SAAS Here to Stay

By Peter Galli  |  Posted 2007-04-30 Print this article Print

"Hybrid firms need to keep their products as the engine that drives services and maintenance. They also need to look at how best to servitize their products, to find the special value and revenue opportunities, and to use services to make their products less commodity like," Cusumano said.

Ray Lane, the managing partner at venture capital firm Kleiner Perkins Caufield & Byers, said the landscape for enterprise software has changed. There are now more than 1 billion Internet users, with consumer-based Web 2.0 applications also now migrating into the enterprise.
"This has bifurcated the industry into category leaders and innovative startups, which represent less than 10 percent of the total number of companies in the software industry, while the rest are trapped in a no mans land," Lane said.
But both groups have an advantage in terms of research and development. Startups have disruptive innovation and the category leaders have continuous innovation, he said. Lane said that while the notion of SAAS may sound trite, it is here to stay. "It is going to go much, much further," he said. Ray Lane believes that the U.S. software industry is losing its dominant position in the global market. Click here to read more. While companies like Oracle and SAP have included SAAS as part of their model, it has been very difficult for them to take all their product versions and the architectures with which they were built and make these available as services. "It would take 10 years to convert them all to a full services model," Lane said. Next up was Timothy Chou, who helped Oracle set up its "on-demand" business and who also authored the book "The End of Software." "We are in the midst of a huge transition and SAAS has already happened. You may not have noticed or realized this as yet, but it has," Chou said. The traditional revenue and business model for software has already transitioned, Chou said, noting that the cost for delivering software to a user for an auctioneer, such as eBay, would have cost $100 a user a month under the traditional model. That cost dropped to $10 per user under SAAS, and to just $1 over the Internet. "This move to SAAS is hugely transformative if you look at the economic implications of the shift. But we are far from done with this in the software industry," Chou said. To read more about why the SAAS route could be bumpy, click here. Specialization would be a huge influencer going into the future; games are important; and service also mattered, Chou said. "Why does specialization matter? Nobody ever had to take a class on how to use Google as Google set out to do just one thing: search. So, specialization has huge implications for how software is designed and delivered in the future," he said. In the future, authors will write specific, specialized, localized software. "Did you know that Citibank has more programmers than Oracle? The future looks like tons of vertical, specialized applications," Chou said. Service is important as it is the discovery of known information. "The information is there. The surface Web, what you see and find on Google, is 100TB. The deep, deep, deep Web, which includes proprietary corporate knowledge, has more than 1 million terabytes and, so, new ways are going to have to be found to make this available. This is an amazing amount of information," Chou said. Going forward, innovation will come from places we have not yet seen. "We are somewhere between infinity and beyond," Chou said. Check out eWEEK.coms for the latest news, reviews and analysis about productivity and business solutions.

Peter Galli has been a financial/technology reporter for 12 years at leading publications in South Africa, the UK and the US. He has been Investment Editor of South Africa's Business Day Newspaper, the sister publication of the Financial Times of London.

He was also Group Financial Communications Manager for First National Bank, the second largest banking group in South Africa before moving on to become Executive News Editor of Business Report, the largest daily financial newspaper in South Africa, owned by the global Independent Newspapers group.

He was responsible for a national reporting team of 20 based in four bureaus. He also edited and contributed to its weekly technology page, and launched a financial and technology radio service supplying daily news bulletins to the national broadcaster, the South African Broadcasting Corporation, which were then distributed to some 50 radio stations across the country.

He was then transferred to San Francisco as Business Report's U.S. Correspondent to cover Silicon Valley, trade and finance between the US, Europe and emerging markets like South Africa. After serving that role for more than two years, he joined eWeek as a Senior Editor, covering software platforms in August 2000.

He has comprehensively covered Microsoft and its Windows and .Net platforms, as well as the many legal challenges it has faced. He has also focused on Sun Microsystems and its Solaris operating environment, Java and Unix offerings. He covers developments in the open source community, particularly around the Linux kernel and the effects it will have on the enterprise.

He has written extensively about new products for the Linux and Unix platforms, the development of open standards and critically looked at the potential Linux has to offer an alternative operating system and platform to Windows, .Net and Unix-based solutions like Solaris.

His interviews with senior industry executives include Microsoft CEO Steve Ballmer, Linus Torvalds, the original developer of the Linux operating system, Sun CEO Scot McNealy, and Bill Zeitler, a senior vice president at IBM.

For numerous examples of his writing you can search under his name at the eWEEK Website at


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