SaaS and Cloud Computing in 2009

Thursday Jan 8th 2009 by Joshua Greenbaum

A look at the trends that will shape enterprise software, including some serious doubts about the relational database.

Last year at this time I wrote a column predicting that, despite the pending recession, enterprise software would show real growth in 2008. The reasons I gave can be found here, but the sum of the arguments I presented was that this recession was not at all like the dotcom bust of the last recession, which was based on a bunch of faulty assumptions about new business models and disintermediation. Nor were businesses’ appetite for enterprise software expected to retreat in the face of the enormous productivity gains this class of product can provide.

Looking back on these predictions, it’s easy to say that I was right in my general arguments, though it’s clear that I misjudged how far-ranging the fallout from the mortgage crisis would be across the global economy. I also misjudged the scope of the crisis in terms of its impact on our existing capitalist system: last year I wrote that the “the whole business model of the Western economy isn’t being challenged by a reality check that was long in coming.” I’m not sure I’d write that statement in quite that way today.

Finally, I said the enterprise software companies would be good to invest in 2008, and clearly that was way off the mark.

So with my track record firmly established as part far-sighted, and part myopic, I will now wade in with some predictions for what’s going to happen in enterprise software in 2009.

First prediction is that I think enterprise software revenues will continue to grow – again – in 2009. There seems to be little incentive to completely shut off the spigot.

While money is tight, and projects are being scrutinized like never before, the arguments for acquiring more enterprise software sound even better in a recessionary economy: enterprise software can effectively be used to lower costs, improve margins, solidify (existing) customer and partner relationships, increase efficiency and productivity, etc. etc. Provided the vendor community steps to the plate and offers prospective customers some genuinely useful data on total cost of ownership, I believe customers will respond with enough spending to make 2009 a growth year.

My second prediction is that SaaS will become an increasingly important part of every customer’s portfolio, and that the standalone SaaS vendors will start to see a lot of pressure as traditional on-premise vendors muscle in on the SaaS market. Helping the on-prem gang will be a new plague stalking the nascent SaaS market: vendor viability (thanks here to Vinnie Mirchandani of Deal Architect for pointing this out).

In a nutshell, as the economy tightens, the threat of service levels declining or a SaaS vendor being acquired or going out of business becomes more than just theoretical. While I’m not predicting that the’s of the world will be threatened, I do believe that customers will tend to opt towards established software vendors who also happen to offer SaaS functionality before they take a chance on a newbie with similar capabilities but much shallower pockets.

Also driving customer spending will be cloud computing capabilities – the cloud will clearly be the sandbox of 2009, and therefore won’t necessarily translate into massive spending on the part of end-users. But the vendors that get into the cloud early will enjoy an add-on effect that comes from being the preferred sandbox for the cloud crowd. While not every vendor will need to be a cloud provider in 2009 – wouldn’t that be a mess – their strategies will all become more coherent as the opportunity for real cloud-based productivity grows.

Another prediction for 2009 is that this will be the third year in a row that “the year of Web 2.0 meets the enterprise” won’t happen. There will be some interesting offerings that finally define why the enterprise needs Web 2.0 (and vice versa), but I don’t see large numbers of users spending meaningful amounts of money on Web 2.0 technology. (In fact, what little I see in terms of real Web 2.0 functionality inside large companies usually involves some free software or another – the crappy functionality of which further militates against Web 2.0 taking the enterprise by storm any time soon).

My penultimate prediction is that the one sacred cow most threatened in 2009 is the relational database, and that companies looking to shift IT spending are going to find they can do a lot of shifting if they first eliminate some of their spend on relational databases. Between in-memory databases, open source databases, and column-based data bases, that old stalwart RDBMS is starting to look at little long in the tooth. It looks like 2009 could be the year of some serious root canal for the RDBMS vendors.

Finally, my last prediction is that my worst prediction of 2008 – enterprise software companies will be a good investment – will come true in 2009. Provided you know how to pick them. As this sector grows through 2009, it will become apparent that the role of enterprise software in the economy – especially in terms of fixing what ails the economy – makes these companies some of the best long term investments around.

On that note, I’ll quit before I have too much to apologize for come 2010. See you then.

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