Saturday, February 18, 2006

The beginning of a new software economy

From 1 Million to 100 Million SaaS users in 5 years

I guess we all pretty much agree: The SaaS Industry will grow fast. How fast - we will see in 5 years from now. But a few interesting indicators show where this all goes:

1) Investors
On conferences publicly and in individual conversations privately we hear it over and over again: "We will invest in SaaS but we will probably do no more investments in traditional license software". For investors it is the recurring revenue model but also more and more the underlying technology. I may be totally off - but I can see more investments into SaaS in the next few years than into Internet in the crazy days. Why? When the railroad boom slowed down with it's crazyness in the old days - the real investment started in building the transportation infrastructure.

2) Technology
When it comes to Rapid Software Development, SaaS certainly outperforms any other software model. Deploy it now - get feedback - fix it on the fly - mature to a product that is not build for an audience but actually with an audience. SOA, Web Services, open source are just a few key ingredients to build a software so fast that no other technology can compete on a time to market scale. With the speed comes more variety and more diversity.

3) Economy
SaaS is cheap - period. Even so we all hear from the legacy software maker that SaaS is more expensive in the long run - I just hope that who ever says that has a calculator handy. We all agree that the actual software and hardware cost is less than 40% of the overall IT spend. And we also agree that a SaaS vendor is able to split their operations cost amongst 1,000 and more companies versus only one IT organization. Enough said.

4) Popularity
SaaS is simple in the first place and vendors have an unparalleled interest to keep it that way. This will motivate less computer savvy users or industries to investigate software and IT solutions. SaaS will go way beyond application software. Any kind of Tools, Games, Hobby and Entertainment Solutions will get into the market. Manage your wine cellar online, keep your library online and get additional information about the author, play games online and develp your identity and earn points in a new gaming world, begin not only filing your TAX online but actually interact and communicate with your insurance and everybody else in an online home office infrastructure where you find all your documents even if your home burned down.

500 Million PCs (our todays installed base) will use SaaS partly or entirely one way or the other. It may be 100 Million already within the next 5 years.

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