SaaS Poised for 2009 Expansion, Maybe



Analysts see ripe opportunities for SaaS in 2009, but the recession-poisoned economy could slow things down.

IDC has recently put out some estimates on how the economic downturn is set to boost SaaS adoption with its benefits of renting software features and performance in the cloud, rather than owning all the headaches of systems and application management. That is a bright spot if their estimates prove out. Here are a couple key points IDC points out (there are a couple more, but I am cherry-picking the most important ones):

  • By the end of 2009, 76% of U.S. organizations will use at least one SaaS-delivered application for business use.
  • The percentage of U.S. firms which plan to spend at least 25% of their IT budgets on SaaS applications will increase from 23% in 2008 to nearly 45% in 2010.
  • On the downside, IDC interviews with SaaS providers highlighted several issues, such as cash-flow shortfalls related to slow-paying current clients, liquidity challenges stemming from tight credit at lenders, and -- on the horizon -- limited resources to scale up with expanded infrastructure to support new customers and new service offerings.

Slow-paying clients are bad for SaaS, and tight credit is bad for everyone. The last thing a growing SaaS company needs is the inability to service demand because they can't borrow capital for expansion. More over, the last thing you need as a potential buyer of SaaS is to worry how systems and app infrastructure (you don't manage or have the ability to tweak) will affect your business.

My advice for potential-but-nervous SaaS customers: Have good counsel skilled at SLA negotiation help reduce the risk in your favor. Let Washington and Wall St. sort out the I.O.U.s.