The author invites your comments and inquiries on this Strategic Perspective.
Please contact Mike West or call 1-203-454-3900.
In addition to viewing our 34-page comprehensive SaaS study (SSR-239), a five-page summary Research Alert is available entitled “SaaS 2.0: Seven Key Software-as-a-Service Trends” (RA-240, 03May06)
SaaS Integration Platform (SIP) Definition
Saugatuck defines SIPs as solution hubs that provide application sharing, delivery, and management solutions.
The increasing appeal of SaaS is largely a business issue, combining lower upfront costs and quicker “time to market” with guaranteed business-driven service levels. SaaS has its sweet spot in the business unit.
As we reported in our recently-published study of “SaaS 2.0: Software-as-a-Service as Next-Gen Business Platform” (SSR-239, 26Apr06 – see Note 1) – “onesie-twosie” SaaS deployments, often outside the purview of IT, is a very typical case, due to its highly decentralized procurement model. Increasingly, too, business units are contracting for a business service which a provider delivers using a SaaS solution as its centerpiece.
SaaS solutions are already in place in 14 percent of large enterprises and 9 percent of SMBs, with another 4.5 percent of both segments currently implementing SaaS – bringing total SaaS penetration to approximately 18 percent and 14 percent, respectively. In the first wave of SaaS, large enterprises have been the most prevalent adopters of SaaS, often to supplement existing enterprise applications and support distributed workforces. However, SMB adoption is now growing faster – with a forecast that more than 55 percent of SMBs will have a SaaS solution in place by year-end 2008 (as compared to 40 percent of large enterprises). All this suggests that SaaS is growing by leaps and bounds. However, what is even more impressive is the growth in SaaS for mission-critical application workloads – especially among SMBs.
This raises the important question of how SaaS will be integrated with other applications at SMBs and large enterprises. While SaaS initially shifts the customer conversation from technology issues to business issues, the conversation changes when the need arises to integrate those SaaS applications with other enterprise applications. At this point the IT department usually becomes involved in assessing and managing how this will occur. ITs concerns about SaaS span a range of important issues, including regulatory compliance (Sarbanes-Oxley), information security, backup and recovery of mission-critical data, as well as how SaaS will be integrated with other key enterprise applications.
As a disruptive phenomenon, SaaS has much in common with previous waves of innovation such as the PC, client/server, and the Web:
- Compelling business economics
- Entering as a business unit, not IT-driven, solution
- Attracting the attention of IT as it becomes pervasive
- Requiring integration with mainstream IT applications.
We believe that for SaaS to continue to appeal as a business solution, the IT organization must find a way to incorporate SaaS into its applications architecture, or ITs concerns about SaaS viability may dampen the market momentum that has been building these past few years.
One potential solution for this emerging challenge is what Saugatuck calls the "SaaS Integration Platform", or SIP (See Note 2). As users continue to add SaaS applications, SIPs can play a critical role as solution hubs that provide integration, delivery, and management services (especially in large enterprises). Furthermore, SIPs can create a significant opportunity for value-added business services delivered, among others, SaaS solution providers, SIs, managed services providers and VARs. Meanwhile, many IT organizations already have SOA strategies in the early stages of implementation. We believe that for SIPs to be acceptable solutions in enterprise IT (especially with larger enterprises), they must fully embrace SOA and its evolving standards.
What is the full range of requirements that a SIP, to be credible, will have to address either directly or via partners? What are the business opportunities that a SIP offers to potential players in this market?
Figure 1: SaaS Solution Stack
Source: Saugatuck Technology
Consider the solution stack in Figure 1 above as representing this set of requirements:
- The Hosting Platform or Server Net - SIP providers will arrive from a range of starting points, ASPs, SW and SaaS vendors, VARs, SIs, System Vendors, vertical niche providers and pure-plays. So not everyone will have all layers as a part of their operational model. In fact, Google, while today not strictly a hosting provider, nor a system vendor, may be considered to have the bottom layer, given its server farms and web applications, were it to enter this space, which it may be doing for desktop productivity applications. At the virtual extreme, we can envision a collaborative of servers owned and loaned, collectively, to enable on-demand access to a membership server net for SaaS and other related apps, including Open Source.
- Administration Services would include license management, usage monitoring and management, billing, and payment for direct and third-party customers. More comprehensive offerings may also include chargeback allocation on a variety of models.
- The Integration Layer - The key layer is the integration layer. At its least, this may be an API with drag-drop, point and click (DDPC) development tools and an active directory. A more complete instantiation would include identity management (authentication, authorization, etc), provisioning and configuration services for a customer's integrated application portfolio. Integration would likely require a services-oriented approach and compliance with SOA middleware standards.
- Integration Services may be provided directly or through a business partner. Training offerings may be offered by some SIP providers as a way of expanding their market penetration.
- The Application Layer will be composed of several categories of applications: SaaS, Hosted and Billed Per Use, Traditional Licensed and Open Source or shareware. Typical SIP providers will offer at least one of these. IBM, for example, could conceivably offer all four.
- Business Services - A SIP coming from the BPO space may drive its Business Services offering by building synergy with other applications it offers or the customer's applications, while a pure-play SaaS provider may expand its appeal by adding Business services to its slate of offerings.
How would SaaS Integration Platforms likely evolve?
SaaS integration will most likely require a formal reference architecture, such as Cambridge Technology Partners used in spearheading client/server adoption in the mid-nineties. Until then, attempts at SaaS integration are not likely to satisfy IT organizations, especially in large enterprises.
We expect SaaS Integration to pass through several stages as the process matures into a repeatable, manageable, measurable discipline:
- Stage 1 – No formal architecture or methodology, independent efforts only
- Stage 2 – Ad Hoc approaches to architecture and methodology developed on the fly, some proprietary architectures
- Stage 3 – Formal reference architecture and widely-adopted methodology for SaaS integration
- Stage 4 – Established architecture and methodology with formal measurement programs
To wit, SaaS integration will likely evolve through these stages much as the Capability Maturity Model describes software development and other processes. However, we believe that through 2010, enterprises will lack the tools, methods and implementation resources to do SaaS integration effectively. Adding to the complexity is the path, already under construction in many IT organizations, toward a services-oriented architecture. IT organizations must find ways to accommodate SaaS within the context of SOA and their IT infrastructure in general. In this way, SaaS can eventually be managed and deployed within a broader enterprise IT construct, rather than as a renegade business-unit driven initiative.
Key to SaaS integration will be middleware – although there are (and could be) so many types of middleware to accommodate that it only further suggests the urgent need for a SIP reference architecture. In this sense, it is easy to see middleware as being just one component of a fairly complex set of services, including hosting and applications.
Yet it is the middleware that will make robust SaaS integration possible. The pure-play SIP, if it ever exists for long, will be a middleware SaaS provider acting as a code provider, probably even in a brokered, on-demand fashion (albeit at higher costs than a subscription-based model).
The SIP would not have to be the host. In fact, a SIP could probably outsource nearly every aspect of its services, including multiple types of middleware, to third-party providers It is easy to envision SIs becoming SIPs, as well as most managed services providers and middleware SaaS providers. Hosting firms that can manage a library of middleware, code, interfaces, including networking and application components, could also become SIPs.
Because there will be so many middleware, interface, code and application types to address, we expect to see managed services providers, including hosting firms, and especially SIs as the first large-scale SIPs. The need to code, adapt, and customize will always be present to some extent.
Who are some of the SaaS players currently in the market who may emerge as SIPs?
- Jamcracker describes itself as an on demand ecosystem from which software companies can extend market reach and service providers can easily bundle, brand and deliver on demand services.
- nSite offers not only SaaS solutions, but also a 100% browser-based, AJAX-enabled software development and integration platform targeting the SMB space and compatible with Salesforce.com and its AppExchange.
- Opsource is a SaaS enabler with a complete service delivery solution, priced on-demand, which includes full managed services, 24x7x365 call center support provided under the software company's brand, application management, and built on OpSource's patent-pending OptiTech Services Engine, which supports rapid integration and deployment of SaaS offerings.
- Salesforce.com is one of the leading CRM SaaS solutions, and its AppExchange integration partners include Above All Software, Bluewolf, Bridgewerx, Cast Iron Systems, Informatica, Integration Technologies and Pervasive Software.
- Other SaaS providers may move in this direction, including Employease, Netsuite, RightNow, Siebel, SuccessFactors, Venda, Xactly and Oz Development, among others.
Who else might become a SIP player?
- Software vendors such as Oracle and SAP
- System vendors such as IBM and Microsoft
- Internet vendors such as AOL, Google and Yahoo
- Emerging Services Providers such as Infosys, Tata, and Satyam
Nevertheless, there are significant barriers that a SIP provider must overcome to become a successful SaaS integrator. Among these are skepticism in IT organizations, concerns about web services security, immaturity of key technologies enabling SaaS integration, still-evolving SOA standards, and the lack of a reference architecture for SaaS integration.
We will explore this issue more fully in a future Perspective on short-term barriers to SaaS integration.