Service Providers Must Prepare Now for the Software as a Service Wave

Saas adoption is broadening out from areas such as customer relationship management (CRM) and human resources (HR) into new areas such as procurement and compliance management. However, the scale of change involved in moving to a SaaS approach is proving hard for many vendors to manage.

“Due to the law of large numbers, traditional IT solution models are becoming victims of their own success, while the relative smallness of new approaches facilitates growth much more easily,” said Mr. Pring. “For large, established IT solution providers, the SaaS market so far hasn’t appeared to have enough incremental growth potential to meaningfully contribute to revenue growth. As a result, they have tended to ignore it. This has left the door open for smaller, newer players, who are now pouring into this gap. Incumbent IT solution providers are slowly waking up to this and are entering the market to leverage SaaS market interest.”

SaaS is a manifestation of the increasing maturation of software development, deployment and management. New technologies used in software development and improvements in the underlying development business processes are making software development a more industrialized process.

“This change will have many profound consequences on the types of IT services that are sourced by enterprises and the types that can be profitably delivered by suppliers,” said Mr. Pring. “The most profound is that, as some IT services come to resemble manufacturing, they will have a similar development curve as most manufacturing businesses had during the last quarter of a century – that is, wide movement overseas to lower-cost production centers and overall price deflation. This potential combination of SaaS and global souring delivery models – two notions that have seemed diametrically opposite up until now – will produce powerful changes in the entire IT industry, and particularly IT service providers.”

Although the SaaS market is still relatively small, service providers need to make important strategic decisions now. Gartner analysts said that the scale of change that SaaS will produce requires providers to make the following changes soon so they can keep ahead of the SaaS wave:

• Use solutions built on next-generation Web services, SOAs and highly automated server farms to produce multitenant, mass-customizable solutions that facilitate agility while sustaining uniqueness at a reduced cost.
• Make strategic decisions around whether to offer SaaS as simply one element of a broader portfolio or to fully evolve toward a SaaS-based delivery model.
• Act now because of the scale of change required to successfully exploit SaaS opportunities.
• Conduct thorough due diligence to be well-placed to take advantage of opportunities and manage risk as the market evolves toward SaaS.

Gartner analysts will further discuss SaaS trends at the Gartner Outsourcing Summit, March 19-21 in Dallas. The Gartner Outsourcing Summit is the only event that provides a comprehensive view of the entire outsourcing market – infrastructure, application and business process outsourcing, global delivery, and the use of offshore providers, as well as issues and trends about new delivery models, such as software as a service. The Summit provides unbiased, road-tested advice and best practices necessary for setting outsourcing strategies and objectives, evaluating and selecting the right service providers, and managing relationships with them. Many of the more than 50 content sessions will feature case studies and panel discussions presented by end users and industry professionals. For complete event details please visit the Gartner Outsourcing Summit Web site www.gartner.com/us/outsourcing.