SaaS Comes of Age

March, 2011

After an initial period of uncertainty, the software-as-a-service (SaaS) model of software delivery is picking up momentum with organizations of all sizes.

Our study, Software-as-a-Service Adoption and Economic Experience, found that 35% of organizations are investing in SaaS, up from 26% in 2009 (Figure 1). That means that within a one-year period, the number of organizations investing in the technology grew by 35%. The chart also shows that 36% have SaaS in place, which is up from 24% in 2009.

 SaasRB Fig1 - SaaS Comes of Age

There is strong momentum behind SaaS due to the growing familiarity with the technology, increased awareness about cloud computing, and the need to seek cost-effective technology investment in a constrained economic environment.

Organizations that are currently investing in SaaS include those that implementing it for the first time along with those that are using SaaS currently and expanding their implementations. Organizations that have SaaS in place include those that are not making further investments as well as those that are expanding implementations. Some organizations are both investing in SaaS and have the technology in place.

Subscription software delivered via the web has been available for years. What is driving SaaS acceptance, however, is the growing willingness of companies to place data and key business functions on the Internet as part of a broader trend toward cloud computing. In some cases, enterprise organizations are taking a “hybrid” approach to SaaS, using their own service-oriented architecture and servers to store and access sensitive or critical data, but outsourcing other, less sensitive applications to SaaS vendors or service providers. Smaller organizations are more reliant on the outsourced model.

Despite the momentum behind SaaS, there are still some concerns about the technology. These concerns center around security, uninterrupted data accessibility, and the legal ramifications of outsourcing critical data to providers that may store it on servers in other countries. In addition, while the SaaS model lends itself to many business applications, it is less appealing as a replacement for entrenched legacy applications or vertical applications that are not broadly adopted. Core banking applications and many industry-specific ERP systems are examples of critical business systems that are lagging in SaaS adoption.

The full study examines adoption and investment trends for SaaS, providing data about how many organizations have the technology in place, how many are implementing it, and how many are expanding implementations. To give additional insight, we look at the economic experience of those that have adopted the technology: We examine return on investment experience and balance the potential ROI against the risks, measured in terms of the percentage of organizations that exceed budgets for total cost of ownership (TCO). In addition, we report on the service-success and cost-success rates for outsourcing of the application hosting function and adoption by sector and organization size. We conclude with recommendations on SaaS adoption.

This Research Byte is a brief overview of our report on this subject, Software-as-a-Service Adoption and Economic Experience. The full report is available at no charge for Computer Economics clients, or it may be purchased by non-clients directly from our website (click for pricing).