For Womack, the opportunity to remove risk is an obvious strength of the SaaS model.
"It's similar to a typical procurement process where the CIO has to figure out return on investment and security, and own the service level agreement," he says. "First and foremost, it's important to show top-line improvement and the business impact to the organization. It's a huge shift of risk. It's not necessarily cheaper [in the long term] than doing it yourself [and installing software on premises] but you're able to move very quickly and get immediate value. "
Even on the desktop, the SaaS model is having an effect with companies such as Google, Zoho and others putting desktop applications such as word processing, spreadsheet and presentations programs web-based services. These are appealing to technologically-savvy users but there are signs that the movement is spreading to enterprises. For example, Capgemini last year signed a deal to provide consulting and deployment services for the Google Docs applications suite. Google claims L'Oreal, Procter & Gamble and General Electric as customers.
Although these are early days for web-based productivity applications, the sector should be watched closely by CIOs, in the very least as a way to put pressure on Microsoft and its pricing, terms and conditions for Office.
Vendors in the sector are positive about options for stepping out from Salesforce's large shadow and broadening the appeal of the model.
"We're a very different beast to Salesforce.com," says NetSuite's Zach Nelson. "It was important at first [to associate with Salesforce] because Salesforce was seen as the black hole of all SaaS interests, but our competition was always going to be SAP. "
One major change in the sector could come through the familiar route of mergers and acquisitions. So far, activity has been relatively low key but, the thinking goes, if SaaS firms threaten the dominance of giants, they could easily be swallowed up. Salesforce, for example, has regularly been linked with an acquisition by Oracle, Google or even Microsoft. Interestingly, Oracle CEO Larry Ellison has stakes in both Salesforce and NetSuite.
An alternative possibility is that those same giants ramp up their own SaaS offerings. So far, Oracle, SAP and Microsoft have only taken baby steps into on-demand computing and must fear that anything more could disturb the cash-cow businesses that were founded on the client/server model. However, with Gartner predicting that SaaS could represent a third of all business application spending by 2012, they might be forced to move faster than they would like.
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