SaaS: 10 Trends for 2010

It is that time of year again – when analysts and writers of all stripes put their bets on coming trends for the new year. There’s some interesting stuff in them – check the links. But, since our predictions last year were right on the money – I expect nothing less this year.

Of course, I do have to say if you didn’t read our prediction last year, it was about what would appear on the blog in 2009. Hardly something to crow about since I knew then what I know now – this is our field and it will continue to be our focus. But… this year, while not particularly emboldened by such shallow success – I am going to stick my neck out – a little.  Over the past year, despite a dismal international economy, we did begin to see some trends that carry enough weight that we at Scio will be refocusing our services in the new year.  Nothing too dramatic really, but moving more towards the emerging best practices in the industry.

So – that said – here’s our:

Top 10 Trends for SaaS and Cloud Services in 2010

1. SaaS will continue to grow in acceptance and prevalence in the marketplace but – the term itself will fade in favor of “Cloud (insert your term).” There is no end of analysts predicting the continued growth in 2010 of SaaS as a business model for software vendors and a positive direction for software users. That part of the prediction is about as safe as predicting rain will come to Seattle sometime next year. But – we’re not going to call it SaaS much anymore?  Is all that marketing ink going to disappear? No. But the truth is we get tired of hearing the same old tune everyday and it starts to become little more than background hummmm.  Everything “Cloud” is ascending and marketing loves it because it is by definition a nebulous, foggy term that can be floated for nearly any purpose. I could just as easily say the same thing about the time worn acronym Service Oriented Architecture (SOA). At the heart of all well-designed services is a SOA strategy – but we don’t really talk about it explicitly. Marketing has hit that nail for over 10 years and still very few know what we’re talking about.  The same is true of SaaS. Discuss the term and we get tied up in preconceived arguments about security, lock-in, lifetime costs, and multi-tenancy without discussing the business case for vendors and users. Next year we’ll be shedding those arguments and just selling mature services without acronyms. And to add one more log to the fire that will lower the prominence of the term “Software as a Service” – vendors of virtualized infrastructure have already hit commodity pricing thanks to Microsoft’s Azure and Amazon’s offering – the only place for them to go is to add application suites to their “cloud.”

2. Real business value in SaaS will continue to improve, be better understood and measured more explicitly. There is a growing understanding of the difference between an ASP implementation of a standard premise-based application and a service that designed for the delivery medium that is embodied in SaaS. It is much more than technology or an offset of costs for infrastructure and resources.  That said, the metrics on both the vendor side and end-user side of the SaaS equation need more clarity and uniform acceptance. As a buyer of a SaaS offering, I shouldn’t care if it has been adopted by hundreds or millions of users.  What matters is who is using it successfully and what is their context? If I am going to base a critical part of my business on a SaaS offering, I need to understand if the lifetime value of customers is substantially greater than the cost of customer acquisition. I need to have confidence that the adoption of the service is higher than abandonment. I need to know the service will have enough value to continue. Having that confidence is a product of a conversation between the SaaS vendor and their customers/end-users.  It takes some real thinking on the part of the vendor to engage in that level of collaboration – but we will continue to see the most successful services providing a model of this behavior and inspire others to do likewise.

3. Service ecosystems will rise. Best case SaaS should be designed to meet the market embodied in the Long Tail. As we and others have said many times, the economics of SaaS and efficiencies of modern development cannot really be leveraged without a good-sized market. You can often reach sufficient market size by targeting your service to the second and third tier markets in a vertical but the time required to reach positive cash flow in SaaS can still cause many problems. Whether a specific service can be sold to a wider market or not then – it is wise to consider an ecosystem approach and I believe many will in the coming year. Salesforce and Google both exploit their ecosystems to bring a broad range of services together on their platforms and as was mentioned in our first point, cloud infrastructure vendors are heading in the same direction. In verticals, I can imagine a focused service teaming up with a general operations package for instance – especially one that could be pre-configured and integrated to the vertical application providing a “suite” for users. This can give users the benefits of single sign-on, data sharing, perhaps a lower total cost (assuming the vendors recognize the value in packaging joint services) and a “desktop” for most tasks they do everyday.  In fact, in the long run, I don’t expect to see many “stand alone” services – it just doesn’t make sense for the users or the vendors. We will see a lot more applications “joining forces” strategically or being acquired in the next year by integrating, combining user data pools or through “Mash-Ups.”

4. New services will focus less on “doing it all from day one” and more on their roadmap. In the “brave new era” of SaaS, one of the big impediments of developing a service was all the decisions you had to make and all the business operational aspects you had to have a handle on to arrive at requirements and start development. Many entrepreneurs felt they were being asked to either start with the equivalent of the original Wright Flyer or with a development burden so large they could never reach a positive cash flow with a reasonable investment.  Now however, there is a wide array of mature, tested services that can be easily integrated into a service product to provide standard approaches to operations, integration, sales, and many other business and technical requirements. With an extensible architecture, there is a great value in picking “best of breed” services to do the “dirty work” while focusing custom development work efficiently  on the real value proposition for a service. The time to market and up front investment decrease dramatically and the risk of running out of cash on a reasonable investment is contained. As none other than one of the leading investment groups has proclaimed, “Less is more!” And rather than worry about “lock in” – thoughtful entrepreneurs will realize at the point in the road where the cost of the integrated services begins to be a part of overhead that is worth investing some development time in – current development practices can allow extensions to the application without an expensive rewrite.

5. Integration requirements will drive standards for service-based communication and interaction. If cloud “ecosystems” are going to rise, if online services are really going to dominate the market for innovative products in the near term, standards for integration and service-to-service interaction need to be recognized and grow dramatically. Despite the continuing whines of a few holdouts – no serious vendor of online services should be considering parallel deployments – both on site and across the Internet. Developing a product that can address both markets eventually becomes “SoSaaS” – a product so hobbled by its split identity it cannot truly leverage the value of either delivery model. Instead, with an extensible Service-Oriented Architecture (SOA), open APIs and standard integration tools, online services will offer ways to leverage local data, applications, and other online services in ways that are in the end much cheaper and more reliable than traditional custom integration services.  This doesn’t mean SaaS vendors won’t offer on-site applications – but in many cases those applications will be hubs for addressing local integration needs and compliance issues.

6. End-user clients and platforms will continue to evolve and increase in their importance and differentiation. We’ve all recognized for a while that standard PCs and “browsers” have many deficiencies in addressing the needs of a growing market for on-demand services. Over the past year, we’ve seen the release of ever more capable “netbooks,” smart phones, and rumors abound that Apple will introduce a market changing tablet in the coming year. Regardless of what Apple does or doesn’t do – it is plain that an increasingly mature field of online services  means that fewer users will require the same platform they have used for decades. The coming products will certainly be more mobile, more connected, and less tethered to common operating systems.With the rise of applications like Google Chrome, the Chrome OS, Android, frameworks like Flex, and the increasing number of “app stores” for the various smartphone OS platforms, it doesn’t appear likely that the growth will slow down any time in the near future.  As is already happening – 2010 will be a year of increasing market fragmentation as each camp heads in its own direction. I don’t expect consolidation and standardization to begin for at least another two years. For online services this means more opportunities to reach specific markets, but it also requires a level of user experience (UX) and user interface (UI) expertise that few developers have had to address so far. In the short run, the best path is going to be a roadmap of planned deployments to different platforms, starting with the one that is most “ubiquitous” in the vendor’s target market. In the long run, we can expect to see more development environments address the most prevalent options – but there is going to have to be more consolidation for that to be truly effective.

7. Customer collaboration will become a more integrated and critical part of product management and business operations. Just like “SaaS” and “Cloud,” “Social Media” has been so over-hyped in the last year that it has become nearly useless. Some see any mention of the subject as a red flag. “A time-wasting, spam-heavy, productivity killer,” they say. Others have found social media to be a strong implementation of “opt-in” marketing (count me among them). Regardless of which side you are on, I think we can all agree that online services require end-user and customer collaboration to be successful. We’re seeing product management, marketing, support – all aspects of SaaS product operations move toward closer collaboration with their user base and I expect it to continue in the new year and to become accepted as “standard practice” among winners in the field.  To that end, integration of collaboration tools and services into the applications themselves as part of the operations side will grow a great deal in the coming year.

8. Agile will continue to grow in acceptance and will become the dominant approach for both development and business operations “in the cloud.” To understand this prediction, don’t confuse yourself with the “Agile vs Waterfall” software development debate that never seems to go away. Please also drop the religious approach to the Agile Manifesto that some have adopted. Think instead of the implications of a more dynamic, competitive, integrated, and collaborative delivery platform and try to imagine doing business as usual. I don’t believe you can. The philosophy of Agile, rather than the methodology specifically, is a fit for online services that is hard to ignore. Tie that to a product development team that is using Agile methodologies and delivering a nice, steady drip of product improvements to your customers and you really don’t have any choice.  You either align with success or get run over. This means too, however, that ISVs with existing product lines have to think about how they will handle change. Organizational change is never easy and many have decided to basically put the new product into a separate product group. It isn’t the best strategy for the long run, but it may be the only way some vendors can manage the change.

9. There will be a growing awareness of the requirements and responsibilities implied by “mature services.” Let’s be honest – most companies market ahead of capability.  Whether it is to “test the waters” or jump start sales, it leads to a lot of hype and fuzzy specifications that customers see through quite easily.  The fact is though that as online services become more accepted and critcal to their customers, they will have to be more reliable, secure and scaleable.  Some of this falls on the vendor to insure their operations and platform are truly “enterprise-class” but there are a growing number of options that allow vendors to adopt best-of-breed environments and platforms on a “pay as you go ” utility model and avoid the high cost of upfront investment. Taking advantage of them means more consideration of Service Level Agreements (SLAs) and open service histories, but these are emerging and they will continue to be key in contract negotiations in the coming year. We still see people new to the field looking for an infrastructure provider before they start development on a product, but with more standardization and more recognition of the needs of mature services – I believe we will see more understanding that you can and probably will both migrate among providers and have more than one at a time during the lifecycle of a online service.

10. SaaS vendors will stop trying to sell split versions. Ok, this is me, beating a dead horse. But really – if even half of the predictions in this list come true (and I don’t think it is even remotely a stretch to imagine it) – you can’t offer products that will both install locally and as an online service off of one code base and not cut off most of the value your SaaS version could deliver. That doesn’t mean you won’t continue selling to your installed base if you have one – but it does mean you can’t sell the same product you’ve sold to your installed base as an online service. It also means you will probably have to put the online service on its own path to success – not tied to your existing customer base. In time, if your online service is as successful as it should be – you will probably be able to drop or sell off the on premise version – but that is a consideration for the roadmap. So, let’s all hope for the best outcome and stop trying to reinvent the past.

Ok – that’s it.  What do you think? What’s on your list? What did I miss? I went way over my usual allotment for space with this one – but it seemed to need it and I didn’t want to split it up so late in the year.

Here’s to Success for Everyone in the NEW YEAR from the Scio Team!

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