IDC: SaaS is on a Tear in 2011

IDC, one of the leading industry analyst firms, just unveiled their new report "Worldwide Software as a Service 2010-2014 Forecast: Software Will Never Be the Same"

The report says that IDC research shows SaaS growing six times faster than on-premises software, forecasting compound growth of 26% per year through 2014. With Intacct planning 100% growth this year, I'd say we are right on top of this trend.

Robert Mahawold who authored this report is a good and smart guy - he's deeply rooted in both the traditional on-premises software and the new cloud computing world.

Other key tidbits from the new IDC report:

• In 2009, he on-premises software market shrunk by $7 billion while SaaS grew to $13.1 billion.
• On premises ERP software will be particularly badly hit with ERP upgrades being delayed or cancelled and with CAGR expected to be just five percent.
• IDC expects SaaS to grow to $45 billion by 2014, a CAGR of 25.3%.
• Fewer than 20 percent of new software products and under 60 percent of refreshes will be destined for company data centers.

The kicker - IDC found that today 26 percent of companies are still resistant to the idea, saying that had no plans at all for a move to cloud computing. This rose to about 40 percent for companies with fewer than 100 employees.

The implication is that as the word spreads about the very high satisfaction and ROI businesses are achieving from SaaS and cloud computing, the growth rate for SaaS will rocket even higher.

New Microsoft Security Report - Implications for Cloud Computing

Microsoft has just released volume 9 of it's bi-annual Security Intelligence Report (SIR) covering the evolving threat landscape for the first half of 2010. According to Microsoft, they analyze data from more than 600 million systems worldwide and Internet services to create the report.

As I've written about here many times, issues surrounding security and privacy are among the top concerns that businesses looking at cloud computing express. This is only natural - we hear about Internet security threats in the media every day - so it's perfectly natural to wonder whether cloud computing is safe.

So with the explosion of Internet services, SaaS and cloud computing, what do you think the top real-world security threats are so far in 2010?



According to Microsoft, the largest single category of security incidents in 2010 - just like they are in every other year - involve stolen equipment, with 30.6 percent of the total. Negligence and improper disposal of business records make up the bulk of the rest. This matches my real world experience - think how many times every day that someone has a laptop, hard drive, USB stick or CD ROM stolen with valuable, proprietary of confidential information stored on it.

So what does this mean for cloud computing ?

It shows how cloud computing is inherently more secure than on-premises software.

In the cloud computing world, information is never stored on your servers or laptops or hard drives or CD ROMs where it can eventually be misplaced or stolen. Instead it is physically stored in secure, Fortune 100-class data centers where the bulk of the categories of security threats above (stolen hardware, improper disposal, lost hardware, etc) are vanishingly unlikely to occur. Your information is encrypted when it travels across the network and then it is displayed in your web browser. Your data is not ever actually stored on your PC - so if you are using cloud computing and your laptop gets stolen, that's all you have lost.

So while people are right to be concerned about privacy and security, I think this new report from Microsoft really shows clearly that if you adopt cloud computing, you become much less likely to experience many of the most common real-world security threats.

Microsoft has a second, interesting chart showing where software-related vulnerabilities come from.



While I presume that the reason Microsoft included this data is to try to make the point here that the Windows operating system doesn't really have that many vulnerabilities compared to software applications (the counter argument is of course that Windows is so ubiquitous that any vulnerability is a huge deal) there is another gem around cloud computing in this information.

If we take Microsoft's data at face value that application vulnerabilities make up the majority of software risks, then I think it's also easy to conclude that cloud computing is a great way of reducing this risk as well.

Why - because in the cloud computing world the vendors and not the client are responsible for application security. And the vendors tend to have mature security capabilities, audited practices and 24x7 operations and security teams. They have more focus on security and more resources and expertise than nearly any of the individual users of their systems.

Which is more likely - an individual business staying up to the minute on all of the latest security issues for all of their business applications, or a cloud computing vendor doing the same for a single application on behalf of thousands of businesses? Seems pretty obvious to me that it is going to be far easier for the cloud computing vendor to stay ahead of the bad guys.

I thought this was a nice piece of research from Microsoft (lots of pretty pictures by the way if you read it) - but more importantly I think that the real-world data in the report makes a nice point that leveraging cloud computing in 2010 is likely to be far more secure than running your own business applications on-premises.

Gartner 2010 Hype Cycle - How to Get Into the Trough of Disillusionment

The annual 2010 Gartner technology hype-cycle report is out - and wouldn't you know cloud computing, cloud-web platforms and private clouds are all at or near the top of the peak of expectations section of the curve.

Now to be clear - Gartner, which is focused on large enterprise IT departments , uses the term cloud computing a bit differently than I do on this blog - they generally mean the idea of large IT CIOs using "iron in the sky" like Amazon EC2 as a place to run their computing workloads instead of on servers in their own data centers. Gartner rates Software as a Service applications like Intact and Salesforce much closer to the plateau of productivity.

What is interesting to me in this is the speed of adoption that Gartner are predicting for cloud computing - note that most of the other dots for technologies at the top of the "peak of expectations" are dark blue, meaning it will take 5 to 10 years for them to become mainstream (Remember - to Gartner mainstream means even information technology laggards will adopt - so mainstream really does mean ubiquitous). But all the various permutations of cloud computing carry light blue dots - mainstream in 2 to 5 years.

Gartner 2010 Hype Cycle

Now remember that all of this is for large enterprises - the benefits of Software as a Service and cloud computing are far larger for small and midsized businesses than they are for giant corporations. This is because large corporates operate at sufficient scale that they can gain some of the operating efficiencies that the large cloud vendors accrue. The beauty of cloud computing for small and midsized businesses is that they can tap into those very same efficiencies - that's why I call cloud computing the great democratizer - offering SMBs cost and operational benefits formerly only available to large enterprises.

What's the bottom line - Gartner is predicting cloud computing will be mainstream in the large enterprise in 2 to 5 years. That says you should come in with a skeptical eye and beware the hype - but at the same time you should start piloting now or risk getting left behind your peer companies that are already jumping in with both feet.

Where would I be the most skeptical - with legacy software vendors that are offering up hosted versions of their old on-premises applications on Amazon or Rackspace that you access via Citrix - and calling this cloud computing to try to take advantage of the cloud computing buzz. Going this route will put you right into the trough of disillusionment...

New Morgan Stanley Research - Cloud Computing Keeps on Rolling

I just received Morgan Stanley's October 2010 CIO Survey. This is always very interesting primary research about what is on the mind of enterprise CIOs - and since it is focused on where they plan to spend their money it gives great insight into what is going to happen over the next couple of years.

Remember that the conventional wisdom is that cloud computing is threatening to enterprise CIOs - since the cloud is all about outsourcing headcount and capital budget that would formerly have been in house - so the way the story goes is that the cloud is supposedly a threat to the job security of the IT department. Morgan Stanley's data pretty clearly shows that CIOs are less concerned about conventional wisdom and more concerned about driving business performance.

There were two particularly interesting pieces of information in this year's survey. First from this chart:
The punchline is that 70% of the CIOs said they plan to adopt cloud computing for at least 10% of their applications - up from just 36% last year and very low numbers the prior year. And 30% say they will have more than 20% of their applications in the cloud.

Now let's look at their plans for cloud platforms and for Platform as a Service:



Again here 40% is very high adoption for enterprise CIOs - also extremely interesting is that Google has lept into the lead here among cloud platforms - I think most people associate Google with consumer or small business, not with large enterprise.

So what's the bottom line - even enterprise CIOs are clearly flocking to cloud computing. Contrary to popular wisdom, they aren't avoiding it because it is a threat to their empires - they see the ROI and flexibility it gives them and as such they are adopting in increasing numbers.

Look behind the curtain

I am pleased to report that we just finished up another record breaking quarter at Intacct. There is just a ton of momentum for cloud-based financial applications.

A big reason why Intacct has so much momentum in the market is that the products really work well, offer very high ROI and our clients are extremely happy - as I've said here before we survey our clients every quarter, and each time more than 9 out of 10 of them tell us that they would recommend Intacct to their friends. We also try very hard to be nice people to work with, and I think this matters a lot too.

What was so interesting to me this past summer was that it felt in many ways like we were back in the 1980's. With the popularity of cloud financials more players are entering the market and in many ways it felt like we were back to the old days in helping buyers really dig in and do their homework to make sure they didn't accidentally procure the wrong system.

What was new this summer was that we saw very aggressive and often misleading sales and marketing tactics by a number of the newer or less financially focused players in the market. My personal opinion is that it is insane for a cloud-based ERP or financial applications company to take a hyper aggressive Oracle-like sales approach - the core financial system of a company is just too important for snake oil sales tactics - but they were doing it nonetheless.

What this means is, that to ensure they make a good decision, buyers really need to buckle down and do their homework. They need to see functionality based on their own business cases instead of just hearing about it from a sales rep or seeing a canned demo and they need to look deeply at underlying architecture and core capabilities of the systems they are evaluating.

I'm talking about digging deep into things like understanding the very major differences between single-ledger and multi-ledger systems. Or really thinking through the implications of built-in multi-entity functionality vs. multiple single entity systems tied together via reporting. Or understanding why highly multi-dimensional systems are critical to delivering good business intelligence.

I remember the big debate back in the 1980’s (or was it the 1970's) about whether a single ledger or a multi-ledger approach was best. Multi-ledger of course won the battle, and today nearly all of the successful mid-market and enterprise class financial applications – from Intacct to Microsoft to Lawson to Epicor to Oracle to SAP – are multi-ledger systems.

But you know what - not all of the cloud-based financial systems are multi-ledger. You can't assume that just because a system is relatively new that it is also deep or that the publisher has learned from the lessons of the past.

That's what I mean by back to the 1980s- It turns out that in 2010 there are once again very stark differences between financial applications when it comes to underlying architecture. It's no longer just a feature battle between mature products with similar architectures, you really have to dig unto the underlying and very different architectural details to understand how the systems are going to work for you in production.

So what are some of the really important questions that anyone looking at financials in 2010 should for sure be asking?

• Is the system single-ledger or multi-ledger?
• Is the system single-book or multi-book?
• Is the system multidimensional? - How many drillable, pivotable dimensions do the financials support (you need at least 9, more is better.)
• Does the system manage financial actuals only, or can it also manage operational data and planning scenarios?

The answers to these and many other related questions really do matter enormously in terms of the performance, scalability, reporting, controls & auditablity, security & segregation of duties and the close process you will enjoy when you go to implement the system and put it into production.

You get the idea. The point is that you have to do your homework - and if you sense aggressive sales and marketing tactics it's all the more important. Really look behind the curtain and if you are happy with what you see, I am sure you will join the 9 out of 10 people who say that they are so satisfied they would recommend cloud financials to their friends.