Enterprise Software Center of Gravity Beginning to Shift to SaaS

You know the enterprise software ecosystem is shifting when the founder of a publicly traded upstart appears on stage in front of thousands of customers, partners and journalists and uses a Batman meme to dress-down the behemoths of business systems like Microsoft, SAP and Oracle.

So began day three at NetSuite’s annual conference, SuiteWorld.

While the “SuiteMan” shtick roused plenty of laughs, it also reinforced a narrative common to nearly all leading SaaS providers: We are the innovators. We build cool software. And we’re on a mission to change the world. This narrative contrasts starkly to the way they portray the traditional software providers: They can’t think beyond the next upgrade. They’re big and complicated. And they print money – at your expense.

These messages are starting to find their footing with buyers, partners and influencers, and it’s becoming clearer every day that renting multi-tenant enterprise software for core enterprise functionshas reached an inflection point. Customers are beginning to see the strategic advantages inherent in many leading SaaS platforms: in-memory computing, a mobile-first development mentality, embedded analytics, standards-based web services and social business processes, to name a few. Add to this the fact that these capabilities are regularly updated throughout the year, rather than every five to seven years in the traditional model, and you have a truly compelling story.

I offer a few bellwethers worth noting:

Acquisitions and Alliances are Heating Up

When the major IT and BPO service integrators (SIs) start to create alliances, it’s a good signal that an untapped enterprise market is forming. A quick sample of SI activity over the past 18 months includes:

• Deloitte acquires Workday implementation provider Aggressor
• KPMG and Service Now announce a relationship
• Accenture and Salesforce extend their alliance relationship
• Aon Hewitt acquires OmniPoint’s Workday Services Company
• Capgemini and NetSuite create a BPO services partnership

While some of this activity focuses on lower-margin implementation work, much of it includes higher-margin BPO platform services. This activity is only beginning – look for partnering to accelerate as the SaaS players gain scale and the SIs work to replace their eroding ERP businesses.

Analysts are Bullish

According to a recent survey from Citi Research, in five years, CIOs expect to spend a majority of their budgets on SaaS in all major categories. A majority of this growth is in Help Desk, Social and Core HR, with ERP lagging. The fact that ERP is lagging is no surprise, as Finance organizations have yet to embrace the “as-a-service” delivery model. To its credit, NetSuite recognizes this and is relying on its two-tier ERP strategy to expand its footprint, understanding that rip-and-replace for ERP is unlikely in the near future.

Still, when sales automation and talent combine with the categories mentioned above, you’ve got a significant number of the horizontal functions within the enterprise at over 25 percent SaaS penetration and double-digit growth projected for the foreseeable future.

Our Clients are Interested

At ISG we’ve seen a significant uptick in SaaS-based inquires and projects over the past 18 months. Our pipeline and client work are consistent with the rest of the market – core HR, CRM and Social are the areas of most interest.

Anecdotally, the greatest interest comes from large, global clients looking to replace their core workforce administration and payroll systems with a SaaS platform from Oracle, SAP or Workday. This interest applies to both customer-owned and provider-owned systems within the context of an existing BPO agreement. Having helped several clients with this evaluation process, I can tell you with certainty that the center of gravity is indeed shifting.

Disclosure: NetSuite covered my SuiteWorld conference fee.

About the author

Stanton helps enterprise IT and sourcing leaders rationalize and capitalize on emerging technology opportunities in the context of the global sourcing industry. He brings extensive knowledge of today’s cloud and automation ecosystems, as well as other disruptive trends that are helping to shape and disrupt the business computing landscape. Stanton has been with ISG for more over a decade. During his tenure he has helped clients develop, negotiate and implement cloud infrastructure sourcing strategies, evaluate and select software-as-a-service platforms, identify and implement best-in-class service brokerage models, and assess how the emerging cloud master architecture can be leveraged for competitive advantage. Stanton has also guided a number of leading service providers in the development of next-generation cloud strategies. Stanton is a recognized industry expert, and has been quoted in CIO, Forbes and The Times of London.