The always-articulate venture capitalist, Ann Winblad, offered some valuable perspective on why SaaS makes sense. “It’s a change from automating what you’re doing to giving people access to the data they need to work,” she said. This dead-simple argument for SaaS was echoed by several speakers. Tim Chou noted that the ROI on SaaS applications is often less than a year. “That’s unheard of,” he said.

The packaged software model is so badly broken that it would appear that the market is ripe for a new approach. Deployment cycles for enterprise software can run into years and that cycle simply isn’t sustainable in a business environment that changes quickly. Users mostly hate software companies and software companies disdain their users. It’s a lousy situation that’s ripe for disruptive change.

The economics of in-house deployment also stink. Microsoft used to cite a study that claimed that only 5% of the lifetime cost of a software package was in the original license price. Microsoft was fighting open source at the time, but even if you discount its estimates by a factor of five, it’s still clear that on-premise software is expensive.

Bill McNee of Saugatuck Technology discussed the results of his research into SaaS deployment. He said the rapid deployment model of SaaS appeals to small and medium businesses, which are more than twice as likely to use SaaS for mission-critical applications as large organizations. SaaS is driven by users’ need for simplicity and quick deployment. “Many existing software giants will be significantly challenged to integrate the SaaS model,” he said.

The most likely survival route for packaged software vendors will be to offer multiple hybrid models with combinations of on-premise and on-demand options. This will meet customers’ needs to adopt SaaS for non-strategic applications while integrating internal and external services. This integration will drive the model he called SaaS 2.0, in which external services are adopted for mission-critical processes, including systems management, while working smoothly with in-house resources. This “extended enterprise service bus” will take many forms but will adapt to business’ need to marry the two models, he said.

¶ 4:41 PM