Yesterday, Microsoft's Mark Barry took the stage to discuss the future of the On Demand software market. Mark is Managing Director of Strategic and Emerging Business Development at Microsoft. His discussion relied quite a bit on the excellent analysis that investment bank Triple Tree has already done on the SaaS market. Among other findings, he shared a Triple Tree chart showing the evolution of the On Demand market from first generation ASP providers (e.g., Corio and USI, which ironically, was just bought by AT&T) to second generation SaaS models (e.g., SalesForce, Procuri, RightNow, Web-Ex) to future "3.0 providers" that will offer "web native SOA-based applications combining workflow enablement, content enrichment, and analytics". Now, as worded by Triple Tree, the 3.0 stage of the On Demand movement is riddled with mumbo-jumbo jargon, but if you dig below the confusing words, the 3.0 concept makes sense. Unfortunately, Mark did not name any providers in that space today, but without question, Rearden Commerce falls squarely in the 3.0 camp already.
In regards to market penetration, Mark cited both IDC's and Triple Tree's SaaS market forecast numbers. IDCs numbers are conservative (5% market penetration for SaaS by 2009), while Triple Tree's are more aggressive (>30% market penetration by 2009). Having been on the inside of the forecasting methodologies of the analyst firms for nearly a decade, I can honestly say that for a market like SaaS, which is truly an unknown with many variables (e.g., mid-market adoption vs. enterprise), that I put about as much stock in them as I put in the government to run efficiently. In other words, take them both with a grain of salt, despite the massive opportunity at hand. Indeed, it might 5 or even 10 years before SaaS has a dominant share market. But I have no doubt that it's time will come.
Today, in the nascent sector, there are already hundreds of SaaS vendors. According to Microsoft, there are nearly 500 SaaS providers which at last formal count included: 75 CRM vendors, 60 specialized vertical vendors, 60 supply chain / procurement vendors, 50 human capital management vendors, 40 BI vendors, 40 content management vendors, 25 E-Commerce vendors, 25 back office vendors, and 15 security vendors.
Later in his presentation, Mark pointed out how "security, customization, and key integration issues" are subsiding in the On Demand space, helping drive adoption. However, I would argue that at least the first issue, security, especially around IP protection with suppliers, is still a huge one in the Spend Management world, and not one that any installed or On Demand vendors have tackled aggressively. Fortunately, there appears to be a new vendor on the horizon in this regard who appears to have solved the IP and security challenge of sharing information with suppliers. I'm hoping that they give me the thumbs up to talk about them more in the coming months, but trust me: their platform could revolutionize direct materials sourcing where IP is a concern. And it just so happens that it will be offered under a SaaS -- as well as an installed -- deployment model as well, or so they tell me.