SaaS – The Five Things That Should Happen in 2014 | Gaining Altitude in the Cloud

Posted On January 23, 2014

Keying off 2013 market activities and indications, following are five SaaS developments I anticipate we’ll witness in 2014:

1) Blurring of SaaS and on-premise: With the quintessential poster boy of cloud computing and SaaS, Salesforce.com, announcing a partnership with HP whereby customers can now choose to have their “dedicated infrastructure” within a Salesforce.com data center, the true SaaS premise is dead. However, rather than quibbling and mindless debate on further defining true SaaS, SaaS vendors will realize the potential of this market in which a “dedicated” SaaS solution is required. Though Salesforce.com has always shied away from creating a true on-premise version of its SaaS offering, other vendors do offer on-premise and SaaS version. This blurring of boundaries will further continue in 2014.

2) Battle of architectures: Oracle, a company that always denounced cloud computing, has suddenly found a love for it, and has acquired (and will continue to acquire) numerous SaaS vendors. (Note that this nothing different from its on-premise strategy, e.g., remember JD Edwards and  PeopleSoft?). However, Oracle for long has criticized Salesforce.com’s approach of creating application-based multi-tenancy. With the introduction of Oracle 12c (c denoting cloud), Oracle’s marketing machinery is going to town explaining how its database-driven multi-tenancy is better than typical application-based architecture. In 2014, we should see more the lines in the sand being drawn.

3) Indirect sales: Most SaaS vendors are running in losses, and understand that their sales and marketing expenses (~30-40 percent of revenue) are exorbitant. They will realize the importance of indirect sales channels such as system integrators and partners to further drive adoption of their offerings. Given the strategic partnerships of Salesforce.com, Workday, and NetSuite with large system integrators such as Accenture, Wipro, Deloitte, and niche providers such as Bluewolf, 2014 should see increase in the depth of these partnerships.

4) Churn management: Despite soft lock-in, SaaS providers are witnessing high churn rates. To be fair, some of the churn is attributable to clients’ unwillingness to adopt SaaS models once the pilot run is over. In 2014, we’ll see SaaS providers investing more time and energy in maintaining their existing customer relationships.

5) Enhanced functionality: This is a multi-year, multi-decade evolution for the SaaS ecosystem. In the past decade, SaaS providers have included many types of functionality that were earlier considered to be unsuitable for this model. In 2014, vendors will continue to evolve their offerings, including introducing industry-specific vertical flavors whenever possible. However, given the opportunities in the horizontal SaaS space (CRM, salesforce automation, marketing, HCM, etc.), most SaaS vendors will gain the lion’s share of their growth in enhanced horizontal functionality.

Everest Group Executive Viewpoints icon Related Articles