Opening the floodgates - July 3 - Australian IT

Mahesh Sharma July 03, 2007

THE trickle of users to hosted software - or Software as a Service (SaaS) - could be set to become a flood. The sector is poised to break its banks in the small business arena and move into the enterprise space.

An analyst predicts 40 per cent compound annual growth for the market
The large software vendors are preparing to offer their own enterprise SasS offerings after largely leaving the market to upstarts such as Salesforce.com.

The concept has come a long way since the early days and the, as yet, unfulfilled promises of applications service providers.

Today's fast broadband and the emergence of Web 2.0 technology finally allows companies to access a product with full functionality, while completely managed and hosted remotely by a SaaS provider.

The majority of SaaS activity is taking place in the customer relationship management market.
Indeed, SaaS applications are expected to generate $25 million, or 25 per cent of the local CRM market this year. This is almost double last year's figures of $15 million and 15 per cent of the market, according to analyst Frost and Sullivan.

Further, the analyst predicts 40 per cent compound annual growth for the market, which if sustained will involve growth to $51.2 million in 2009, or 35 per cent of the overall Australian CRM market.

With most of this business is being driven by small and medium businesses, companies at the top end of town are only now beginning to ask how SaaS can help their business.
To date, it has been hard to look into the local SaaS market without touching on the work of Salesforce.com.

The company has only been in Australia for three years, but Frost and Sullivan says that last year it controlled 50 per cent of the local hosted CRM market.

Salesforce.com Asia-Pacific and Japan sales vice-president sales Jeremy Cooper says 40 per cent of its local customer base is relatively new, having signed on in the past year. The new users are spread evenly across the small and medium business and enterprise markets, he says.
"Initially, our focus was on small to medium companies and being able to deliver an enterprise-class CRM solution that they previously couldn't afford, or didn't have the capacity to manage.
"In the past year we've started to see that section of the market becoming a strong validation point for the enterprise end of the market."

According to Frost and Sullivan estimates, the number-two SaaS product locally is NetSuite, distributed in Australia and New Zealand by NetReturn.

It had about 20 per cent of the SaaS CRM market last year.

NetReturn managing director Andrew Birch says it's different from similar CRM offerings because it provides a hosted solution for the whole business, not just CRM.

"ERP, CRM and e-commerce are fundamentally integrated on one database, so it's all the same data from start to finish.

"You can follow a customer from when you send out an email for a marketing campaign, all the way through to when you invoice and collect the catch."

NetReturn says its success has come from the mid-market, a segment that Gartner predicts will drive the take-up of other SaaS systems, such as e-commerce.

Frost and Sullivan consulting director Andrew Milroy says the ability to service demands other than CRM will become a key factor not only for small and medium businesses, but for the entire SaaS market.

It is this move outside the restricted CRM space, he says, that will leave traditional heavyweight such as SAP, Oracle and Microsoft positioned to capitalise when SaaS takes off in larger enterprises.

"The difference between Oracle and SAP, and Salesforce.com, is that they can offer the full suite of tools compared with Salesfore. com's CRM system."

Oracle Asia-Pacific CRM vice-president Simon Banks says more than 50 per cent of Oracle's installed customer base is in the mid-market, and it is aiming to take advantage of this network to move customers to its on-demand system.

"We're talking to all of Oracle's partners about on-demand to reduce the cost of implementation and drive up business value. It is very specifically where SMBs thrive."

A similar strategy is being employed by Microsoft as it looks to deliver its Software Plus Service product.

Microsoft Australia online services strategy head Harvey Sanchez says it involves providing new ways for businesses to control and access information. "Businesses like being able to control the ways they run and configure their software, and they want more of that."

Sanchez gives the example of Microsoft's CRM product, which would involve customer management records being hosted by Microsoft, while customers were still able to access this off-premises via mobile devices, or on-premises by way of a full-featured client.

SAP, meanwhile, announced its arrival in the SaaS mid-market earlier this year when it unveiled its A1S hosted business suite.

This offering comes with all the enterprise applications but doesn't offer the features and configuration options of the high-end All-in-One product.

The suite is set to be officially launched only in the first quarter of next year, and then only offshore. An Australian release is expected at the end of next year.

One problem with these mid-market systems is that they are largely providing only simple business features and functions with low or no levels of customisation.

Such a model won't easily translate to the top end of the market, where businesses have more complex and specific demands. At this level the real value for SaaS providers is expected to be in servicing these more complex systems.

Gartner, for example, predicts that until 2010, less than 15 per cent of complex business processes will be delivered using SaaS as the core application system.

Oracle says it remains equally committed to the small and medium business and enterprise markets, but its focus on using SaaS to service specific user communities is best suited to the top end of town.

"SaaS has its history in small and medium businesses, but the larger companies are interested in the simplicity of the systems," Banks says. "Specific user communities can't be deployed from on-premises systems, but there's a huge demand in the big organisations for this type of capability.

"The high-end companies are finding the hybrid systems very popular," he says.
One issue that providers and users are grappling with is working across on-premise and hosted systems, and the problems of transferring information between the two.

In the early days of SaaS, this required separate databases for each segment, but SAP says it holds an advantage because its on-demand solution is built from the same code base as its on-premises product.

SAP says this allows a client to seamlessly transfer information from an in-house systems when it wants to take up the on-demand option. "With our solution you literally take your on-demand system and we can basically port that to an on-premises solution for you."

Transferring information is also a key issue in the security aspects of SaaS.

Gartner says company concern over the handling of its information offsite will hold back SaaS uptake by as much as 20 per cent through to 2011.

Legal experts have said the enterprise companies, especially in the financial services sector, could be liable to incur penalties if their information was exposed because of overseas privacy laws.

In response to concerns from local clients, Oracle, for example, says it plans to expand its data centres outside the US to avoid complications with laws such as the PATRIOT Act.

Aside from these issues, businesses are increasingly looking to the SaaS model as a cheap and flexible way to augment their existing on-premises systems, and even replace them.