In this seven part series, I have described barriers removed and tipping points reached that have resulted in the acceleration of SaaS products being funded and developed in 2012.  Customer attitudes have changed making them comfortable with SaaS, and in fact demanding SaaS products.  Customers have become more willing to move their most critical business functions to the cloud.  End users find new power in the ability to try new SaaS software without having to go through lengthy IT procurement process — the barrier to “trying” new software is greatly reduced.

Larger business will migrate to the cloud more slowly given their inertia and greater concerns of cloud security, reliability issues, and integration issues, but divisions or large companies are embracing SaaS.  Smaller companies find it a “no-brainer” to eliminate the IT complexity of managing their own applications.  As Amazon AWS evangelists frequently advise, “eliminate the undifferentiated heavy lifting” of managing your own infrastructure to focus on the core business value companies can uniquely provide.

The early SaaS innovations were achieved by startups such as Salesforce and NetSuite who did not have to worry about cannibalizing their base.  While some traditional on-premise software companies wish SaaS would just “go away” according to Jim Armstrong of Clearstone Ventures, the appeal of higher company valuations and the necessity to adapt to a new computing model or be left behind is driving their movement to SaaS.

Several companies such as Intuit have moved aggressively to create SaaS products.  Intuit’s QuickBooks Online and Turbo Tax Online demonstrate how legacy software companies can successfully move to a hybrid on-premise and SaaS model.   Large software companies including Oracle and SAP are making expensive new SaaS acquisitions to accelerate their movement to SaaS.  There will also be an acceleration of traditional software companies providing SaaS offerings further increasing the range of SaaS products and providing “big name” comfort to SaaS products.

These factors are driving substantial acceleration beyond the 25% CAGR in SaaS revenue of the last several years.

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Top 5 reasons why Customers are driving the SaaS Explosion

1) SaaS enables today’s agile business imperatives

In these uncertain times, companies need to rapidly respond to business challenges and opportunities.  The financial benefits to SaaS customers (reason #5 below) are secondary to the ability to facilitate business transformations.

IT systems must be able to respond quickly to changing business needs.  New business opportunities need to be responded to in weeks, not years.  Typical SaaS  implementation time for a mid-size company is two to four months while a large multinational rollout could take a year.  This is about half the time to implement a typical on-premise ERP rollout.  Companies with SaaS systems take advantage of new software capabilities immediately , rather than often being locked into dated releases that may be several years old.  Most SaaS vendors rollout new capabilities every two to four months.  SaaS vendors are able to deliver new software features to their customers much faster than on-premise vendors.  Since the upgrades happen quickly, SaaS vendors don’t have customers running software that is years old.

2) Everyone else is doing it

In the past SaaS was brought into companies through rogue user projects outside of the purview of IT, or through the rare bleeding-edge IT management.  It was a risky decision to put a high profile project on SaaS; now installing a major new system on an on-premise system looks like an outmoded business decision for all but the largest companies (which lag in deploying new technologies across a large organization).  The federal government is even driving adoption of SaaS within its agencies — the National Institute of Standards and Technology (NIST) is accelerating the move to Cloud Computing through its standards efforts.

Many of management’s concerns about cloud reliability and security are diminishing as the message is getting through (and hard to argue with) that the vendors providing cloud services such as Amazon, Rackspace, Google, and IBM, provide far better security and availability than most corporate IT departments.

SaaS has become safe.

3) SaaS choices abound

Most software categories have SaaS alternative; with the acceleration of new SaaS products currently being developed, 2013 will have an even broader set of SaaS alternatives to on-premise software.  Going forward, SaaS alternatives to on-premise software should be considered for new IT projects.  These SaaS products are likely to be more modern, have richer, more consumer-like (think Facebook) interfaces, and have inherent support for mobile platforms superior to their on-premise competitors.

4) You can ease your way into SaaS

As mentioned in the prior post, SaaS integrations with legacy systems are becoming easier and more prevalent.  SaaS doesn’t have to be an all or nothing proposition.  A hard cutover to SaaS would be impossible for large companies, but incremental capabilities to legacy systems such as analytics, marketing software, or mobile support can be added with SaaS applications.  SaaS vendors can “Land and Expand” to gradually displace legacy systems.  We’ve seen this movie before with minicomputers applications eroding mainframe applications at the end of the mainframe era, and then Novell applications eroding minicomputer applications at the end of the minicomputer era.

5) Oh yes, and the economics are compelling

The hard dollar benefits of SaaS are compelling.  The desire to eliminate large capital IT commitments that lock in expense levels for years is great.  The cash flow benefits of the “pay as you go” approach are compelling.  The ability to reduced fixed IT costs associated with maintaining on-premise applications is big.  The ability to reduce the large implementation services costs are enticing – the days of spending millions for an SAP upgrade are waning.

Coming Next — Part IV, “Software Vendors Move to SaaS”

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Top 5 reasons why Server-side innovation will accelerate SaaS adoption

1)      The Credit Card payment and free trials for IaaS/PaaS services

One of the greatest innovations of Amazon’s AWS was the ease of gaining cloud computing resources through credit card signups and free trials.  Amazon courted programmers by removing financial barriers to creating Cloud applications – with no management financial approval required; skunkworks projects by internal development teams and cash poor entrepreneurs blossomed.  Amazon followed Salesforce’s Land and Expand Strategy getting a foothold into a company with a small customer investment and then expanding.  AWS enabled many new SaaS applications to be built enabling Amazon to benefit from these applications’ explosive growth.

Microsoft followed Amazon’s lead by offering free trials and an easy purchase of computing resources, while some more traditional hosting firms looking to become IaaS/PaaS providers don’t get the value of seeding their use by entrepreneurs and early adopters within an organization.

2)      PaaS Matures

While Amazon made it simple to develop applications on their cloud with IaaS services such as EC2 and S3, PaaS is maturing to raise the level of abstraction reducing the grunge work of getting an application deployed in a production setting.  Major SaaS players, Salesforce and NetSuite, are offering their own platforms, Force.com and NetSuite SuiteCloud as PaaS platforms available to other SaaS companies.  Salesforce also acquired Heroku as a second PaaS platform supporting Ruby on Rails.  Microsoft and Google have their own internally developed PaaS platforms with Microsoft Windows Azure and Google App Engine.  All of these PaaS platforms (and many more) are enabling efficient ways to develop new SaaS offerings at lower cost and less time.

3)      SaaS enabling toolsets proliferate — The SaaS ecosystem develops

Beyond PaaS, the cloud ecosystem is developing rapidly to accelerate the development of SaaS applications.  For ISVs with legacy Java applications, Corent Technologies provides a platform to enable the essential conversation of on-premise software to a multi-tenant architecture.  Many other new solutions such as RightScaleare being offered to the market enabling ISVs to build and scale robust SaaS applications to the enterprise in areas including provisioning, user authentication and authorization, metering and billing of SaaS usage, performance monitoring and exception handling, and auditing capabilities.

4)      SaaS integrations enable SaaS to become part of the IT ecosystem

Integration with SaaS applications (or on premise applications) has been difficult.  Existing EAI tools were complex and best suited for applications behind the firewall.  New tools such as Dell’s Boomi greatly simplify the integration between SaaS and legacy applications.  RESTful APIs are becoming prevalent often replacing the much more complex (though more powerful) SOAP protocol easing the ability to realize the potential of Mashups through simple URL based procedural integrations.  Companies such as Google have abandon SOAP interfaces in favor of the simple REST architecture.   Nearly 50% of Salesforce daily transactions are performed over their API.

5)      The Cloud ecosystem matures

The crash of 2011 (Amazon’s AWS outage on April 21, 2011) seemed like ancient history.  We thought (hoped) those system wide failures were behind us until Microsoft’s Azure failed on February 29, 2012 not being able to handle leap years!  Amazon, Microsoft, and the industry has made major strides in reliability and isolating failures that caused the cascading failures we had seen.  While the reliability of the infrastructure has become more mature and reliable, perhaps more importantly, SaaS developers understand the limitations and are building applications more tolerant to infrastructure failures.  Maturation of the platforms and toolsets, and a better understanding of their capabilities by SaaS vendors is leading to the building of SaaS applications that are highly reliable, scalable, secure, compliant with regulatory standards, and auditable.

These developments in 2012 will lead to an explosion of great new SaaS applications being deployed in 2013.

Coming Next — Part III, “The Customer Pull”

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Everyone believes the SaaS market is growing; some more rapidly than others.

I believe the inflection point for adoption of SaaS will come in 2013 — We will hit the infamous knee of the curve and the acceleration of SaaS adoption will reach an all time high.

This post discusses forces impacting the client side applications and devices that will help drive SaaS adoption.  Half of the road to SaaS is moving the user interface from an old style/client server to a modern browser interface.

The drive to web and mobile app interfaces, and web services accelerates the drive to SaaS.

Top 5 reasons why client interfaces will accelerate SaaS adoption

1)    Client/Server architectures are dead – long live HTML5

April 8, 2014 == January 1, 2000

Windows XP’s market share was 27.3 percent in April of 2012.   On April 8, 2014, Microsoft drops support for Windows XP resulting in the end of updates to resolve malware issues.

Without Microsoft support, you will no longer receive security updates that can help protect your PC from harmful viruses, spyware, and other malicious software that can steal your personal information. http://windows.microsoft.com/en-us/windows/products/lifecycle.

The migration from Windows XP to Windows 7 or 8 will begin to accelerate dramatically by April 2013 when CIOs realize they need to move their base off of Windows XP long before support is discontinued.

Windows XP does not support IE9, the first Microsoft Browser with (basic) HTML5 support.   More complete HTML5 support from Microsoft will come with the general release of IE10 later in 2012.  IE9 is also the first Microsoft browser to support auto update pioneered by Google with Chrome, and later adopted by Firefox.  This is crucial since auto updates keep browsers current and avoid the problem of the old, dated browser requiring browser based applications to support old versions.

We need Windows XP to die so people will move off of their old browsers to modern browser with HTML 5 support and the move to new browsers with auto updates to keep up with the rapidly evolving HTML5 implementations.  As the client base is moves from Windows XP to Windows 7 or 8, those users will also migrate to a modern browser.

This migration to modern browsers will end the most typical reason why CTOs cling to their old client/server architectures (and Silverlight and WPF) rather than build new project on HTML5.  There will finally be a very high percentage of the user base running on an update-to-date browser with far fewer inconsistencies between browser versions than in the past.

2)    Client side programmers are moving to HTML5

HTML5/JavaScript/CSS3 is nowhere near as good as WPF, Silverlight, Flash, Flex, etc.  

Get over it!

Yes, I know JavaScript is significantly flawed, making it harder to write and maintain large projects.  It is getting better with new frameworks making HTML5 based development much better.  A major problem has been the inconsistent browser support that is getting better with modern browsers as discussed above.

But the war has been won (or is about to be won) by HTML5/JavaScript/CSS3.  This will result in most new clients apps being written for a browser further driving the adoption of SaaS.  The most telling sign of this is the rapid adoption of HTML5 by the development community with over 50% of client side developers now becoming fluent in HTML5.

http://evansdata.com

3)    Mobile devices are SaaS consumers

Are Virtual Desktops on an iPad really a Cloud application?

It is hard to believe the iPad was first announced two years ago.  Mobile devices drive SaaS adoption because legacy client/server applications don’t (really) work on mobile devices. Virtually all companies I work with are furiously fleshing out their mobile strategy.  Increasingly that means building HTML5 applications rather than a unique application for each mobile platform.   When a mobile application, be it browser based, or an iOS or Android application are built on a web services interface, you are half way to a SaaS implementation.

4)    The BYOD (Bring Your Own Device) revolution

Saying “Bring Your Own Device” is an IT Trend is like saying peanut butter in school lunches is a trend.

Paul French, “ReadWrite Enterprise”

The end-user has won, and the traditional IT control of the user’s device is quickly ending.  It is no longer just a Windows PC and a Blackberry, but now also iPhones, iPads, Android devices, and Macs.  The adoption of these new platforms is another pull to move away from client/server and their VPN interfaces and to a world dominated by Web Services provided by SaaS applications.

5)    The Facebookification of the User Interface

“That looks like Windows 95″

A doctor commenting on a (client/server) Electronic Medical Records GUI

Business users expect modern interfaces.  That means no Windows95 style, 3270 redux, or Citrix interfaces.  Users expect a modern look and feel with a user experience like they experience as consumers.  Client/Server interfaces are getting very dated very fast.

The Consumerization of the UI drives business applications to browser-based applications.

Coming Next — Part II, “The Server-Side Pull”

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