Kevin Parker: Says here the end game will be “platform as a service”

Much discussed, much remains to be seen when it comes to Software as a Service (SaaS), the subject of this month's cover story. It's said 40 percent of small-to-midsize businesses (SMBs) have either trialed or adopted a SaaS-based application. Then again, ERP market leader SAP in recent weeks scaled back its ambitions for global rollout of SAP Business ByDesign, its SaaS-based approach to business management.

At the recent Interop/Software 2008, Abhijit Dubey, associate principal, McKinsey & Company, presented research indicating Enterprise IT buyers see innovation in the advent of SaaS. McKinsey sees SaaS as about a $4-billion market, and increasingly mainstream, with about 40 percent to 50 percent annual growth, growing customer adoption, and at least 20 pure-play SaaS vendors on the scene, and traditional software-license vendors also entering the fray.

The potential value proposition of SaaS, says Dubey, is found by looking at average “platform” spend per dollar of application software spend over a period of five years, i.e., about 60 to 70 cents per dollar. For an end-to-end SaaS application-led platform Dubey estimates costs could fall as far as 20 to 30 cents per application dollar.

Dubey talks about the emergence of “platform as a service” as the eventual outcome of this on-going evolution. The elements that define such a platform include the applications themselves, means to integrate them into an enterprise eco-system, development environment, and such things as storage as a service, multi-tenant databases, and metadata customization.

These combined capabilities, and possible approaches to them, can be thought of, in McKinsey's peculiar parlance, as “three archetypes and their seven flavors.”

• The first archetype is the delivery platform for SaaS, which includes managed hosting and cloud computing.
• Second is the development platform, with traditional, cloud, and mash-up being the flavors.
• Last is the application platform, which will be either end-to-end—including the delivery and development platform—or API-based only.

Cloud computing is what Amazon offers when it rents on-demand storage and processing capacity. The development platform is how integration will be achieved, involving not just a streamlined delivery platform, but also new classes of composite and other type applications.

Over time, Dubey believes, SaaS delivery and development platforms will tend to converge, delivering needed economies of scale and innovation. Application platforms won't go away though. As already seen with Salesforce.com, applications too will converge, into “canonical” sets that are either process-, role-, or information-based.

In April, SAP announced its 2008 go-to-market activities for SAP Business ByDesign will focus on six countries, including the U.S. It says it will take 12 to 18 months longer than the original 2010 target to reach $1 billion in revenue and 10,000 customers, and will engage with significantly less than 1,000 customers in 2008. SAP's mantra for ByDesign is that they want “partners of volume, not volumes of partners.” But it may be difficult to engage partners based on a platform delivery mechanism that minimizes the sales of services.