SaaS, Web Services Top Software Priorities For Businesses

A new research report also shows signs of SaaS's maturity, with fewer businesses reporting they adopted SaaS for the first time last year.

By Mary Hayes Weier
InformationWeek
April 23, 2008 04:41 PM

Business and IT managers have ranked software-as-a-service and Web services as the most important trends in the software industry for the third year in a row, according to an annual survey by McKinsey & Co. and Sand Hill Group, to be presented next week at the Interop/Software 2008 conference in Las Vegas.

In a survey of 857 managers, 23% ranked SaaS as the most important item for their businesses in 2008, up slightly from 21% last year, but down from 30% in 2006. One in four respondents ranked Web services/SOA as the most important, up from 18% in 2007 and 24% in 2006. Trailing those issues were open source software, offshore outsourcing, and software industry consolidation.

Yet SaaS continues to appeal to small businesses. Among companies with between 1,000 and 25,000 employees, an average of 11% of software budgets were spent on SaaS, with 70% or more of budgets going to traditional software licenses and maintenance. In contrast, respondents with fewer than 100 employees spent 26% of their budgets on SaaS, while those with 100-1,000 employees spent 17%. Among companies with under $1 billion in annual revenues, 46% had purchased at least one SaaS application.

The McKinsey's research also revealed some maturation of SaaS among small businesses. Thirty-six percent of small and midsize businesses all respondents had adopted are using multiple SaaS applications, and eight out of ten of those had bought multiple SaaS applications. Only 12% of respondents said they had adopted their first SaaS application in 2007 the last year, compared with one-third of respondents who adopted their first SaaS app in 2007 2006 who had adopted their first SaaS app the previous year.

"Peak adoption happened in 2006, and now it's a question of deeper penetration of SaaS," said Junaid Mohiuddin, a software consultant at McKinsey & Co.

Yet not all of those SaaS purchases were software served up through a service.

McKinsey and Sand Hill took a broad view of SaaS in their research, including such things as online storage and security services. Respondents ranked online storage, in fact, as their most commonly used SaaS application, followed by online backup, security services, system and network management, customer-relationship management, and collaboration software, respectively.

The No. 1 ranked criteria for vendor selection of SaaS was deployment speed and ease of integration, followed by the vendor's track record in SaaS, and costs.