On-Demand Software Goes Mainstream in 2006

Innovations 2006 Analysis: On-demand software services will continue to win converts among small and midsize businesses in 2006 as they accept the proposition that on-demand applications save them money that the

Editors Note: This story is part of Innovations 2006, a continuing series of stories from the reporters and editors of Ziff Davis Internet. Instead of the usual mile-high look at the year ahead, these articles examine particular technologies and markets in transition, including whats in store for them.

Software as a service has won such broad acceptance in the IT industry that it has entirely lost its identity as an experimental business model for software distribution.

As a result, SaaS companies and analysts expect that the business model will continue to become more mainstream as a diverse array of on-demand service providers continue to come into the market.

In 2006 "we should expect another year of solid growth and the reason for that is pretty apparent," said Denis Pombriant, principal analyst with Beagle Research Group in Stoughton, Mass.

"I think that the idea touched a nerve" and more companies of all sizes are willing to try out software as a service.

"We are a long way from satisfying the demand that has been created" for hosted applications, Pombriant said. Many of the companies that started using hosted applications were small and midsize companies, he noted.

But now larger companies are starting to subscribe to hosted services as a way of possibly reducing their software licensing costs, he said. "We are only at the beginning of getting the large enterprises involved in this," Pombriant said.

Even more significant is the growing diversity of SaaS applications that are appearing on the market. Its no longer just the familiar names in customer relationship management, such as Salesforce.com, RightNow Technologies Inc. or NetSuite Inc. that are vying for subscribers.

There are new companies "with new business models, new ideas and they are all going hosted," Pombriant said.

Among the newer ventures is Five9 Inc. based in Pleasanton, Calif., which markets a hosted call center service that is based on voice over IP and runs as a platform for sales order, customer support and bill collection.

Five9 maintains a partnership with Salesforce.com for CRM services and Cary Fulbright, the companys vice president of marketing, is a former Salesforce.com marketing executive.

BlueRoads Corp. is a four-year-old company based in San Mateo, Calif. that focuses on CRM in the indirect distribution channel.

Pombriant thinks that BlueRoads is taking an innovative business model with its effort to bring CRM to the Channel.

Rearden Commerce Inc. is another promising on-demand software company that impresses Pombriant.

Rearden, based in San Mateo, has developed an on-demand services platform that links users to a variety of business or personal services, such as shipping, travel, Internet conferencing, dining and scheduling.

Patrick Grady, Rearden Commerce CEO, said that he prefers to think of his company as a Web 2.0 business that happens to deliver its services in a typical single-instance, multi-tenant, on-demand model.

The Rearden platform can link buyers and companies to key suppliers or link employees to essential services through a consistent interface that is designed to optimize ease of use and productivity, Grady said.

Next Page: Reaching an inflection point.

John Pallatto

John Pallatto

John Pallatto has been editor in chief of QuinStreet Inc.'s eWEEK.com since October 2012. He has more than 40 years of experience as a professional journalist working at a daily newspaper and...