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Three Waves of Change: SaaS Beyond the Tipping-Point

Document:                        SSR-342
Date of Publication:           May 3, 2007
Number of Pages:             34
Lead Author(s):                 M. West, M. Koenig 
Contributing Author(s):      B. McNee, B. Guptill
Price:                               $1,295.00 USD (Single User License)

Report Overview:  

In the span of less than a year, Software-as-a-Service (SaaS) has gone from point-solution curiosity to mission-critical applications for user enterprises.  And according to research published this month by Saugatuck Technology, the next wave of SaaS is already being absorbed and adopted by user enterprises as platforms for multiple, critical business applications and processes. 

This Research Report provides a comprehensive look at the state of the SaaS industry and user adoption. The report is based in part on a new worldwide web survey of 250 senior business and IT executives, 30+ briefings with leading SaaS providers and 15 deep dive interviews with early adopter SaaS users. Among other things, the report provides an update to our SaaS adoption scenario, and fine-tunes our SaaS 2.0 vision in areas such as pricing and licensing, ecosystems and verticalization.

“SaaS is beyond the tipping point and accelerating into mainstream adoption,” states Saugatuck VP Mark Koenig, head of the SaaS research program and co-lead author of the new report. “We’re seeing breakthrough levels of SaaS acceptance for mission-critical computing, from SMBs to the largest enterprises worldwide. SaaS is not a curiosity – it’s mission-critical.”

“The second wave of SaaS as a next-generation business platform is already here, and already delivering powerful business advantages for user enterprises,“ adds Saugatuck VP Mike West, co-lead author of the report. “Users are already utilizing SaaS for transaction and collaboration marketplaces, and we’re starting to see a proliferation of SaaS ecosystems that offer portfolios of synergistic and integrated SaaS applications with business services.”

Press Release / Media, BLOG and Podcast Coverage

	06-27-08 SaaS Sets the Stage for 'Cloud Computing' (StickyMinds – of FEI article authored by B. McNee, B. Guptill)
	06-17-08 Many Degrees of Multi-Tenancy (ZDNet)
	06-09-2008 Won’t Try SaaS? Let Us Count the Reasons (IT Business Edge)
	06-03-08 SaaS embraced by midmarket CIOs satisfied with cost savings (SearchCIO-Midmarket.com)
	05-23-08 Parallels Hosting Summit 2008 - Day 2 (The Whir)
	05-21-08 Parallels Summit 2008 Spotlights Virtualization and SaaS (Tophosts - Canada)
	05-16-08 Platform-as-a-Service Gives SaaS a New Push (IT Business Edge)
	05-02-08 SaaS adoption for Business Intelligence (MyDials Blog)
	04-29-08 Saugatuck CEO McNee to Lead SaaS Management Panel at FEI Summit (Saugatuck Press Release)
	03-12-08 Saugatuck to Showcase SaaS Satisfaction Data at SaaScon 2008 (Saugatuck Press Release)
	12-17-07 Computerworld’s SaaScon 2008 Announces Line-up of Featured Presenters (Market Wire)
	11-30-07 The Time for SaaS has Come (The Times)
	11-02-07 Cisco Acquisition Portends Bigger Things (InternetNews)
	10-30-07 Europe poised for SaaS explosive growth (SaaStream)
	09-28-07 SaaS Beyond the Tipping Point (SaaStream)
	07-31-07 Platform-as-a-Service Getting Attention (LucidEra Blog)
	07-24-07 SaaS and HA (TrebWeb)
	07-12-07 SaaS Vendor NetSuite Has No Separate Backup Center For Customer Data (Information Week)
	06-26-07 Small Firms Take on Big SaaS Integration Woes (CMP/Intelligent Enterprise)
	06-25-07 SaaS Beyond the Tipping Point: Three Waves, Four Key Challenges, Five Planning Positions (On Demand-News)
	06-21-07 SMEs Struggle With Hosted Apps Integration (ComputerWorldUK)
	06-20-07 Greatest Open Source Presence and Impact: Behind the Scenes (B. Guptill, 3 pages, RA-358)
	06-19-07 Integration tricky for SMBs using multiple SaaS apps (TechTarget)
	05-25-07 Spotlight shines on SaaS in Europe (ZdNet)
	05-25-07 SMB SaaS sales robust, but holdouts remain (ComputerWeekly)
	05-25-07 Jamcracker, XO to Provide On-Demand Services for SMBs (eWeek)
	05-16-07 SMB SaaS sales robust, but holdouts remain (TechTarget)
	05-08-07 Software as a Service Is Not Easy . . . No Kidding! (Intelligent Enterprise Weblog / Linthicum)
	05-07-07 SaaS, c’est parti ! (Louis Naugès weblog - french, but english translation available)
	05-03-07 SaaS is Skyrocketing; But Needs SOA (ebizQ)
	05-03-07 SaaS Adopters in for Big Challenges (NetworkWorld)
	05-03-07 SaaS Becomes Enterprise-Critical – But Management Frameworks Needed (Saugatuck Press Release)
	04-27-07 Work 2.0:  Conversations with Phil Wainewright
	04-27-07 Resistance Fades as SaaS Goes Mainstream (ZDNet)
	04-26-07 Join Phil Wainewright and Bill McNee of Saugatuck Technology for Online Discussion of Key SaaS Industry Trends (Yahoo News)
	04-05-07 SaaS Vendors Admit They're Still Waiting On Growth Spike (IT Business)
	04-03-07 Software-as-a-Service Passes the Tipping Point (Fast Forward Blog)
	03-20-07 SaaS Appliance (Ross Mayfield Weblog)
	03-13-07 SaaScon Tackles Cross-Cutting Concerns (IDC)

Executive Summary:

05-03-07 Three Waves of Change: SaaS Beyond the Tipping Point (Freely available.  Registration Required)

	How SaaS is already shifting from inexpensive point-solution offerings to mission-critical, integrative, and sophisticated business application and process delivery platforms – and what effects this will have on user and strategies for business and technology.
	Which customer segments, geographies and applications are growing the fastest, and where are the biggest opportunities going forward
	How -- and why -- SaaS is moving through three “waves” of development, deployment and adoption, and how users and vendors need to manage these to deliver and utilize SaaS to its greatest efficiencies and effectiveness.
	Why the increasing presence of “cloud-based” SaaS business solutions that must be integrated with on-premise applications will require SaaS Integration Platform (SIPs), ESBs and X-ESBs to form coherent and flexible IT portfolios of Integrated Business Solutions.
	Why, how, and when SaaS will become interwoven in the fabric of IT/business application portfolios, as companies create value at the business process layer through “Integrated Business Solutions.
	How will SaaS application and infrastructure architecture evolve to support hybrid environments

	SaaS is already expanding its reach into a variety of business services as traditional BPO providers struggle to rationalize their one-to-one outsourcing models, reduce costs and bring greater process efficiency to their clients
	Reducing and managing software costs remain important attractions for SaaS, but users have shifted their key SaaS decision criteria to Service Levels, Integration with Data and Workflow, and intra- and inter-company collaboration
	Hybrid application architectures are emerging – SaaS is increasingly linked to on-premise data, applications and processes through Web Services-based Integration APIs.
	SOA, Open Source, Collaboration, Mobility, Mash-ups and Web 2.0 are converging on SaaS platforms, providing rich, configurable applications and business value
	While a few technology “master brands” with established distribution channels will also thrive in SaaS markets (e.g., Salesforce, IBM, Microsoft), the real long-term winners will be dominant business brands (e.g., telcos, banks, or master brands such as FedEx) that partner with leading SIP providers.
	The next two years will see exploding growth for ad-supported SaaS initiatives targeting consumers (i.e., business services and productivity tools) and vertical-market small business niches (e.g., health care patient records).

	Introduction: Waves of Change for IT and Business
	Key Research Highlights, Insights and Strategic Planning Positions  Strategic Planning Positions (SPPs)  SaaS Adoption  SaaS Drivers  SaaS Solutions  SaaS Waves I, II, III  SaaS Integration Platforms, Ecosystems, Marketplaces and Business Services
	Three Waves of SaaS Evolution  Wave I: 2001-2006 SaaS 1.0, Cost Effective Software Delivery  Wave II: 2005-2010 SaaS 2.0, Integrated Business Solutions  Wave III: 2008-2014 SaaS 2.0 and Beyond, Workflow-enabled
	Business Transformation
	SaaS in the Mainstream  Normalized Acquisitions Practices and Processes
	SaaS Integration Platforms Layers of the SaaS Integration Stack
	SaaS Ecosystems and Marketplaces SaaS Ecosystem Types
	The Shift to Business Services  SaaS and BPO
	Conclusion: More Substantial Change to Come
	Appendix  Saugatuck Research Methodology  Survey Demographics

	Figure 1: Waves of SaaS Evolution
	Figure 2: Profiling Three Waves of SaaS Evolution
	Figure 3: SaaS Usage Plans - 2006 vs. 2007
	Figure 4: SaaS Application Deployment Plans
	Figure 5: SaaS Usage Plans by Company Size - 2006 vs. 2007
	Figure 6: SaaS Acquisition Practices
	Figure 7: The SaaS Integration Platform Stack
	Sidebar: SOA and SaaS: ESBs and X-ESBs
	Figure 8: The X-ESB: Integrating SaaS with the SOA Enterprise
	Figure 9: Sample Vertical SaaS Ecosystem for Government
	Figure 10: Five Types of SaaS Ecosystems
	Figure 11: SaaS Ecosystems Examples
	Figure 12: Top Business Considerations in SaaS Provider Decisions
	Figure 13: The Business Services Continuum

	05-29-08 Browser Wars II: What Will be the Effects on SaaS, Web 2.0 and Cloud Computing? (B. Guptill, 3 pages, RA-466)
	05-21-08 Mid-sized Firms Show Aggressive, Focused Growth in Adoption and Plans (B. Guptill, B. McNee, 3 pages, RA-465)
	05-14-08 HP Acquires EDS: Not Déjà vu All Over Again (B. Guptill, C. Burns, 3 pages, RA-464)
	05-09-08 SaaS and User Satisfaction: Enterprise-Ready, or Not? (M. West, 5 pages, MKT-463, $$$)
	05-07-08 SaaS and Core Systems of Record: Observations from the FEI Summit (B. McNee, 4 pages, RA-462)
	04-30-08 The Business Appliance: Flexible Functionality for a Broad Range of Computing Needs (C. Burns, M. Koenig, 6 pages, MKT-461, $$$)
	04-30-08 Microsoft’s Live Mesh: Web 2.0 Play Enables Legacy Growth While Opening Future Opportunities  (B. Guptill, M. West, 3 pages, RA-459)
	04-29-08 Saugatuck SaaS Research: Waves and Platforms in the Cloud (M. West, B. Guptill, 5 pages, STR-458, $$$)
	04-23-08 Road Research: Whither Open Source? MySQL Conference and Survey Report (B. Guptill, 3 pages, RA-456)
	04-22-08 MySQL Conference 2008: A Sense of Arrival and Accomplishment for Open Source Software (B. Guptill, 5 pages, STR-455, $$$)
	04-16-08 Platform-as-a-Service Evolves, Setting the Stage for Cloud Computing  (M. West, M. Koenig, 3 pages, RA-454)
	04-11-08 SaaS & Outsourcing: Solutions For IT Processes, Too (C. Burns, 6 pages, MKT-453, $$$)
	04-02-08 3rd Annual SaaScon Shifts the SaaS Industry Spotlight to IT Executives (B. McNee, M. West, 3 pages, RA-451)
	03-27-08 EthicsPoint: Transforming Compliance into Business Process ROI (M. West, 4 pages, QT-447, $$$)
	03-19-08 Road Research: Top Asia-Pacific ISV and SaaS Concerns (B. Guptill, 3 pages, RA-445)
	03-18-08 Notes from the Road: SaaS Market Readiness & Growth in Asia-Pacific (MKT-444, B. Guptill, 8 pages, $$$)
	03-13-08 NetSuite's NS-BOS Platform Play Targets Vertical Channel Solutions (M. West, B. Guptill, 2 pages, RA-443)
	03-12-08 IT Appliances: Too Good to Ignore? (MKT-442, M. Koenig, C. Burns, B. Guptill,  6 pages, $$$)
	02-06-08 On the Road in Europe: SaaS Demand Grows (B.  McNee, 5 pages, RA-434)
	02-06-08 A Chat with Revevol’s Louis Naugès and Laurent Gasser on European SaaS Market Adoption (B. McNee, 6-pages, INT-433, $$$)
	01-31-08 SaaS Platforms Evolve to Embrace Cloud-Based Development (M. West, 5-pages, MKT-432, $$$)
	01-23-08 IBM’s New Appliance-Cloud Architecture Augurs Key Trends in 2008 Acquisitions (M. Koenig, M. West, 3 pages, RA-427)
	01-09-08 IT Virtualization: Is Proliferation Breeding Confusion, Complexity and Cost? (C. Burns, 3 pages, RA-424)
	01-09-08 Plexus Online: New-Generation Manufacturing Management  (M. West, 4 pages, QT-423, $$$)
	01-02-08 A Rising Tide Swamps all Boats - Disruptive IT Impact in 2008 (B. Guptill, 3 pages, RA-422)
	12-28-07 A Look Back at Key Trends and Events of 2007 (M. Koenig, B. McNee, 5 pages, RA-419)
	12-27-07 IT Disruptors Bring Management Challenges and Opportunities (C. Burns, 8 pages, STR-418, $$$)
	12-20-07 Key Trends in SaaS: 2008 and Beyond (B. McNee, M. West, B. Guptill, M. Koenig, 6 pages, RA-417)
	12-18-07 On the Outskirts of Wave III: SaaS Platforms Proliferate in 2008 (M. West, 5 pages, MKT-415, $$$)
	12-12-07 Traditional ISV Transition to SaaS: Reinvent or Virtualize? (C. Burns, M. West, B. McNee, 3 pages, RA-413)
	11-28-07 Verizon “Opens” Wireless Network: SaaS, Web 2.0, and Open Source Implications (B. Guptill, 3 pages, RA-409)
	11-27-07 Managing On-Premise Products in the SaaS Transition: Kadient (M. West, M. Koenig, 5 pages, MKT-408, $$$)
	11-21-07 Server Virtualization Becoming More Real(izable) (C. Burns, 3 pages, RA-407)
	11-14-07 DreamFactory: Delivering Business Essentials Across the Web  (M. West, 4 pages, QT-405, $$$)
	10-31-07 ISV Transitioning to SaaS: Common Threads and Best Practices (B. McNee, M. West, M. Koenig, 3 pages, RA-402)
	10-29-07 IT Management: Necessary Evil to Business Process Necessity (C. Burns, 6 pages, STR-400, $$$)
	10-26-07 Birch Street Systems: Verticalization is Key to Success for SaaS-based Procurement Solutions Vendor (M. Koenig, 5 pages, QT-399, $$$)
	10-10-07 SAP + Business Objects: Formalizing the Obvious and Moving Ahead (B. Guptill, M. West, B. McNee, 4 pages, RA-394)
	10-05-07 DreamForce '07 – Inflating the SaaS Balloon (B. Guptill, M. West, 6 pages, MKT-393, $$$)
	09-28-07 DreamForce '07: Customer Interviews Indicate the Strength of Salesforce and SaaS (B. Guptill, 6 pages, EVT-391, $$$)
	09-26-07 IT Management: Disruptive Influences Driving Four Stages of Evolution (C. Burns, 3 pages, RA-390)
	09-21-07 Five Challenges in Navigating from Traditional ISV to SaaS Provider: Strategic Learning from Concur Technologies (M. Koenig, M. West, 5 pages, STR-388, $$$)
	09-19-07 SaaS Market Rumbles As On Demand Vendors Jockey For Position (Mike West, Mark Koenig, 2 pages, RA-387)
	09-05-07 SaaS Marketplaces Emerge Amid Market Confusion and Opportunity (Mike West, 2 pages, RA-384)
	08-31-07 SaaS Marketplaces: Terminology, Taxonomy and Market Growth (M. West, B. McNee, 6 pages, MKT-383, $$$)
	08-29-07 Key Lessons Learned, Part 2: Financial Considerations in Navigating from Traditional ISV to SaaS Provider (M. Koenig, B. McNee,  4 pages, MKT-381, $$$)
	08-29-07 HP Cloudprint: Innovation Beyond Technology (Mark Koenig, 3 pages, RA-380)
	08-08-07 IT Management Evolution Spells Vendor Opportunity (Charlie Burns, 2 pages, RA-375)
	08-02-07 Enterprise 2007: CK Prahalad and the New Value Creation (Bill McNee, 3 pages, RA-374)
	07-25-07 Callidus AppExchange Entry Raises Issues in Managing Ecosystems (B. Guptill, M. Koenig, M. West, 3 pages, RA-369)
	07-20-2007 Pragmatech Software: Foundation for Sales Effectiveness (M. Koenig, 6 pages, QT-368, $$$)
	07-20-07 SaaS: What You Don’t Know Can Hurt You (C. Burns, 4 pages, STR-367, $$$)
	07-18-07 Microsoft Enters the SaaS Marketplace Fray (M. Koenig, B. McNee, 2 pages, RA-366)
	07-11-07 NetSuite IPO: A Repeat of the Late '90s? (M. West, B. McNee, 4 pages, RA-365)
	06-29-07 Open Source’s Changing Nature Sparks Debate: What, and Where, is “Open Source?” (C. Burns, B. Guptill, 4 pages,  MKT-363, $$$)
	06-29-07 Framing Security-as-a-Service Issues: FUD in the SaaS Cloud (M. West, 6 pages,  MKT-362, $$$)
	06-27-07 Extending SaaS by the Playbook: Xactly Managed Services for SMBs (M. Koenig, 3 pages, RA-361)
	06-26-2007 Ketera Technologies - Redefining the Spend Management Value Chain (M. Koenig, 5 pages, QT-360, $$$)
	06-22-07 The SaaS Opportunity: Focus Solutions on Complementary (Rather than Radically New) Business and IT Practices (B. Guptill, 4 pages, STR-359, $$$)
	06-20-07 Greatest Open Source Presence and Impact: Behind the Scenes (B. Guptill, 3 pages, RA-358)
	06-15-07 Key Lessons Learned: Navigating from Traditional ISV to SaaS Provider (M. Koenig, A. Perrin, 8 pages, STR-357, $$$)
	06-08-07 Fiberlink: Managing the Mobile Device Lifecycle (M. Koenig, M. West, 4 pages, QT-355, $$$)
	06-06-07 SaaS Core Software Trend Implies Major Shifts in Market Dynamics (B. Guptill, B. McNee, 3 pages, RA-354)
	05-31-07 Prolifiq Innovates with Analytics-Based 1-to-1 Messaging Solution (M. West, 4 pages, QT-353, $$$)
	05-29-07 Total Cost of Usage: Usage-Driven IT Cost Structures Require Usage-driven Metrics (B. Guptill, C. Burns, 4 pages, STR-351, $$$)
	05-25-07 SaaS: Getting What You Pay For (C. Burns, M. West, B. Guptill, 4 pages, STR-350, $$$)
	05-25-07 SaaS Adoption in Europe: A Closer Look at Rapid Growth (M. West, M. Koenig, 5 pages, MKT-349, $$$)
	05-16-07 Software 2007: Conference Trip Report (B. McNee, 4 pages, RA-346)
	05-03-07 Three Waves of Change: SaaS Beyond the Tipping Point (Mike West, Mark Koenig, 34 pages, SSR-342, $$$)
	05-03-07 SaaS Pricing: The Value Metric Is Only the Tip of the Iceberg (Mike West, 6 pages, STR-344, $$$)
	05-03-07 SaaS Beyond the Tipping Point: Three Waves, Four Key Challenges, Five Planning Positions (M. West, M. Koenig, 5 pages, RA-343)
	04-25-07 SaaScon 2007 Trip Report (B. McNee, 4 pages, RA-240)
	04-23-07 Open Source Business Models: Riding Multiple Horses (B. Guptill, 5 pages, STR-339, $$$)
	04-18-07 SaaS’ Third Wave: On The Road To Personalized Workflows (M. West, B. McNee, M. Koenig, 5 pages, MKT-337, $$$)
	04-12-07 Does A SaaS Explosion Imply A Hosting Implosion? (C. Burns, M. West, 5 pages, STR-336, $$$)
	03-28-07 SaaS Adoption: Skyrocketing on All Cylinders! ( M. West, B. McNee, 2 pages, RA-332)
	03-27-07 SaaS Adoption Tsunami: Redefining Software and Services (M. West, 6 pages, MKT-331, $$$)
	03-21-07 Cisco + WebEx = A New SaaS Master Platform? (M. Koenig, M. West, B. McNee, 3 pages, RA-330)
	03-07-07 One Year Later: SaaS Breaks Out ( M. Koenig, 2 pages, RA-326)
	02-28-07 Niche SaaS Markets Heat Up As Master Brands Begin To Weigh In (M. West, M. Koenig, 3 pages, RA-323)
	02-22-07 IT Insights and Trends: On the Road to Utility Computing - How Far is Far Enough? (C. Burns, 5 pages, STR-321 $$$)
	02-07-07 Progress Software: Pointing Toward SaaS 2.0 (M. West, 2 pages, RA-318)
	01-16-07 Workday: A Year-end Chat With Dave Duffield and Aneel Bhusri (B. McNee, M. West, 8 pages, EVT-308, $$$)
	12-28-06 SaaS 2.0: Six Key Trends for 2007 (M. West, B. McNee, 6 pages, MKT-303, $$$)