses -- ho-hum
• Software-as-a-service: Good but oversold
• Flexibility is the name of the game