SaaS Market will increase in near future –Vendors pushing & Businesses Adopting

Despite the turbulent economic environment, SaaS market has constantly grew at a healthy rate and the overall SaaS market did not grow as expected and it is still below 5% of the total overall software market and in next three years despite growing at healthy 20% rate its size will still be 20% of the overall software market. The growth of SaaS market had been slow as enterprises had concerns in terms of Data Security and integrity, cloud outages, privacy concerns, regulation, failure to understand contract terms and obligations, scalable pricing models, technology still under development with many players working on developing and improving the cloud technologies further, lack of skilled man power, and lack of sufficient cloud based applications available for enterprises to utilize. But businesses are being forced to adopt cloud computing particularly SaaS as the IT budgets have become tighter, the demand for SaaS solutions increased due to their lower implementation costs, faster deployment times, increasing familiarity with the SaaS delivery model and vendors effectively marketing them which also led to a growing comfort level with the security and performance parameters of cloud computing. According to IBM survey, 13% of organizations have substantially implemented cloud technology, which is expected to increase to 41% by 2015. Additionally, 21% of survey respondents said their companies are currently adopting the cloud and overall 90% of businesses expect to use the cloud in some capacity within the next three years.

In the times of economic slowdown and crises most of the businesses focus not on business expansion but look to improve profitability by reducing costs of the existing operations and this has driven the demand for SaaS offerings as IT plays crucial role in reducing costs. With rise in SaaS markets there will be erosion in the on premise software market particularly in next two years and businesses are forced to shift toward hybrid on-premises and Cloud offerings but ultimately much of that hybrid focus shifts toward pure-play SaaS/Cloud within just a few years. Gartner Research expects hybrid cloud computing will gain prominence and hybrid cloud configurations will allow organizations to move data and operations from a private to a public cloud easily, thereby improving scalability and efficiency. SaaS use is shifting away from point-solution-use and increasingly towards integrating business operation and management benefits and this fact is substantiated by the issues the most businesses are highlighting like integration and customization concerns. Even more IT organizations within the businesses are able to convince the management the return on investment on investing in cloud computing technologies and can safely move existing workloads and operations to the cloud to improve efficiency and service. For IT organizations too there are certain challenges like Cloud-based licensing are different from traditional on-premises licensing, the traditional software sales cycle is very linear (RFI, RFP, contract, maintenance, handoff to an internal sales rep), understand the Service level agreements and contractual obligations , acquire the relevant technology skills and develop a cloud centric IT strategy for the business with an ultimate goal of reducing costs and improving profitability and customer satisfaction.

According to Saugatuck’s 2012 Global Cloud Business Software Survey Data Report, CRM, Collaboration, Customer Support, HR/HCM, and Collaborative Commerce will lead SaaS/Cloud solution demand through 2016. The Unisys 2012 Predictions for Cloud Computing expects organizations – both IT and business units – will accelerate their adoption of SaaS solutions for email and collaboration to further reduce costs and simplify operations. Additionally, in 2012, Unisys predicts SaaS will extend into line of business applications, supporting mission-critical transaction processing. Over the next few years, intelligent analytics built into these SaaS applications will enhance the ability for organizations to support sales, supply chain, logistics and support personnel in real time, making better sense of huge volumes of data more quickly to provide better responsiveness and customer support. Along with large organizations, Small & Medium Businesses are embracing SaaS solutions as they are simple to install, minimal configuration, on-demand everywhere availability, and integrated web-based data backup. The most popular SaaS apps for SMBs are core business productivity tools like Google Apps and Microsoft Office 365  and prefer to deploy other apps related to office, collaboration, customer relationship management solutions, marketing, project management, email list management, database development and administration tools.  Gartner believes in the next two years, buyers are most likely to purchase SaaS solutions in packaged CRM, procurement and ERP applications.

SaaS vendors too have to be constantly be in contact with their customers and understand their requirements and develop their offerings accordingly. According to Forrester Analyst, Holger Kisker in his post “Looking through the Cloud” explains SaaS vendors need an automated system that provides benefits to developers and customers alike:

Þ    Manage ongoing, dynamic metrics. Because SaaS typically uses a subscription licensing model, vendors need to manage the ongoing license entitlement and application usage for the correct billing process. And because the trend is going from user-based pricing to more dynamic metrics, the need for and challenge of providing continuous, automated usage tracking will only increase.

Þ    Track customer usage for product innovation. With limited (if any) feedback from sales reps, resellers, or implementation partners, SaaS vendors urgently need customer insights gleaned from usage to improve their solutions and feed the fast innovation cycle that SaaS solutions need to follow. Constant usage tracking provides detailed feedback on popular, critical, or unused features and functions and helps firm’s better target R&D investments.

Þ    Make gathering customer insights a two-way affair. Last, but certainly not least, customers will appreciate it if SaaS vendors play back some of their usage information, not only to monitor their license utilization but also to identify new opportunities, process optimization, and benchmark themselves against their peers.

Indian IT Outsourcing Vendors both large and small too have developed SaaS offerings and offering them to their customers and this is even more important for these vendors as they are looking at Cloud Computing offerings as a way of increasing their non linear revenues which helps them to charge higher billing and earn more revenues, increase profit. Unisys highlights the fact that organizations should increasingly consider SaaS a viable option for common line of business applications and IT management solutions, especially if they’re already considering outsourcing, as SaaS vendors may provide more cost-effective solutions than traditional outsourcers.