by Thomas Wailgum

SaaS Success: Four Recent Deals Show It’s Working for Davids and Goliaths

Jan 23, 20095 mins
Enterprise Applications

Call it software-as-a-service. Call it SaaS. Call it on-demand. Call it cloud computing.

Call it whatever the heck you like, but there’s one thing you have to call the movement toward off-premise software providers today: a success.

Over the years, SaaS providers continually challenged the “if the software isn’t behind my firewall, it’s not for me” dogma embraced by CIOs, IT staffers and control freaks everywhere. The on-demand label was surrounded by hype and dogged by serious questions of scale, security and integration.

The SaaS movement started at small and midsize companies, as many tech movements do, and continued there for a couple of years after the year 2000. Big companies, the traditional thinking went, had software needs too intense to be met by an untested, offsite hosting provider.

Today, SaaS has spread to the four major enterprise software markets—CRM, ERP, business intelligence and supply chain management—and it has become a reality for small, midsize and enterprise-class organizations. Big company use of SaaS has finally become legitimate.

According to recent Forrester Research data, SaaS vendors posted more than 40 percent growth rates in the past two quarters “during a period when most on-premise vendors delivered disappointing year-over-year quarterly reductions in new license revenue.”

Four recent, high-profile SaaS stories, each from one of those enterprise software markets, illustrates SaaS’s appeal, shows how it’s been able to snap onto large companies’ IT strategies, and why SaaS is here for good., of course, took the CRM market by storm. Today, it has nearly 52,000 customers and posted $749 million in total revenue for fiscal year 2008. Starbucks recently announced that it was using Salesforce’s service to quickly build out websites that tie into new customer campaigns, as the coffee giant attempts to transform it business. (To read a profile of Starbucks’ new CIO and why he’s not afraid of SaaS, see “Starbucks’ Next-Generation CIO: Young, Fast and In Control.”)

Starbucks constructed its new volunteering “I’m In” campaign’s website in just four weeks, using technology. Executives from the Fortune 500 brand “knew [they] needed a solution that would build quickly and scale infinitely,” Chris Bruzzo, VP of digital strategy and content for Starbucks, told IDG News.

While the ERP SaaS market hasn’t received as much initial acceptance as SaaS CRM has, news from Workday shows the tide is shifting. Workday, which provides on-demand HR and financial services software, announced that it had signed a deal with Flextronics, a $34 billion global electronics manufacturer. (See “Can Two Legacy ERP Guys Get IT Executives to Buy into On-Demand Applications?” for more on Workday’s challenges and successes.)

The size of the Flextronics deal: 200,000 users.

In the business intelligence world, on-demand BI provider Oco announced in January that it had inked a deal with Office Depot to help streamline the retailer’s reporting capabilities and enhance the understanding of business trends. (For more on BI SaaS vendors, see “Business Intelligence and On-Demand: The Perfect Marriage?”)

“We selected Oco because of the company’s ability to deliver a targeted solution in a rapid timeframe,” said Carol Martin, VP of merchandise operations for Office Depot, in the press announcement. “We are looking at this solution to integrate with our existing business intelligence and data management infrastructure, and provide value throughout targeted areas of the business.”

And last, but certainly not least, is the deal that a little-known SaaS supply chain vendor named Aravo signed with big name General Electric in 2008. GE’s supply chain is massive: 500,000 suppliers in more than 100 countries that cut across 14 different languages. (Each year, GE spends some $55 billion among its vast supplier base.)

GE CIO Gary Reiner’s selection of Aravo’s on-demand Supplier Information Management product may be startling to some CIOs, but not Reiner. “When we judge a solution, we are indifferent to whether it’s hosted by a supplier or by us,” Reiner told about the selection. “We look for the functionality of the solution and at the price.” (See “GE CIO Gets His Head in the Cloud for New SaaS Supply Chain App” for an inside look at Reiner’s decision-making process and why he’s seriously looking at Google Docs.)

Let me be perfectly clear here: By no means am I saying that the on-premise traditional software model is on its way out, and that SAP, Oracle and the crew of other enterprise software providers are doomed—though many of them are not doing themselves any favors.

I’m also not pretending to believe that SaaS and on-demand technologies are perfect: They’re not. (Just ask or online analytics provider Omniture, both of which have recently frustrated their respective customer bases.)

I’m simply noting a significant point and time in enterprise software history. Perhaps a big turning point in how businesses buy, install and use software.

Despite the economic mess, now is a very good time to be buying software, because robust SaaS options finally offer companies a real choice. Not just a lot of empty hype.