SaaS 2.0? Predictions for the year ahead.

2007 was a momentous year for Software as a Service (SaaS), as it emerged as a disruptive force in an increasingly complacent industry. And while it would be easy to say that growing customer interest will propel SaaS to new heights in 2008, I believe there’s something going on right now that is about more than mere market momentum. From my viewpoint, SaaS is becoming increasingly savvy, and it isn’t too far-fetched to think we’ll soon being talking in terms of SaaS 2.0.

Here’s what I mean. In 2007, we were still witnessing the first generation of many SaaS solutions. Their limited functionality led to criticism that they weren’t as robust as their enterprise software counterparts. In 2008, we will see more SaaS companies building out or partnering to provide more robust solutions and platforms, along the lines of salesforce.com’s Force.com platform.

This is already happening in the market in which Xactly competes, as Incentive Compensation Management (ICM) offerings are morphing into full-blown Sales Performance Management (SPM) solutions, with rich analytics and functionality such as territory and quota management.

Just as exciting to me, SaaS will breathe new life into struggling enterprise software sectors in 2008, and will create entirely new sectors by lowering the cost of entry vis a vis traditional software models. This is huge. And the fast-expanding SPM segment is proof that it is starting to happen.

At the same time, SaaS will create entirely new ecosystems. In 2007, we witnessed the delivery of mash-ups combining data and SaaS functionality via single sign-on. In 2008, we will see SaaS companies supporting end-to-end processes and seamless user experiences through deep integration, software suites, or partnerships.

And through it all, SaaS vendors will only get smarter about customer needs. The advantage of managing all customer deployments under a single umbrella, as SaaS vendors do, is that we are better able to find common threads across customer problems, needs and desires. And customers don’t have to wait for the next release cycle—which, in the enterprise software world can mean waiting a year or more—for a SaaS vendor to implement major fixes and changes across the board. In fact, SaaS vendors are free to be innovative and practically impelled to deliver ever more value, because we are developing a single line of code for one platform shared by all users.

Finally, in 2008, Wall Street will increasingly wake up to SaaS as we witness an up-tick in SaaS IPOs, despite the down market predicted for the first half of the year. The recent successful IPO of Xactly partner and customer, SuccessFactors, is likely a harbinger of things to come. Along these lines, Wall Street bankers, investors and enterprise customers will come to see the distinction between tactical SaaS applications that conveniently automate non-mission critical business functions like recruiting versus truly strategic SaaS applications like SPM, which are at the center of driving business growth and profits.

Okay, I admit to a bias. But, as the SaaS industry matures, I firmly believe it will continue to burn a hole right through traditional software models throughout the rest of this decade and beyond. Whether we call it SaaS 2.0 or not, the SaaS we’ll come to know in 2008 will be light-years ahead of the SaaS we knew in 2007— in terms of functionality, robustness and appeal and, most importantly, in its ability to game-change a customer’s competitiveness and profit picture.

Connect the Dots between Pre- and Post-Sales Processes

I’ve written before in this space about the natural synergies that exist between CRM and sales compensation management applications. Pre- and post-sales visibility/automation are truly just different sides of the same sales performance management coin. In an article recently written for CustomerThink.com, I discuss these synergies in depth, and show how one company has been able to extend its CRM investment in a powerful way.

Specifically, the company has linked its sales compensation management solution directly to its Salesforce implementation so that reps now run “what if” scenarios based on Salesforce CRM “live” opportunity data coupled with accurate compensation plan data from their Xactly Incent implementation. Notably, they are able to do it all within Salesforce CRM.

The big benefit is that the people in the field can now easily see where to direct their sales efforts for maximum commission payouts. As these payouts are a reflection of where the company wants them to put their best efforts, the whole business gains. That’s powerful stuff. And it’s something that any company with a Salesforce, RightNow, or Oracle Siebel CRM On Demand implementation is in a position to take advantage of. For the details, please read the full story at: www.customerthink.com/article/connect_dots_crm_sales_compensation

On-Demand in Demand as SAP Goes SaaS

If ever there needed to be a “big bang” validation of the software-as-a-service (SaaS) concept, then SAP’s September 19 unveiling of its Business ByDesign on-demand software for midsize companies surely suffices. Not only is SAP the first major enterprise software player to get serious about SaaS, it is the absolute largest enterprise software player and its move is thus freighted with significance.

But there really doesn’t have to be a big-bang validation of SaaS. Many thousands of customers are endorsing the concept every day as they leverage SaaS offerings, and will continue to do so in increasing numbers, with or without the help of traditional enterprise software companies. It is not SAP nor any other huge software company that will drive SaaS. It is the customers who are in the driver’s seat, and SAP is wisely reacting to this fact. And now SAP will have to meet these customers’ expectations—expectations built up by trail-blazing, 100 percent SaaS companies like salesforce.com, NetSuite and Xactly.

There’s no doubt that SAP’s on-demand offerings have the potential to provide immense value to the targeted customers—SaaS delivery coupled with SAP functionality packs a powerful punch. But SAP is not about to abandon its on-premise model anytime soon, and its management will be wrestling for some time with such issues as how to keep from cannibalizing its bread-and-butter software licensing revenues and how to successfully support two entirely different delivery models. And along the way, they will learn what 100 percent SaaS companies have known from the start: If you don’t meet the expectations of SaaS customers, they can cut you off in an instant, no questions asked. That’s not something that enterprise software vendors, with their long-term licenses and claws sunk deeply into their customers’ costly IT infrastructures, have traditionally needed to deal with.

Still, SAP is doing the smart thing by getting started in SaaS now, when it can be lifted by the rising SaaS tide. In doing so, SAP will add to the tide by increasing the portfolio of software functionality available to customers on demand. SAP’s move doesn’t prove that SaaS is viable. That’s already established. What it really demonstrates is that the traditional enterprise software model is not all that viable for most companies. And for that we welcome SAP to the SaaS world.