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May 09 Issue |
On-Demand Services Market Predictions for 2009
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By Jeffrey M. Kaplan, Managing Director, THINKstrategies, Inc.
Wondering what the on-demand services market will bring in 2009?
Sure, we’re more than 5 months in to the new year, but I still have a few
predictions. These predictions are based on THINKstrategies’ latest survey
research and ongoing consulting work with IT/business decision-makers, IT
solution providers and various technology investors.
I recognize that plenty of predictions have been made already, but hope mine
offer a different perspective on the future direction of the on-demand services
market.
1. On-Demand Services Move from Why to How
Now that SaaS has achieved widespread market penetration and the idea of cloud
computing has become popularized in the business as well as trade press, the
discussion will shift in 2009 from why organizations should adopt SaaS/cloud
computing services to how to do it effectively. This shift will also encompass
the best ways to adopt managed services to optimize IT operations. IT/business
decision-makers will seek help evaluating the functionality and financial
viability of the various vendors; better understanding the integration and
security requirements; monitoring vendor performance and service level
compliance; and measuring the economic impact and business benefits of these
services.
2.
New Hybrid Models
The technological evolution of on-demand services will enable SaaS and cloud
computing vendors to offer customers the choice between on-premise and off-site
hosted versions of their solutions without compromising the operational and
financial efficiencies of the multi-tenant architecture that underlies these
services. SaaS/cloud computing vendors will be able to ‘shrink-wrap’ their
solutions into appliances or ‘applets’ which can be deployed behind the
customer’s firewall and synchronized with the vendor’s primary service delivery
infrastructure.
3. Short-Term Slowdown, Long-Term Growth
Although SaaS proved to be recession proof for most of 2008 as I predicted, SaaS
vendors have not been able to avoid the speed-bump caused by the deepening
economic crisis. IT/business decision-makers in organizations have been
instructed to put a hold on all procurements until the economic uncertainty
subsides. They are especially hesitant to make acquire solutions from new
vendors who they believe won’t survive the current crisis. However, when the
dust settles, organizations of all sizes will adopt SaaS and cloud computing
services because the business case for these web-based alternatives is too
strong and compelling.
4. VC/PE Retrenchment
The credit crunch and devastation of the financial markets has had a tremendous
impact on the venture capital (VC) and private equity (PE) sectors. With limited
IPO exit opportunities available and their limited partners (LPs) either unable
to fulfill their funding commitments or demanding better returns from their
investments, the VCs and PE firms are setting higher standards for performance
from prospective and portfolio companies, and holding back on additional
investments. Many VCs and PE firms may even shut their doors, leaving fewer
funding sources available for SaaS/cloud computing companies.
5.
Industry Shakeout and Consolidation
The past year may have been the peak of the ‘cloud-rush’ that produced a
proliferation of SaaS and cloud computing players. The new year will see a
shakeout of many of these players and consolidation of the market. IT/business
decision-makers in user organizations of all sizes will shift their procurement
strategies from best-of-breed vendors to strategic suppliers who they believe
have a better chance of surviving today’s economic crisis. This will make it
hard for niche vendors to compete against more prominent players with broader
portfolios and stronger brands.
6. Acquisitions/Alliances
With the valuation of SaaS/cloud computing companies going down, the buying
power of incumbent software vendors (iSVs) will rise. Companies like Microsoft,
Oracle and SAP will acquire a series of SaaS/cloud computing players to
accelerate their migration to the on-demand services world. Hardware vendors
such as Dell, HP and IBM, as well as offshore companies like Infosys, Tata and
Wipro will also make acquisitions to enhance their systems and automate their
services respectively. With traditional funding sources drying up, many SaaS/cloud
computing companies will seek corporate alliances which can provide alternative
financing options and strengthen their positions in the market.
7. Focus on the Channel
The changing economic climate and rising costs of sales will drive a growing
number of SaaS/cloud computing companies to seek new channels to market. At the
same time, a growing number of traditional systems integrators, value-added
resellers, hosting companies and other service providers will seek to add SaaS/cloud
computing capabilities to their corporate portfolios. In some cases, this will
blur the line of demarcation between SaaS/cloud computing and managed services
companies.
8. The Google Generation Becomes Mainstream
The Google affect on the market will expand from eCommerce to the enterprise.
Google Apps will gain acceptance in businesses of all sizes as a result of
broader adoption among individuals, better support services aimed at corporate
users, and broader alliances with companies like Salesforce.com. An indication
of this trend can be found in primary schools and universities where use of
Google Apps is expanding from individuals to the entire institutions in a
systematic fashion. Just as Apple succeeded in building a new generation of
users via schools and universities, Google is taking the same path to permeate
the market.
9. Software/Business/Information/Managed Services Convergence
The line of demarcation is not only fading between software services, such as
SaaS and cloud computing, and managed services, but also with business and
information services. Business services companies, such as ADP and AmEx, are
adding software services, such as Centive’s sales compensation management and
Concur’s expense management capabilities their service portfolios, respectively.
Thomson Reuters has teamed with Salesforce.com to deliver its information
services via Salesforce.com’s SaaS solutions. It has also recently acquired
Paisley – a governance, risk and compliance SaaS vendor – to broaden its
capabilities. Meanwhile, Managed Service Providers (MSPs), such as mindSHIFT,
are adding a layer of SaaS solutions to their IT management capabilities.
10.
Obama Economic Policies Promote the Web
President Barak Obama has made it clear that he views the Internet as an
important incubator of new business opportunities and jobs, and as a mechanism
for better government services and more effective education programs, as well as
a clean-tech alternative that can reduce people’s carbon-footprint. The Obama
administration has promised to create a program, much like the Work Projects
Administration (WPA) during the New Deal, which will fund public initiatives
that encourage the growth and broader adoption of web-based services. This
program will increase the visibility and viability of on-demand services.
This article was adapted from the author’s blog on THINK IT Services. Reprinted
with the permission of the author.
Jeffrey M. Kaplan is Founder of THINKstrategies a firm which
helps clients capitalize on the migration of the technology industry from a
product-centric to a services-driven business model. He was formerly a leading
industry analyst at IDC, Dataquest, META Group and successful senior marketing
executive at InterOPS Management Solutions and International Network Services
(INS). Jeffrey has over twenty years of experience and recognized expertise in
IT/network management, SaaS, managed services, cloud computing,
telecommunications and outsourcing trends. He serves as a member of the
On-Demand Services steering committee of the SIIA and the Chairman of the SaaS/cloud
computing/managed services track of NetworkWorld's IT Roadmap and Interops.
Jeffrey is a frequent speaker at industry conferences and contributing columnist
for BusinessWeek Online, Mass High Tech Journal, Financial Times of London,
Business Communications Review, ComputerWorld, InfoWorld and Web Host Industry
Review on SaaS, utility computing, outsourcing strategies, service level
management (SLM), IT ROI and TCO calculations. For article feedback, contact
Jeffrey at
jkaplan@thinkstrategies.com
 
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