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Posts from the ‘SaaS Early Adopter Research’ Category

Oct 31

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SaaS Adoption Accelerates, Goes Global in the Enterprise

In working with manufacturers and financial services firms over the last year, one point is becoming very clear: SaaS is gaining trust as a solid alternative for global deployments across the enterprise.  And this trend has been accelerating in the last six months.  One case in point is a 4,000 seat SaaS CRM deployment going live in Australia, Europe, and the U.S. by December of this year.

What’s noteworthy about this shift is that just eighteen months ago an Australian-based manufacturer was only considering SaaS for on-premises enhancement of their CRM system.  What changed?  The European and U.S. distribution and sales offices were on nearly 40 different CRM, quoting, proposal and pricing systems.  It was nearly impossible to track global opportunities.

Meanwhile business was booming in Australia and there were up-sell and cross-sell opportunities being missed in the U.S. and European-based headquarters of their prospects. The manufacturer  chose to move to a global SaaS CRM solution quickly.  Uniting all three divisions with a global sales strategy forced the consolidation of 40 different quoting, pricing and CRM systems in the U.S. alone.  What they lost in complexity they are looking to pick up in global customer sales.

Measuring Where SaaS Is Cannibalizing On-Premise Enterprise Applications

Gartner’s Market Trends: SaaS’s Varied Levels of Cannibalization to On-Premises Applications published: 29 October 2012 breaks out the percent of SaaS revenue for ten different enterprise application categories.  The greener the color the greater the adoption.  As was seen with the Australian manufacturer, CRM continues dominate this trend of SaaS cannibalizing on-premise enterprise applications.

Additional take-aways from this report include the following:

  • Perceived lower Total Cost of Ownership (TCO) continues to be the dominant reason enterprises are considering SaaS adoption, with 50% of respondents in 2012 mentioning this as the primary factor in their decision.
  • CRM is leading all other enterprise application areas in net new deployments according to the Gartner study, with the majority of on-premise replacements being in North America and Europe.
  • 95% of Web analytics functions are delivered via the SaaS model  whereas only 40% of sales use cloud today according to the findings of this study.
  • SaaS-based ERP will continued to be a small percentage of the total market, attaining 10% cannibalization by 2012.  Forrester has consistently said this is 13%, growing to 16% by 2015.
  • Office suites and digital content creation (DCC) will attain compound annual growth rates (CAGR) of 40.7% and a 32.2% respectively from 2011 through 2016. Gartner is making the assumption consumers and small businesses will continue be the major forces for Web-based office suites through 2013.
  • The four reasons why companies don’t choose SaaS include uncertainty if it is the right deployment option (36%), satisfaction with existing on-premise applications (30%), no further requirements (33%) and locked into their current solution with expensive contractual requirements (14%).

Bottom Line: Enterprises and their need to compete with greater accuracy and speed are driving the cannibalization of on-premise applications faster than many anticipated; enterprise software vendors need to step up and get in front of this if they are going to retain their greatest sources of revenue.

Source:  Market Trends: SaaS’s Varied Levels of Cannibalization to On-Premises Applications Published: 29 October 2012 written by Chad Eschinger, Joanne M. Correia, Yanna Dharmasthira, Tom Eid, Chris Pang, Dan Sommer, Hai Hong Swinehart and Laurie F. Wurster

Sep 16

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Why CIOs Are Quickly Prioritizing Analytics, Cloud and Mobile

Customers are quickly reinventing how they choose to learn about new products, keep current on existing ones, and stay loyal to those brands they most value.  The best-run companies are all over this, orchestrating their IT strategies to be as responsive as possible.

The luxury of long technology evaluation cycles, introspective analysis of systems, and long deployment timeframes are giving way to rapid deployments and systems designed for accuracy and speed.

CIOs need to be just as strong at strategic planning and execution as they are at technology.  Many are quickly prioritizing analytics, cloud and mobile strategies to stay in step with their rapidly changing customer bases.  This is especially true for those companies with less than $1B in sales, as analytics, cloud computing and mobility can be combined to compete very effectively against their much bigger rivals.

What’s Driving CIOs – A Look At Technology Priorities

Gartner’s annual survey of CIOs includes 2,300 respondents located in 44 countries, competing in all major industries.  As of the last annual survey, the three-highest rated priorities for investment from 2012 to 2015 included Analytics and Business Intelligence (BI), Mobile Technologies and Cloud Computing.

Source: From the Gartner Report Market Insight: Technology Opens Up Opportunities in SMB Vertical Markets September 6, 2012 by Christine Arcaris, Jeffrey Roster

 

How Industries Prioritize Analytics, Cloud and Mobile  

When  these priorities are analyzed across eight key industries, patterns emerge showing how the  communications, media and services (CMS) and manufacturing industries have the highest immediate growth potential for mobility (Next 2 years).  In Big Data/BI, Financial Services is projected to be the fastest-developing industry and in Cloud computing, CMS and Government.

In analyzing this and related data, a profile of early adopter enterprises emerges.  These are companies who are based on knowledge-intensive business models, have created and excel at running virtual organization structures, rely on mobility to connect with and build relationships with customers, and have deep analytics expertise.  In short, their business models take the best of what mobility, Big Data/BI and cloud computing have to offer and align it to their strategic plans and programs.  The following figure, Vertical Industry Growth by Technology Over the Next Five Years, shows the prioritization and relative growth by industry.

Source: From the Gartner Report Market Insight: Technology Opens Up Opportunities in SMB Vertical Markets September 6, 2012 by Christine Arcaris, Jeffrey Roster

How Mobility Could Emerge As the Trojan Horse of Enterprise Software

Bring Your Own Device (BYOD), the rapid ascent of enterprise application stores, and the high expectations customers have of continual mobile app usability and performance improvements are just three of many factors driving mobility growth.

Just as significant is the success many mid-tier companies are having in competing with their larger, more globally known rivals using mobile-based Customer Relationship Management (CRM), warranty management, service and spare parts procurement strategies.  What smaller competitors lack in breadth they are more than making up for in speed and responsiveness.   Gartner’s IT Market Clock for Enterprise Mobility, 2012 captures how mobility is changing the nature of competition.

Source: IT Market Clock for Enterprise Mobility, 2012 Published: 10 September 2012 Analyst(s): Monica Basso

 

Bottom Line – By excelling at the orchestration of analytics, cloud and mobile, enterprises can differentiate where it matters most – by delivering an excellent customer experience.  Mobility can emerge as an enterprise Trojan Horse because it unleashes accuracy, precision and speed into customer-facing processes that larger, complacent competitors may have overlooked.

Jun 26

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The Marketing of Cloud Multitenancy: How Early Adopters Are Killing The Hype

It’s impressive how quickly the teams evaluating CRM cloud-based applications are learning how to deflate the hype surrounding multitenancy.

One gets the impression that hype-hunting has now become a sport in these teams.  In engineering-centric companies it’s a badge of honor to find out just how multitenant a cloud-based application or platform is.  Multitenancy isn’t the only area they are looking at, but given the massive amount of hype surrounding this issue on the part of vendors, it generates more attention because evaluation teams are skeptical.

Teams evaluating CRM applications aren’t satisfied with an easily customized and used graphical interface or series of workflows, they are getting more interested in the architecture itself .  In some cases they’ve been burned by claims of an application being SaaS-based when in fact the architecture is a glorified series of Citrix-like sessions running in the background or worse.  I have seen a healthy amount of skepticism in the evaluations going on right now and recently completed of SaaS applications and entire cloud platforms.  Gartner’s inquiry calls from corporate accounts must be accelerating as their clients look for guidance on how to sort out the multitenancy hype.

CRM, Multitenancy and the Hype Cycle for Cloud Computing

Gartner’s search analytics show that cloud computing and related terms had 29,998 searches in the last twelve months with cloud computing alone generating 10,062 searches.  SaaS and related terms had a search volume of 19,000.  These terms are among the most popular across all Gartner search terms for the last twelve months.  In comparison, CRM had over 42,000 searches in the same period.

It’s in this area of CRM applications where multitenancy has gone into hype overdrive. Looking for differentiators, some CRM vendors are claiming not just multitenancy – but their specific brand of it.  This confuses their prospects, which immediately energizes evaluation teams to do a more thorough job than they have ever done before.  By claiming their own type of multitenancy, CRM vendors are ironically not just slowing down their own sales cycles, they are making the entire industry slow down.  No wonder Gartner places multitenancy along the Peak of Inflated Expectations in the latest Hype Cycle for Cloud Computing which is shown below.

Making Sense of Elasticity and Multitenancy

It’s paradoxical that enterprise software vendors, especially those selling SaaS-based CRM applications,  are attempting to turn multitenancy into a differentiator.  What is needed is a greater focus on usability, flexibility in aligning workflows to specific needs, and better enterprise integration technologies.  Sell the value not the product features.

Given the confusion differentiating on multitenancy is creating and the calls Gartner is getting on this issue, they published Gartner Reference Model for Elasticity and Multitenancy.  It includes what Gartner believes a cloud services provider must implement in terms of a multitenant service in addition to what SaaS-based applications need to provide.  Here are their checklists for each area:

Multitenancy Service Requirements for Cloud Services Providers

  • Isolation of tenant data
  • Isolation of the tenant workspace (memory)
  • Isolation of tenant execution characteristics (performance and availability)
  • Tenant-aware security, monitoring, management, reporting and self-service administration
  • Isolation of tenant customizations and extensions to business logic
  • Continuous, tenant-aware version control
  • Tenant-aware error tracking and recovery
  • Tracking and recording of resources use per tenant
  • The ability to allocate resources to tenants dynamically, as needed and based on policy Horizontal scalability to support real-time addition/removal of tenant resources, tenants or users without interruptions to the running environment

Multitenancy in Cloud Application Services (Software as a Service) Applications

  • Be available 24/7, because of the potential global user base
  • Adopt new versions without disrupting the continuous operations of tenants, and preserve user customizations
  • Scale up or down on demand
  • Allow individual rollback and restore for each tenant
  • Not allow a “noisy neighbor” tenant to affect the performance of other tenants, or increase their costs
  • Be accessible from various locations, devices and software architectures to meet potentially global demand
  • Offer tenant-aware self-service

Gartner also released their Reference Architecture for Multitenancy, which is shown below.  One of the key assumptions of this model is that multitenancy is a mode of operation where multiple, independent and secured instances of applications run in a shared environment.  The model includes the seven different models of multitenancy Gartner has seen in their research.  These seven models, listed across the top of the model beginning with Shared Nothing and progressing to Custom Multitenancy are across the top of the model.

The majority of enterprises I’ve worked with are looking to the Shared Hardware approach in an attempt to create backward compatibility to their legacy applications via Virtual Machines. Another area of interest is the Shared Container approach which relies on a separate logical or physical instance of a DBMS, and often isolates its own business logic.  This is ideal for distributed order management systems and SaaS-based ERP systems for example.  Yet the legacy application support in this type of multitenancy can get expensive fast.

Shared Everything Multitenancy is ideal for quickly on-ramping and off-ramping applications, tenants and individual system users and is what nearly all enterprise vendors claim to do.  In reality only a handful do this well.  This approach to multitenancy is based on the Shared Container approach including support for shared DBMS sessions.  Salesforce.com’s Force.com platform, VMWare WaveMaker and Zoho Creator are all examples of companies who have successfully delivered Shared Everything multitenancy.

With so much to gain by positioning an application or solution suite in the 6th and 7th models, vendors are rushing to define their own versions of Shared Everything and Custom Multitenancy.  The land grab is on in this area of the multitenancy market right now.  IBM, Microsoft and Oracle are all expected to endorse and eventually have many of their cloud-based applications in the Shared Everything model.  Each of these companies and many others will have a multi-model based approach to selling multitenancy as well.

Gartner Reference Model for Elasticity and Multitenancy

Source:  Gartner Reference Model for Elasticity and Multitenancy

Bottom line: Enterprise software vendors can accelerate evaluation cycles and sell more by differentiating on the user experience and value delivered instead of trying to create fear, uncertainty and doubt (FUD) by creating their own definition of multitenancy.

Apr 2

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Roundup of SaaS ERP Forecasts and Market Estimates, 2012

The latest round of SaaS ERP market forecasts are more grounded in the reality of CIO priorities and committed projects in 2012 than ever before.  And this is good news for the many vendors competing in the Financial Management Systems (FMS), Human Capital Management (HCM) and Manufacturing segments of the SaaS ERP market.

Two weeks ago in Houston I interviewed twenty-five different CIOs, IT Directors, CEOs and CTOs as part of a persona research study I am doing.  Their take on SaaS ERP was consistent with what this round-up shows, namely this type of SaaS application is best suited for extending beyond, not replacing, the main ERP systems and platforms.   I concentrated on SaaS ERP adoption in manufacturing and learned the following during my interviews:

  • Usability and speed of deployment are the two most common benefits CIOs mentioned in my survey during Convergence.  The economics of cloud computing is a topic that CFOs love to talk about, especially in the areas of value-based pricing and how that is determined.
  • When asked what kept them up at night, CIOs said it was the thought of a call from their boss (often the CFO) that a cloud system had been compromised or had completely gone down.  Security and reliability are holding back CIOs in manufacturing from adopting SaaS-based ERP systems more pervasively in their companies.
  • CIOs from aerospace and defense companies get the benefits of cloud computing, yet they have much bigger issues to deal with right now, like replacing financials in their existing ERP system and staying in compliance to government requirements.  Earned Value Management is a major focus they have as well.  SaaS-based ERP systems are interesting to them; they however would require a completely enclosed, locked-down implementation due to security requirements.
  • There are vast differences in how CIOs view cloud computing – something that the following forecasts don’t really capture.  For the CIOs who are strategists, cloud computing in general and SaaS ERP specifically is a consideration given the agility and time-to-market, providing customization is held to a minimum.  CIOs who came up through IT have a healthy degree of skepticism and see SaaS ERP as potentially useful for scaling out an operation yet never being the primary financial system.

Here are the latest SaaS ERP forecasts and market estimates:

  • Gartner released their latest SaaS revenue forecast last week predicting revenue will reach $14.5B this year, a 17.9% increase from 2011 of $12.3B, with strong growth predicted through 2015 when the market is expected to be $22.1B. Source: http://www.itjungle.com/tfh/tfh040212-story08.html
  • In the report Market Trends: Cloud Computing and SaaS Adoption in Manufacturing and Natural Resources, Worldwide, 2012 Gartner is predicting  59% of manufacturers will adopt IaaS during the 2011 – 2015 timeframe and 47% will be either piloting or using SaaS-based applications.  Gartner cites the need for greater business and supply chain agility as the factors driving this rapid adoption.  The following figure is from the Gartner report  Market Trends: Cloud Computing and SaaS Adoption in Manufacturing and Natural Resources, Worldwide, 2012.
  • Forrester forecasts SaaS ERP spending staying at 2% of the global ERP market, while Gartner forecasts 7% through 2012.  Gartner is projecting Project and Portfolio Management (29.1%) and Supply Chain Management (22.1%) will see the greatest growth rates through 2015.  Supply Chain Management is expected to reach $2.7B in revenue by 2015.  The Total Software Revenue Forecast for SaaS Delivery Within Enterprise Software is shown in the following table.  Source: Forecast: Software as a Service, Worldwide, 2010-2015, 1H11 Update Published: 22 June 2011 Analyst(s): Sharon A. Mertz, Chad Eschinger, Tom Eid, Chris Pang, Laurie F. Wurster
  • Gartner, IDC and Forrester all predict that Human Capital Management (HCM) will see the broadest adoption of all SaaS-based ERP components through 2015.  Vendors in this category include ADP, Concur, Cornerstone onDemand, HumanConcepts, Infor, Kenexa, Lumesse, Saba, SilkRoad, Sonar6, SuccessFactors, SumTotal Systems, Taleo, Ultimate Software and Workday.  Based on a recent Gartner Spending and Usage of SaaS Survey, 39% of manufacturers are piloting or using SaaS-based financials followed by 37% using Expense Management.The following figure illustrates their forecast, from the report  Market Trends: Cloud Computing and SaaS Adoption in Manufacturing and Natural Resources, Worldwide, 2012
  • Gartner’s IT Market Clock for ERP Platform Technology indicates that multitenant SaaS-based ERP is maturing rapidly, driven by time-to-market and cost advantages. The IT Market Clock is shown below, indicating SaaS ERP-based systems position relative to other ERP platforms now in use.  Vendors including  Epicor Express Editions, Glovia, Kenandy, NetSuite, Plex Systems, and SAP Business ByDesign compete in this segment.Source: IT Market Clock for ERP Platform Technology, 2011 Published: 19 September 2011 Analyst: Jim Shepherd.

Gartner has also compiled a Market Clock Recommendation Summary which is shown in the following table.  Of the CIOs I’ve spoken with during the persona research, the description of Multitenant SaaS is accurate.  No CIO I’ve spoken with is willing to bet their job on a rip-and-replace strategy for SaaS ERP; yet many are willing to extend their existing ERP systems using SaaS implementations to get up and running quickly at lower cost.  The one caveat nearly everyone mentions is little or no customization is necessary for SaaS ERP systems to be even evaluated by their companies.  Slight configuration is expected; however in-depth customization is not.

Bottom line: The persona research completed shows that the SaaS-based ERP growth is being helped by the transition occurring in the CIO ranks today.  More of them are strategists, who are expected to make business strategies happen, over and above just keeping the system dial tone on in their enterprises.

Sep 3

Enterprise Software as a Service Market Forecast: The Future is Already Here – It’s Just Not Evenly Distributed

The prescient quote by William Gibson aptly describes the worldwide Software as a Service (SaaS) market today, especially in the enterprise.

Global adoption and growth of SaaS within enterprises is unevenly distributed yet growing rapidly.  One of the primary catalysts moving this forward are Amazon Web Services, Google, Microsoft, Salesforce and other platform providers lowering the barriers to creating new applications, continually investing in security technologies, and streamlining rapid prototyping, testing, and release of SaaS applications.

This week Salesforce showed how extensive the momentum is in their global base of developers during Dreamforce ’11.  The Developer Zone had the most innovation per square foot of any venue at this conference.  Insights gained from visiting the sessions at Dreamforce, speaking with Force evangelists and tech staff, and also with attendees form the basis of the following analysis and insights.  On Friday of last week Gartner also released the report, Forecast: Software as a Service, All Regions, 2010-2015 by Sharon A. Mertz, Chad Eschinger, Tom Eid, Yanna Dharmasthira, Chris Pang, Laurie F. Wurster, Tsuyoshi Ebina, Hai Hong Swinehart, which validated several of the trends seen in the Developer Zone at Dreamforce ’11.

Forecasting the Growth of SaaS in the Enterprise, 2015

In speaking with developers, vendors and after reviewing the Gartner report, here are several insights gained that illustrate how SaaS adoption will vary by region over the next four years:

  • APIs are getting more adept at managing multi-party transactions across all platforms.  Marc Benioff and Chuck Phillips alluded to this when Infor announced Inforce this week at Dreamforce.  It was also evident in how partners in the Developer Zone were demonstrating frameworks for supporting more advanced enterprise software application development.  These included supply chain management, the ability to manage complex project plans more effectively using apps based on these APIs, and greater control over collaboration development.  Gartner published their total software revenue forecast for SaaS delivery, 2007 – 2015 back in June, and a table from that analysis is shown below.  Their forecast reflects in large part depth of REST APIs which are part of Web Services.   This table is from the report, Forecast: Software as a Service, Worldwide, 2010-2015, 1H11 Update, 22 June 2011, ID:G00213816, Sharon A. Mertz, Chad Eschinger, Tom Eid, Chris Pang, Laurie F. Wurster.
  • Graphical interface flexibility, usability options, localization, and local language support dominate EMEA concerns about SaaS.  In Dreamforce sessions attended and in the Gartner report, it’s clear Salesforce is struggling to make localization work more effectively via their programming platforms and tools in EMEA.  This came out during many of the discussions in the Developer Zone as well.  All platform providers are facing this challenge, yet the pace of new API enhancements shows significant potential.  As a result the forecast for SaaS revenue in Western Europe is forecasted to be $2.66B in 2011 growing to $4.8B in 2015, achieving a compound annual growth rate (CAGR) of 17% according to Gartner.
  • Total Cost of Ownership (TCO) is aggressively pushed by Salesforce in the U.S. yet is most effective in EMEA.  This became evident in discussions and presentations, and also was validated by the recent Gartner report.  Salesforce also has extensive TCO calculators on its Force developer sites for the U.S. yet ironically they are finding they are most effective in EMEA sales cycles.
  • Based on my informal poll 20% of iPad-to-Salesforce account demos failed at Dreamforce.    Dozens of companies were hyping their iPad clients at Dreamforce, yet I found nearly one in five failed to deliver reliable performance. While the sample is hardly scientific, it does show that the iPad to Salesforce integration so heavily hyped by so many vendors is still nascent.  It’s as if these companies invested so much on iPad clients they ran out of time to make the back-end integrations work reliably.  Gartner found that lack of integration is the single greatest inhibitor to SaaS growth in North America.
  • Ease of speed and deployment, limited capital expense, and lower TCO are the most critical factors driving SaaS growth in U.S. enterprises today.  This became evident from listening to customer testimonials during the many vendor sessions in Moscone West, in addition to discussions with developers.  The impact of these factors is also evident in the total software revenue forecast for SaaS delivery within enterprise application software markets by region, 2008 – 2015.   This is from the Gartner report, Forecast: Software as a Service, All Regions, 2010-2015. Sharon A. Mertz, Chad Eschinger, Tom Eid, Yanna Dharmasthira, Chris Pang, Laurie F. Wurster, Tsuyoshi Ebina, Hai Hong Swinehart.

  • CRM continues to dominate SaaS usage across all enterprise applications, closely followed by Web conferencing and e-learning in North America and Northern Europe.  Both North America and Northern Europe have comparable adoption trends regarding these SaaS applications, with Western and Southern Europe lagging in terms of adoption and spending.
  • Asia/Pacific continues to be the most fragmented of all regions when it comes to SaaS adoption in the enterprise.  Countries with greater stability of their Internet infrastructures including Australia, Hong Kong, Singapore and South Korea are experiencing greater SaaS growth, and also contributing to Salesforce’s success in these regions.  Salesforce has 14.5% CRM share in this region, third behind SAP and Oracle. Emerging countries are the most rapid adopters of SaaS-based accounting, e-mail and collaboration-based apps.
  • China, India and Malaysia are experiencing the most rapid adoption of SaaS-based enterprise applications in the Asia/Pacific region.  WiPro’s decision to invest so heavily in Dreamforce as a promotional event is a case in point.  The Developer Zone had  several companies from this region offering their programming and system integration services as well.

Bottom line: SaaS adoption continues to accelerate globally across enterprise software, growing from $12B in 2011 to $21B in 2015, achieving a 16.3% CAGR annually. Platform providers are knocking down the barriers to market growth by using events including Dreamforce to educate, entertain and enable developers to quickly turn concepts into applications.

Aug 13

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SaaS-based Analytics and Business Intelligence Market Update, August 2011

Challenging, uncertain economic times accelerate sales cycles and lead to more closed deals for business intelligence software providers.  Companies get an urgency to reduce costs and risks, relying on the insights gained from these applications.

There’s an interesting dichotomy starting to emerge in how experts and analysts define just how these markets will mature however.  Both agree that economic uncertainty are growth catalysts yet they diverge on adoption rates, roadblocks, and which analytics and BI technology will dominate in the years ahead.

This week I read Balancing Custom And Packaged Apps In Your Application Portfolio Strategy by George Lawrie, Mike Gilpin and Adam Knoll from Forrester and the latest Hype Cycle of Business Intelligence, 2011 by a collection of Gartner authors led by Andreas Bitterer.  I’ve summarized the key points of each below.

Forrester Sees SaaS Applications Overtaking Custom Application Development

Forrester sees SaaS-based applications starting to replace in-house custom application development, gathering momentum through 2013.  Gartner, with their Hype Cycle for Business Intelligence, 2011 just released this week, shows BI platforms having greater near-term benefit than SaaS-based analytics and BI.  Custom application development projects are going to face continued pressure to keep up with business requirements that SaaS applications are proving able to handle more effectively and economically than ever before.

In-house development makes more sense for specific analytics and reporting requirements,  yet will continually be eroded by SaaS-based applications that can meet most requirements at a lower cost.  Forrester has in the past said SaaS-based adoption of analytics applications in general and predictive applications specifically would be very slow due to data integration challenges.  This study points to a potential shift in their mindset, as the data shows SaaS-based analytics beginning to replace custom in-house developed applications.

Here are the key take-aways from the report:

  • Analytics processes are supported 79% of the time with custom application development.  Procure-to-pay (33%) and record-to-report (33%) are the second-most supported.  Multiple responses were allowed in the survey.
  • When asked which process areas they are automating with SaaS, analytics (33%), record-to-report (18%), order-to-cash  (15%), and purchase-to-pay (12%) were the most common responses.  There was a small sample size on the Forrester report and the most startling insight was how quickly respondent companies plan to migrate from custom application development to SaaS-based analytics and BI.
  • Nearly 50% of the respondents to the Forrester survey have between five and 19 SaaS-based applications today with 18% expecting to have 35 or more by 2013.  In addition 63% of respondents expect to deploy between five and 34 SaaS-based applications by 2013, a significant shift in just two years.
  • 36% of survey respondents say their  SaaS applications run completely standalone.  Another 36% mention they use a combination of on-premises Master Data Management (MDM) and process integration tools.  Ironically only 3% are deploying their applications on cloud-based MDM or process integration-based platforms.

Gartner’s Hype Cycle for Business Intelligence, 2011

Unlike the hype cycle for cloud computing, this hype cycle has fewer technology categories (25), a narrative firmly grounded in business process and strategy, and more practical and pragmatic insights versus just theoretical.  At 50 pages it’s  quick read and while there are many excellent points made, I have summarized the key take-aways pertaining to the highest hype points and SaaS adoption below:

  • Mobile Business Intelligence (BI) is the latest entry to the Hype Cycle for Business Intelligence based on the massive hype around analyzing locational and application data.  The hype surrounding the Apple iPad Series, Google Android and other tablet and smartphone platforms has made this one of the most hyped areas of the last year according to the analysis.
  • Consumerization, Decision Support, analysis of non-traditional data and “Big Data” are the areas of the greatest innovation today.  The hype cycle points to search, mobile, visualization and data discovery being the catalyst of Consumerization.  Predictive analytics, which is on the Slope of Enlightenment on this latest hype cycle, is critical to decision support.  The non-traditional and “Big Data” area of innovation is further supported by content, text analytics, in-memory DBMSs and columnar DBMSs.
  • SaaS-based Business Intelligence is at the apex of the Peak of Inflated Expectations yet will continue to have low adoption rates.  Gartner believes that the  lack of trust in third parties managing confidential data, and the inertia and fear many companies have in moving to a new architecture are slowing adoption.  This is in contrast to the survey Forrester released this week showing analytics being one of the most popular SaaS-based applications planned by 2013 in their base of respondents.
  • Gartner sees SaaS-based Business Intelligence of the most value to midsize and smaller organizations who lack IT staff yet have very specific, targeted information needs.  Website analytics, social media monitoring, dashboards, predictive analytics and Excel as a BI front-end all apply.  Both Forrester and Gartner agree on this point and see this type of custom development going away quickly internally.
  • There is a massive amount of hype surrounding in-memory computing, particularly from SAP at its Sapphire conferences .  Gartner believes that SAP’s vision of in-memory computing exceeds  in-memory analytics to include analytical and transactional processing.  As a result, In-Memory Database Management Systems are at the Peak of Inflated Expectations.


Source: Hype Cycle for Business Intelligence, 2011, Published 12 August 2011 | ID:G00216086 By Andreas Bitterer.  Gartner, Inc.

What Both Agree On

Forrester’s survey shows SaaS eventually replacing custom application development while Gartner’s Hype Cycle for Business Intelligence shows the practical, pragmatic technologies including dashboards, predictive analytics combined with the more complex Business Activity Monitoring (BAM), Business Intelligence Platforms, and Data-Mining Workbenches delivering the most value.  Despite these differences, both agree on the following:

  • The overall market for BI, Analytics and Performance Management continues to grow at between 8 to 12% per year depending on the forecast used.  The following forecast is from the report  Market Trends: Business Intelligence, Worldwide, 2011-2014, 7 June 2011 | ID:G00213483 by Dan Sommer and James Richardson.
Source: Market Trends: Business Intelligence, Worldwide, 2011-2014, 7 June 2011 | ID:G00213483 by Dan Sommer and James Richardson
  • 2011 continues to see large, strategic deals for analytics and BI closing more rapidly than they have in the past.
  • SaaS-based analytics and BI continues to gain a greater share of spending in midsize and smaller companies.  Both also agree that the proliferation of smaller SaaS-based analytics and Bi vendors concentrating on a specific niche have successfully displaced in-house custom development of competitive applications.  Trust in the smaller vendor, their track record, customer references and financial viability are what are winning deals for SaaS-based analytics and BI software providers today.
  • The market transition from build to buy is now in full force as budgets become available again.  This is key assumption of both analyses and means that smaller, more niche-oriented SaaS-based analytics and BI vendors stand a chance to get new reference accounts and grow, despite a challenging economy.

Jul 27

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Gartner Releases Their Hype Cycle for Cloud Computing, 2011

Calling the hype around cloud computing “deafening”, Gartner released their annual hype cycle for the 34 different technologies in a 75 page analysis today.  You can find the Hype Cycle at the end of this post and I’ve provided several of the take-aways below:

  • The industry is just beyond the Peak of Inflated Expectations, and headed for the Trough of Disillusionment. The further up the Technology Trigger and Peak of Inflated Expectations curve, the greater the chaotic nature of how technologies are being positioned with widespread confusion throughout markets. The team of analysts who wrote this at Gartner share that conclusion across the many segments of the Hype Cycle.
  • Gartner states that nearly every vendor who briefs them has a cloud computing strategy yet few have shown how their strategies are cloud-centric. Cloudwashing on the part of vendors across all 34 technology areas is accelerating the entire industry into the trough of disillusionment. The report cites the Amazon Web Services outage in April, 2011 as a turning point on the hype cycle for example.
  • Gartner predicts that the most transformational technologies included in the Hype Cycle will be the following: virtualization within two years; Big Data, Cloud Advertising, Cloud Computing, Platform-as-a-Service (PaaS), and Public Cloud computing between two and five years; and Community Cloud, DevOps, Hybrid Cloud Computing and Real-time Infrastructure in five to ten years.
  • There continues to be much confusion with clients relative to hybrid computing.  Gartner’s definition is as follows ”Hybrid cloud computing refers to the combination of external public cloud computing services and internal resources (either a private cloud or traditional infrastructure, operations and applications) in a coordinated fashion to assemble a particular solution”. They provide examples of joint security and management, workload/service placement and runtime optimization, and others to further illustrate the complex nature of hybrid computing.
  • Big Data is also an area of heavy client inquiry activity that Gartner interprets as massive hype in the market. They are predicting that Big Data will reach the apex of the Peak of Inflated Expectations by 2012.  Due to the massive amount of hype surrounding this technology, they predict it will be in the Trough of Disillusionment eventually, as enterprises struggle to get the results they expect.
  • By 2015, those companies who have adopted Big Data and extreme information management (their term for this area) will begin to outperform their unprepared competitors by 20% in every available financial metric. Early use cases of Big Data are delivering measurable results and strong ROI.  The Hype Cycle did not provide any ROI figures however, which would have been interesting to see.
  • PaaS is one of the most highly hyped terms Gartner encounters on client calls, one of the most misunderstood as well, leading to a chaotic market. Gartner does not expect comprehensive PaaS offerings to be part of the mainstream market until 2015.  The point is made that there is much confusion in the market over just what PaaS is and its role in the infrastructure stack.
  • SaaS performs best for relatively simple tasks in IT-constrained organizations. Gartner warns that the initial two years may be low cost for any SaaS-based application, yet could over time be even more expensive than on-premise software.

Bottom line: The greater the hype, the more the analyst inquiries, and the faster a given technology ascends to the Peak of Inflated Expectations. After reading this analysis it becomes clear that vendors who strive to be accurate, precise, real and relevant are winning deals right now and transcending the hype cycle to close sales.  They may not being getting a lot of attention, but they are selling more because enterprises clearly understand their value.

Source: Gartner, Hype Cycle for Cloud Computing, 2011 David Mitchell Smith Publication Date: 27 July 2011 ID Number: G00214915 © 2011

Jul 24

5 Comments

Predicting Cloud Computing Adoption Rates

From conservative, single digit adoption rates to hockey-stick projections of exceptional growth, analyst firms, venture capitalists and government ministries are weighing in on how they see cloud adoption progressing.

While each of the adoption rate predictions vary significantly in terms of their methodologies and results, all rely on the assumption that SaaS applications including CRM will continue to gain momentum.  The user adoption rates vary on how fast the momentum is, yet all share this assumption.  Speed, increased user adoption rates, and the ability to more closely align software to business goals are cited most often as the biggest benefits.

Where the projections vary most is whether enterprises will eventually migrate the majority of their applications to the cloud or not.  Forrester, Gartner and others see a hybrid cloud architecture emerging in the enterprise and forcing the issue of legacy systems migration by 2015.  As would be expected, vendor-driven research sees an “all or nothing” world in the near future.

Sanity Check

Wanting to see how reliable the figures were showing rapid cloud adoption in the enterprise, I did a quick sanity check.  Taking the  distribution of sales by segment for Salesforce.com and their annual revenue growth rate, then normalizing it across all segments, enterprise emerges as their strongest segment by a wide margin in 2015.  It had a 15%+ compound annual growth rate (CAGR) from 2011 – 2015 just taking their current sales by segment distribution of sales and extrapolating forward.  Data points like this and the market factors behind them is why SaaS is often used in these studies as a leading indicator of broader cloud adoption.

Adoption Rate Round-Up

  • Forrester found that SaaS will outgrow all other cloud services, achieving 37% adoption in 2011 growing to 50% by 2012.  In previous studies Forrester has shown that SaaS is a major growth catalyst of ongoing investment in IaaS and PaaS in enterprises. Source: Source:  Forrsights: The Software Market In Transformation, 2011 And Beyond Shifting Buying Preferences Lead To New Software Priorities by Holger Kisker, Ph.D. with Pascal Matzke, Stefan Ried, Ph.D., Miroslaw Lisserman  Link: http://bit.ly/ijJy70  The following table is from the report:

  • Microsoft Global SMB Cloud Adoption Study released in March, 2011 is one of the most comprehensive done this year on this topic. Of the many findings, the study predicts  39 % of SMBs expect to be paying for one or more cloud services within three years).  One of the best studies on cloud adoptions done this year Source: Study Results Document (PDF (22 pages): http://bit.ly/gN8yTx

  • North Bridge Venture Partners, GigaOM PRO and over a dozen research partners completed the study The Future of Cloud Computing 2011.  The study found 13% expressed high level of confidence in cloud computing for enterprise applications, with 40% experimenting and 10% saying they will never use cloud-based platforms as they are too risky. A presentation of the results can be found here:

Source: http://futureofcloudcomputing.drupalgardens.com/2011-future-cloud-computing-survey-results

                                     Microsoft Asia is making this available for download here: http://bit.ly/jWjOj1

  • TechTarget published their analysis of virtualization and cloud computing adoption in the study, State of virtualization and cloud computing: 2011.  Of the many findings, a few of the most significant is how pervasive VMware ESXi 4 and later (vSphere) is throughout enterprises today.  The study also shows that 7% of those interviewed had implemented cloud computing in 2010, growing to 9% in 2011 – quite conservative compared to many of the other adoption rate analyses completed.  You can find the results here: http://searchdatacenter.techtarget.com/feature/State-of-virtualization-and-cloud-computing-2011

Jun 18

Roundup of Cloud Computing and Software-as-a-Service (SaaS) Forecasts, June 2011

The gap is beginning to close between the value SaaS-based applications have the potential to deliver and what customers are achieving.

While SaaS-based software vendors are making major strides in integration, reliability, system performance and usability, it is the enterprise buyer’s skepticism and high standards forcing the market to move forward.  The latest series of market forecasts and surveys reflect greater use of actual customer results and a quickening pace of progress.

Performance-Driven Cultures and SaaS Adoption

Measuring business outcomes using industry standard and company-specific metrics typifies companies getting the best results.  A lack of clarity or confusion around strategy based goals leads to low adoption and eventual abandonment of SaaS initiates.  Sales and sales operations VPs are winning the debates against home-grown or internal system development based on speed of deployment, usability and integrated analytics of SaaS applications.  Based on the surveys and research completed this year, the best SaaS implementations are designed on a firm foundation of measurable results including quantifying risk.

Performance-driven cultures have a higher success rate with SaaS pilots, are more thorough in defining their own infrastructure (IaaS) and platforms (PaaS), and also know what success looks like from a metrics-driven standpoint.   The graphic, Performance-Driven Culture: The Metrics Continuum, shown to the left, was originally published in Gartner’s Predicts 2011: Enterprise Architecture Shifting Focus to Business Value Outcomes Report, November, 11, 2010 Philip Allega, et.al supports this point.  Please click on the graphic to expand it for easier reading.

Hype is Prolonging the Peak of Inflated Expectations

The bottom line is all really matters is measurable, repeatable performance when enterprises evaluate their SaaS strategies.  Many marketing, sales, sales operations and service VPs must defend their choice of SaaS over legacy system upgrades or internal system development.  Resistance to change and complacency in IT is slowly killing many companies who must step up and keep pace with their customers to survive. People are betting their jobs on this technology.  Many in marketing, sales and service want to know how to improve and measure business strategy performance.  That’s one of the main inflexion points in SaaS marketing today.

 The reality for enterprise users is that nothing gets purchased, no matter how wonderful the claims, unless there are strong metrics that link them back to business performance.  That’s what is deflating hype in this market faster than any other factor.  You can download the Gartner Hype Cycle for Cloud Computing 2010 from the link (no opt-in).  Please click on the graphic to download the Gartner Hype Cycle for Cloud Computing 2010.

Here are short summaries of the latest cloud computing and SaaS forecasts published recently:

  • Gartner is forecasting enterprise-based spending for Software-as-a-Service (SaaS) applications  will grow at a 16.3% compound annual growth rate through 2015. SaaS will grow at nearly double the pace of licensed enterprise applications during the forecast period.  Licensed applications will grow at a n 8.5% CAGR during the same period. The following  table, Total Software Revenue Forecast for SaaS Delivery Within the Enterprise Application Software Markets, 2007-2015 (Millions of U.S. Dollars) compares enterprise software spending by application category for the forecast period. Source: http://my.gartner.com/portal/server.pt?open=512&objID=260&mode=2&PageID=3460702&id=1728009&ref=

     Total Software Revenue Forecast for SaaS Delivery Within the Enterprise Application Software Markets, 2007-2015  (Millions of U.S. Dollars) 

     

  • The Asia-Pacific (APAC) Software as a Service (SaaS) market is expected to grow from $390M in 2008 to $4.3B in 2015, at an estimated CAGR of 41.0% from 2008 to 2015. The appeal and reach of software as a service (SaaS) continue to grow rapidly among enterprises in Asia Pacific. Australia & New Zealand (ANZ) is the largest regional SaaS market in Asia Pacific. SAAS is gaining momentum in ANZ because of the markets resemblance to the North American market with better broadband penetration, availability of applications getting delivered in SaaS mode and overall greater adoption of IT in general. Source: http://professional.wsj.com/article/TPMTPW000020110214e72e002k2.html
  • Cloud middleware systems markets at $1.5B in 2010 are forecast to reach $4.3B, worldwide by 2017.  cloud computing middleware represents the base for development of all cloud computing infrastructure as it supports systems integration and systems self-provisioning.  Market leaders are predicted to be Akamai, IBM, Google, Microsoft, and Oracle. Source: http://wintergreenresearch.com/
  • Infonetics Research forecasts the overall managed security services market, including CPE, SaaS, and cloud services, to reach just under $17B by 2015.  SaaS and cloud-based security services are expected to make up close to half of the overall managed security services market opportunity by 2015 Worldwide SaaS revenue is forecast to grow dramatically over the next few years, with a compound annual growth rate (CAGR) of 23% from 2010 to 2015.  Source: WSJ Journal 
  • Cloud service adoption is up 61% from 2010 and 45% of multinational corporations (MNCs) already use cloud sourcing for at least some elements of key IT services.  Cable & Wireless and Ovum partnered to create this white paper, full of excellent insights and research data: http://www.cw.com/assets/content/pdfs/resource/ovum-cloud-wp.pdf
  • 60 percent of companies worldwide said cloud computing is a top IT priority for the next year, the sentiment is even higher in the C-suite with three in four (75 percent) C-level executives reporting cloud computing as top of mind.  According to an Avanade Research and Insights’ Global Survey: Has Cloud Computing Matured? Third Annual Report, June 2011, there is also significant purchasing of cloud services without the IT department’s knowledge, with nearly 20% of all purchases never reviewed with the CIO. Source: Avanade Research Report  
  • By 2014, cloud computing services will grow to a $45B industry a year (IDC) and SaaS to grow at 21% CAGR to touch $17.6B.  Microsoft recently published the following presentation, Grow Your Business with Cloud – Are You Ready?  You can download a copy of the presentation by clicking on the presentation to the right.
  • The global cloud computing market is expected to grow from $37.8B in 2010 to $121.1 B in 2015 at a  CAGR of 26.2% from 2010 to 2015 according to Yankee Group. SaaS is the largest segment of the cloud computing services market, accounting  as it did for 73% of the market’s revenues in 2010. The IaaS and PaaS markets are still at a nascent stage and  currently hold a small share of the Cloud computing services market. However, these are expected to witness  moderate growth due to their flexibility and cost effectiveness.Source: CSS Corp. Analysis.
  • Project and Portfolio Management (PPM) software emerged in 2009 as a fast-growing market for SaaS, with a compound annual growth rate (CAGR) of more than 40% projected for the next five years according to Gartner. PPM software consumption environments are changing radically, with hosted and SaaS options — as a result, most traditional on-premises vendors are forced to provide SaaS alternatives to counter new entrants and SaaS-only PPM vendors.  Source:  Competitive Landscape: SaaS Project and Portfolio Management Software, Worldwide, 2011 published 6 April 2011.

May 28

Succeeding with SaaS: Four Hot Tips For Start-Ups

Mark MacLeod, General Partner, Real Ventures, discusses four tips of how to succeed with a Software-as-a-Service (SaaS) start-up. Real Ventures is a Montreal based venture capital and private equity partnership that specializes in early-stage investments in web, mobile, software, digital media, social and casual gaming. The majority of its investments are at the seed level, between conceptualization and the validation of the business model. Funded companies include Fabric Technologies and MConcierge Systems. Typical funding rounds are below $500K with $1M being at the higher-end. 

Key take-aways from Mark MacLeod’s discussion on SaaS revenue models include the following key points:

  • Stakeholders and investors prefer recurring billing over one-time licenses – Investors in SaaS start-ups and seed investment rounds prefer recurring revenue models, as this approach reduces risk by providing greater revenue forecast accuracy. For customers, being able to forecast monthly costs makes recurring billing the most popular model on SaaS today. Mark also mentions how this fuels the dynamic of operating expense (OPEX) versus capital expense (CAPEX) budgeting on the part of customers. He makes the point that investors like the recurring revenue model because the lifetime value of customers can be more accurately tracked.       
  • Be data driven – The best-managed SaaS start-ups rely heavily on standard metrics and many of their own unique measures of performance to better understand and predict revenue and costs. Mark contends that all SaaS start-ups need to be data-driven to not only understand their existing customers, but also see how their levels of use and satisfaction are influencing potential new customers.  The best SaaS start-ups measure every aspect of application use and customer experience. These in-house custom analytics are a competitive advantage for any SaaS start-up, as these application-specific metrics can provide insights for further product development and customer loyalty programs.
  • Pricing decisions are the most complex to make– The greater the hard benefits in terms of measurable, recurring cost reduction or revenue generation, the greater the price that can be charged, according to Mark’s experiences funding SaaS start-ups. He also mentions the cost of a direct sales force, market position, and relative benefits delivered as factors in making a pricing decision.
  • Always go for customer prepay options when possible – Prepayment is critical for a SaaS start-up, not only for cash flow but more importantly because it shows that customers trust the application to deliver value over the long-term. It is a great proxy for how much value a customer sees in the application over time.
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