3rd Annual SaaScon Shifts the SaaS Industry by SMARTLINE SYSTEMS

RESEARCH ALERT RA-451 APRIL 2, 2008 B. MCNEE, M. WEST Title

3rd Annual SaaScon Shifts the SaaS Industry Spotlight to IT Executives

What is Happening?

IT executives recently converged on Computerworld’s Software-as-a-Service Conference (SaaScon) in Santa Clara, CA (March 25-26), to share their experiences and best practices about implementing SaaS solutions in their businesses.

Note 1: Featured CIO Presentors at SaaScon • Jesus Arriaga, CIO, Bosley Medical • Basil Blume, EVP and Chief Information Officer, Colorado Capital Bank • Ken Harris, SVP and CIO, Shaklee Corporation • Anthony Hill, CIO, Golden Gate University • Craig Jocher, VP/ IS, Transamerica Reinsurance • Dean Lane, Chief Information Officer, HenleyPutnam University • John Lewis, Director / IS, Geokinetics Inc. • Douglas Menefee, CIO, The Schumacher Group • Manjit Singh, VP and CIO, Chiquita Brands

Having participating in the two previous SaaScon conferences in addition to this one, it was a refreshing change to move the discussion beyond issues related to provider ecosystems, business models and distribution channels – to real-world customer deployment issues and best practices. The conference featured a keynote from Manjit Singh, VP and CIO, Chiquita Brands International, as well as a variety of user presentations and panels on various aspects of their SaaS experience (from more than a half dozen additional CIOs, from companies such as Colorado Capital Bank, Shaklee, and Schumacher, among others – see Note 1). They were joined by 29 system vendors, ISVs and SaaS providers – as well as almost a dozen industry analysts, pundits/bloggers and bankers from firms such as Forrester, IDC, AMR, Saugatuck Technology (see Note 2), ThinkStrategies, Procullux Ventures and TripleTree. As with prior events, all took the opportunity to network with partners, ecosystem ISVs, and customers, and to showcase their latest offerings and educate end-users on their Software-as-a-Service.

Why is it Happening?

It is now widely acknowledged, as Saugatuck had predicted, that SaaS has crossed the chasm and is entering the business mainstream. Saugatuck believes this current wave of adoption will challenge SaaS vendors to ensure their offerings are “enterprise-ready” and at the same time will challenge business users and their IT counterparts to manage the on-boarding and ongoing value of these on-demand solutions proactively.

Market Impact

On day two of the event, Saugatuck presented some preliminary highlights from its most recent SaaS research program, including results from our January 2008 worldwide web survey of buyer demand, conducted in partnership with BusinessWeek Research Services. Much of this research will be published to our CRS subscription research clients in the coming weeks, as we dig deep and finish writing our newest 30+ page Research Report on the state of SaaS (see Note 3), as well as in a variety of Strategic Perspectives and Research Alerts that we will publish throughout April, May, June and July.

The author invites your comments and inquiries on this Quick Take. Please contact Bill McNee at bill.mcnee@saugatech.com or Mike West at mike.west@saugatech.com Browse Related Research: • Business Applications • IT Vendors • Software-as-a-Service (SaaS)

In the interim, find below seven key SaaS industry trends and takeaways that we highlighted in our presentation: • SaaS adoption / penetration continues to grow in enterprises of all sizes: Although collaboration and CRM continue to lead the SaaS charge, “core” systems of record (e.g., finance, HR) and BI / CPM are growing quickly as well. Longer-term acceptance of SaaS for missioncritical business processes is growing – not only with SMB customers,

SAUGATUCK RESEARCH ALERT but Large Enterprises.

Note 2: Full Disclosure Saugatuck CEO Bill McNee was both a conference advisor and one of the key presenters offering insights on “Enterprise-Ready SaaS.” This is the first year in which IT executives were the focus of SaaScon and marks a significant transition in the ongoing worldwide adoption of SaaS and On-demand Infrastructure.

Note 3 rd

• SaaS goes international, especially in key geographies: European SaaS adoption is on the brink of exploding, lead by local innovation and strong demand in the UK, Benelux and the Nordic countries – which appear to be following a similar trajectory to the US (albeit with a 12 mo lag). Adoption in Germany and France is growing, as well as in much of the Asia/Pac region – all of which are projected to experience a similar adoption scenario (particularly in the SMB space), but with a 18-24 month (or longer) lag to US curve (although in many cases, adoption will dependent on availability of high-speed bandwidth). • SaaS customer satisfaction is surprisingly strong: This is especially true around SaaS Wave I requirements, such as solution functionality, response time, availability and pricing. Satisfaction around SaaS Wave II and III requirements – especially around support for customized, personalized workflows, integration with on-premise data and process, and greater inter-company collaboration – is much lower, and something that vendors need to focus on to succeed longer-term.

Saugatuck 3 Annual SaaS Research Program Saugatuck is hoping to publish its newest 30-page research report on Software-as-aService before the end of April, 2008. The report is based on a worldwide web survey of over 400 senior business and IT executives, 30+ briefings with leading SaaS providers, and 15 deep-dive interviews with SaaS users. The report will update our “Three Wave” th adoption model with a 4 Wave, and explore drivers of SaaS customer satisfaction. For more information about this report, including singleuser and multi-user licensing plans and/or to pre-order a copy, please contact Chris MacGregor, Analyst and Media Liaison, at 203-454-3900, or at chris.macgregor@saugatech.com.

• SaaS becomes more fully integrated with on-premise architectures: The focus of SaaS shifts from cost-effective delivery of stand-alone application services (Wave I), to integrated business solutions enabled by web services APIs and ESBs (Wave II), to workflow- and collaboration-enabled business transformation (Wave III), leading to measured, monitored and managed business processes (Wave IV). • SaaS Platforms proliferate – and embrace user development / runtimes: Robust SaaS-based software development platforms and runtime environments emerge with a diverse set of supporting service offerings emerge that are viable alternatives to traditional on-premise development. • ISVs migrate en masse to SaaS: But transitions prove difficult for most, primarily due to the need for substantial cultural and operational (not only technical) transformation. • SaaS merger & acquisition will accelerate: Through 2010 M&A is fueled by ISVs gobbling up smaller venture-backed SaaS providers (as an important culture-change driver), as well as by mid size -to-large pure-play SaaS vendors seeking to solidify key solution areas franchises. As noted above, Saugatuck has found that user organizations are overwhelmingly satisfied with the SaaS solutions their organizations have adopted thus far. In fact, we were surprised by how the high satisfaction levels actually were. Eighty four percent (84%) of the 418 senior business and IT executives who participated in our 2008 worldwide survey were “satisfied” or “strong satisfied.” Satisfaction is especially high with regard to application functionality, system response time, availability and pricing. However, evolving mainstream adoption will increasingly center on the IT organization, and issues of customization, personalization, integration and

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SAUGATUCK RESEARCH ALERT access to and analysis of data – all Wave II and Wave III requirements These key attributes of enterprise-ready SaaS and On-demand Infrastructure will require IT organizations and their business users to work together on best practices, and a consistent approach to architecture (and to process flows) to bring SaaS into the fabric of the broader applications portfolio. At SaaScon, many CIOs and other speakers addressed the need for these best practices, and provided case studies of best practices in action. Saugatuck has found that while best practices will vary from industry to industry, the following ten will consistently yield value in organizations adopting SaaS: • Establish a SaaS Task Force with senior representation from both business and IT users and leadership • Create a consistent evaluation process • Define an IT evaluation and oversight policy • Establish guidelines for solutions contracts • Get serious about Service Level Agreements (SLAs) • Create a formal relationship and contract management process • Establish a rigorous data management policy • Establish a SaaS customization strategy • Establish a SaaS integration strategy • Establish a SaaS and Business Process Management strategy One additional best practice is full participation in SaaS user groups and online collaborative networks through which the ten best practices above can be enriched and tuned more perfectly. In ensuring that SaaS and On-demand Infrastructure is enterprise-ready: Issues Vendors Should Address: • Responsiveness to Support Requests • Security and Privacy Concerns • Data Access and Analysis • Personalization Capabilities • Customization Capabilities • Integration Capabilities • Workflow Capabilities • Build Active User Community Issues Users Should Address: • Align Management and IT Expectations • Develop Consistent Practices • Proactively Manage Contracts and SLAs • Create SaaS Architecture • Work with SaaS Providers • Participate in User Community

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