Software-as-a-service gets green light

More than a quarter of worldwide IT managers say they have no concerns about the software-as-a-service model and nearly as many are thinking of adopting it, according to an RBC Capital Markets survey released Thursday.

Although the software-as-a-service (SaaS) trend may threaten established software giants, one in four companies plan to increase their spending on SAP or Oracle products over the next three months, according to the survey.

The investment arm of RBC published its research on “disruptive technology,” which was based on a random sample of 800 IT managers from companies of various sizes and locations polled last month, during its North American Technology Conference in San Francisco.

SaaS, which is an arrangement whereby customers “rent” applications on an as-needed or on-demand basis, has been around for several years but been getting more attention from vendors. The RBC Capital Markets report said 80 per cent of companies have a green light to move ahead with SaaS projects, and total cost of ownership, not security, is the main barrier to adoption. CRM software topped the list of applications applicable for SaaS adoption at 39 per cent of respondents, followed by human resources at 27 per cent.

Anthony Lye, senior vice-president of Oracle’s CRM On Demand product, was among the presenters at the RBC Capital Markets conference, which was broadcasted online. He said that while SaaS adoption may be healthy, Oracle has no plans to do away with on-premise installations altogether.

“How a customer consumes the application is secondary. We don’t tell them to buy on-demand or on-premise. We really don’t want to confuse them,” he said. “My on-demand product can be consumed at Oracle, it can be consumed at a partner location and it can be consumed at a customer location.”

Oracle is trying to tailor its CRM On Demand product to various vertical industries, Lye said, including financial services, high-tech manufacturing and medical device firms.

For up-and-coming software firms, SaaS still means some volatility. Tom Donnelly, CFO of Minneapolis-based e-commerce provider Digital River, was grilled by the RBC audience about missed financial targets during its second quarter, which he attributed in part to the fact that subscription business has been slow to take off.

“In a way I understand that,” he said. “This is an ongoing business that’s ringing the cash register every single day. You want to make sure it’s working right before you shift it over.”

The RBC Capital Markets survey also showed that within five years, only less than five per cent of companies will resist using virtualization technologies in their server infrastructure, and 17 per cent said they are using open source to close some kind of technology gap.

Survey respondents painted a bleak picture for outsourcing, with 36 per cent saying they prefer captive or on-site global IT services delivery over offshore services. Cost inefficiencies and security were the main barriers to further outsourcing cited in the report.

The study also differentiated between companies that planned to invest in keyboard-based mobile devices like a BlackBerry (18 per cent) versus those that planned to buy touch-screen devices like an iPhone (10 per cent).