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SaaS is Hype to Most of the World, Dear Western Cloud Watcher.

by Michael Maoz  |  June 1, 2009  |  6 Comments

I didn’t blog while travelling. It was a more than full time job to listen to clients as I went from country to country and city to city, meeting IT and business executives from over 85 non-US and non-EU countries. About 2% of them use software as a service according to the Gartner definition. They asked sharp questions about the economic benefits of SaaS over outsourcing a business service or outsourcing or hosting their business applications. There is a big impression out there that the primary beneficiaries of this efficient technology model, so far, are the software companies themselves who have created elegant architectures and keep most of the financial benefit to themselves. There were intense questions about the true total cost of ownership for complex installations. Simple/static activities like most of the activities of sales personnel, or survey tools, or HR applications were understood as candidates for SaaS. But what about core functionality in banking or insurance? What about large scale, mission-critical, highly integrated / interconnected call centers? What is the true TCO? What about where there is a need for business process?

There is much more on this in our research, but for SaaS to go from straight-forward, non-industry specific tasks to a software system that handles complex operations at a compelling return on investment to the end user organization, the jury is still deciding who the true beneficiaries will be. This was especially evident in the repeated questions about ‘who owns the data?’ and ‘how much of my data is available in real time?’ and the cost for various forms of SaaS (isolated infrastructure / data / applications, simultaneous multi-lingual usage….). There isn’t much transparency in the market about the true five year costs of different models, nor much of a track record of vendor-viability.

And the connection between Cloud and Saas? There was mostly eye-rolling and empty looks. Some didn’t know, and the rest weren’t sure why it mattered today. We are earlier days than is often thought on both of these topics.

Category: customer-centric-web  innovation-and-customer-experience  saas-and-cloud-computing  

Michael Maoz
VP Distinguished Analyst
13 years at Gartner
26 years IT industry

Michael Maoz is a research vice president and distinguished analyst in Gartner Research. His research focuses on CRM and customer-centric Web strategies. Mr. Maoz is the research leader for both the customer service and support strategies area and customer-centric Web… Read Full Bio

Thoughts on SaaS is Hype to Most of the World, Dear Western Cloud Watcher.

  1. Steve Reeves says:

    There’s no doubt that some specific apps will never be provided by the saas industry, but the business process outsourcing crew will offer something similar for those.

    Even those applications that are totally unique and provided in house are bound to move from a distributed architecture to single instance, remotely hosted code.

    The cost benefits in terms of development, distribution and maintenance are so huge even the most ardent client/server fans will eventually be forced to adopt the new technology.

    The internal IT guys are never going to see it though. Turkeys don’t vote for Christmas.

  2. Michael Maoz says:


    A couple of things: I agree with you. I’m really looking into the specific regions outside of US/EU where SaaS is much less evolved. But you also hint at another big issue: the relative weakness of the systems integration firms and large business consultancies in the SaaS area. And the awareness of five-year TCO for complex environments is not well understood by CFOs.

    Good comments.

  3. Michael,

    Interesting and well written post.

    I will agree with the concept of SaaS in spirit. Deploying and fixing software is a no-brainer, and almost no-coster, for customers. No matter where in the world they are located they can, in theory, access the latest and greatest of everything pretty much. Growing up in Argentina we measured how far we had progressed by the delay between the releases we saw in the magazines and when they arrived to us. Less than 2 years for hardware and 1 one year for software would have been a dream almost. We used to get most everything by someone who came to the states and could bring it back.

    That does not change (ok the lead time does, is way shorter now – but the feeling of being behind not much).

    However, the problem is SaaS remains, as you pointed in your post, integration and the ability to work with the rest of the organization. This is not going to change anytime soon – if at all – and that remains a huge barrier for companies in other parts of the world where they measure progress by how well they can leverage what they already have when they move to a new product – as well as that new product to solve as many problems as possible. That will remain in my eyes the key to SaaS having low adoptions in other worlds outside of US/EU.

  4. Nigel Walsh says:

    Michael, an interesting post.

    Is this not purely a matter of time?. Hasn’t Europe generally had a lag behind the US on adoption of SaaS – therefore isn’t this a safe assumption that this is true for other countries? There may even be an advantage of watching from the sidelines while we iron on the kinks and they then don’t fall into any of the pitfalls we have done.

    The TCO question will only be addressed in time – but with time also comes potential advantage, especially as SaaS gives you the ability to get up and running quickly – so will this widen the gap of innovation & competition?

    I think one of the key things you mention here again is integration – more specifically, linking the old internal legacy world to the new shiny world of SaaS based solutions. Who and how this is done, is yet to be proven – many large SI’s have already backed some of the leading SaaS vendors – it may be interesting to compare their revenue streams for SaaS vs. traditional solutions, or for the SI’s is this too close for comfort to their BPO business?

    It’s going to be an interesting and exciting few years ahead!

  5. JP says:

    SaaS and the Cloud?

    The connection between SaaS and the Cloud , is applications that are actually designed to lower the TCO and integrate into business processes.

    A lot of whats going in the Cloud was designed for onprem, hacked into something that could be hosted, then stuffed onto a single instance.

    You can cram an orange into a glass but that doesn’t make it OJ, and it will confuse those non US / non EU folks on how to drink it

  6. What was the size of these companies you were speaking to outside of the US? Were most of them enterprises or SMBs? I’m wondering what the smaller organizations’ opinions are.

    It’s no surprise that enterprises may prefer on-premise solutions since they have the up-front resources and infrastructure available. I think SaaS may be a much more attractive model to SMBs since there are low barriers and initially require fewer resources–a low-risk solution. SaaS may not fully replace on-prem, but this is why some SMBs may want to hunt out companies that provide a scalable solution where the smaller company can “grow” from hosted into licensed software as their business grows.

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