Clint, thanks for your thoughtful commentary on our predictions.

A clarification on Azure. Our thought is here not that Microsoft doesn't get the cloud or that they don't have formidable resources (including Ray Ozzie) but that they'll be held back by the fact that they have a significant business in on-premise SW, which will be very hard to balance with cloud-based offerings.

They not only have the issue of cannibalizing their own revenues but also their partners'. As SAP has found with ByDesign, pulling of the dance of being in both on-premise and cloud worlds is exceedingly difficult. So, it's not the technical parts of this that we think that Microsoft will struggle with but the changes needed in their organization, business model and ecosystem to transition to the cloud.

I corrected the graph to reflect Appirio's true position.

Thanks for the correction, Clint-- we elaborated tonight on our blog about our prediction that Azure will disappoint in 2009: www.appirio.com/blog

You are right that Microsoft can't afford to let down the Windows developer community. That's exactly why Azure will move so slowly. Many in the Windows developer community have more to lose than to gain from cloud computing-- their go-to-market challenge is a far more difficult one than their technical challenge!

While the winning design for cloud computing is being debated, the ultimate winners, at least as far as offering virtual facilities is concerned, may be determined by things like who can better manage real estate and power generation and consumption. If Cloud Computing succeeds, and signs are that it will NOT fall on the growing scrap-heap of computing Nirvanas, success will be defined by the ability to provide scale, to add value while providing scale, and to make money on providing that scale. Right now, it seems that the big players are all battling to establish a dominant design, and regardless of how "open" these approaches may seem, they are all aiming to get early adopters wedded to an approach or framework. What is going to matter to the vast majority of future users, not the current pioneers, is that Cloud Computing solves a host of problems (though not necessarily every one) in a cost-effective and reliable way. All the players will be able to get the basic equipment and operating software on fairly equal footing. What they may be competing for is the electrical power and real estate to be able to build, connect, and run server facilities on an as-yet-unheard of scale. Planning and monitoring these facilities can be done virtually. Maintaining them will be a local, hands-on task. So local skilled, specialized labor availability will be important, too. As will physical security. So, to identify the likely winners, it may be wise to follow what they are doing on these down-to-earth fronts. Another factor to consider is who best addresses the needs for all the "legacy" applications. It's nice to think about all the cool new toys we can build, but businesses are probably more concerned with the costs of maintaining legacy equipment, operating environments, and processes. If someone could offer a scalable mainframe in the cloud, or the equivalent for older pre-web client-server architectures, how much would that be worth? Now think of the names you'd associate with those capabilities.

How about some SaaS love for the IT pros? For good reason, the SaaS discussion is usually about SaaS for sales, HR, accounting, productivity apps, BI, etc. But the IT folks seem to have been forgotten, until now.

During the last few years SaaS for IT management has come on strong, weakening the strangle hold the legacy client / server vendors have had on IT for decades.

This is a solid look ahead at 2009 from Appirio and Clint. I'd like to add one more prediction to the list. 11. The ASP model will be exposed for what it really is and die a second death.

We're seeing companies like HP attempting to pass off ASP for SaaS. They're trying to get customers to buy the same old legacy application simply served up by an ASP but fail miserably when the customers realize they are not getting the benefits of a true SaaS offering.

I'm wondering though, how do you guys define SaaS 1.0? As a term, it seems like I am hearing it more often. Is it a chronological definition or a technological definition? A quick Google search on SaaS 1.0 resulted in a bunch of different definitions.

Service-now.com (first customer in 2005, 225+ enterprise customers today, cash flow positive) was the first enterprise SaaS offering for IT service management, but the technology is really SaaS 2.0.

Microsoft is only now able to compete because they settled with VCSY by way of a CONFIDENTIAL settlement agreement. Confidential meaning, don't let anyone know that this little 2 cent per share company has the best technology in the world, so great that Microsoft was forced to settle in just 15 months, but the investing public must not find out because only the crooks are aloud to make money in the stock market.
Verizon also announced using VCSY's SAAS, only they didn't mention VCSY in the article, just VCSY's wholly owned subsidiary Now Solutions.
http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=104&STORY=/www/story/01-16-2007/0004506332&EDATE=

We need to separate hopes from predictions. Of course Appirio wants to see many of these predictions come true, but many are self-serving. Here are my takes:

#1: Appirio said that while "Microsoft and other traditional software players invest even more in new but closed cloud platforms," proponents of a more open approach, like Amazon, Facebook, Google and Salesforce, will push more and deeper "cloud connections."

Correct result, wrong reason. Microsoft will lag because they are LATE, not because they support their Windows Developer infrastructure. Microsoft must first support their base, then extend their offerings to non-Windows development. Only a fool ignores their installed base.

#2: Appirio says Windows Azure will see limited adoption from ISVs and customers, disappointing users and remaining well behind established cloud players until 2010. Even then, it will serve "primarily as a better foundation for Microsoft Exchange and existing on-premises .NET applications."

I don't think so, at least within the Windows segment of ISVs, which comprises a huge chunk of ISVs. They NEED this revenue in this economy. Any Windows ISV worth his salt had better at least start a pilot project on Azure. I don't think Microsoft is concerned that much about the rest.

#3: Enterprises flock to Google Apps because Google will boost its security, transparency and development languages for businesses. "We expect to see at least three times the number of enterprises evaluating and moving to Google Apps, at the direct expense of Microsoft Exchange, Office and Lotus Notes," Appirio claims.

Not going to happen. There is little enterprise movement to Google Apps. They lack the crucial workflow hooks. Microsoft will eat their lunch within the enterprise. More likely we will see pilot cloud projects move to Azure within enterprises.

#4: A major SAAS 1.0 company will fail. Although SAAS and cloud investments will increase next year, a number of SAAS 1.0 companies—stand-alone companies who built their SAAS products from scratch on their own—will falter. Appirio says Salesforce.com's momentum with its Force.com platform will suck the life out of rivals.

Correct prediction, wrong reason. The economy will snuff out many non-revenue producing software startups. Salesforce will soldier ahead, but not rake in major ducats. Good luck getting verifiable numbers.

#5: A rise in serverless companies with 1000-plus employees. In 2009, the market will start to hear about more and more companies going completely serverless.

What N + 1? What is N now? How do we validate the number? N could decrease simply by attrition. I suspect that consolidation in the market will belie this prediction.

#6: The rise and fall of the private cloud. While private clouds will continue to generate a significant amount of hype, customers in most cases will realize they are little more than a better data center implementation. They will be valuable for customers who have significant transaction volumes and stringent regulatory or security requirements.

If they really mean "the rise and fall of the HYPE of private clouds", then I agree. Otherwise, I predict much more interest in private clouds and bet that this is the real market Azure is going to serve.

#7: Business intelligence (BI) becomes the next functional area to "SAASify. While CRM and HRM applications became poster children for the shift to SAAS these last few years, we'll see the same thing happening with on-demand BI."

I concur.

#8: "SAP or Oracle get into the PAAS [platform as a service] game and start at least talking about a new cloud platform they're building over the next few years."

I say both will. They have to. If you think Microsoft's Azure is tied to Microsoft products, wait until you see what these two do. They'll make Azure look like something from GNU, lol.

#9: Enterprises will figure out how to use social networks. HR and marketing organizations will finally figure out how to utilize social networks in day-to-day operations, as business will come directly through business applications that tap into Facebook, Twitter, LinkedIn and other social networks.

Maybe a few Web 2.0 enterprises will use social networking, but fear of security leaks, loss of control, etc. will doom most genXer proposals within the enterprise. This is a non-starter.

#10: There will be at least one $100 million software product built on Force.com. The myth that it is impossible to build a big business on an on-demand platform will finally be debunked by the emergence of a PAAS-enabled application in 2009 that has the potential for a $100 million run rate.

Not next year, or 2010. Maybe in 2012. The weasel word "potential" makes this prediction more likely.