Ealier this year, Microsoft President and CEO Steve Ballmer signaled his company’s views on the future of enterprise applications: “If you want to be a leading software company, you’ve got to be a leading Software as a Service company.”

Mark Barry, Microsoft’s Managing Director of Strategic and Emerging Business Development, is one of the executives in charge of making this vision a reality. In his Empower 2006 keynote presentation, Mark shared his sometimes controversial views on SaaS and predictions on the future of the enterprise application marketplace. I also had a chance to sit down with Mark and grill him further on the SaaS landscape.

Some of Mark’s comments include:

• SaaS is the Next Big Thing: “SaaS has the potential to be the biggest evolution since distributed computing, since desktop productivity, or the Internet revolution. We’re at a great evolutionary point in enterprise application development and delivery. A number of business areas that have been plagued with complex issues but really have never had the right solutions. SaaS addresses this.The ability to be able to take key services and expand them outside the firewall, such as collaborating and managing supply relationships outside the firewall is very powerful.”

• The SaaS Era is just beginning: “SaaS is still very early in the lifecycle, so there’s a lot of room for growth. There’s still five to 10 years before SaaS even begins to peak.” Backing this statement up are predictions from IDC Research that find the SaaS market growing at 20% annually and project it to reach more than $10 billion by 2009. Mark also points out that other research firms like Triple-Tree feel the SaaS market is underestimated by as much as 80%. What’s driving this growth? “You look at SaaS providers like Salesforce.com transitioning from being CRM players to platform players and you begin to understand that whole ecosystems of applications, content, and services will crop up around the leading SaaS players.”

• Traditional software firms will be forced to embrace SaaS: “There’s been eroding margins in the software industry. Because of [declining margins], traditional firms that have hung their hat purely on a perpetual- and installed-based software delivery model, have had to depend more upon consulting and maintenance revenues to continue to grow.” [Click on the below graphic to view how more than half of revenues of traditional, installed applications now come from maintenance, implementation, and services.] “If anything it’s created more of a sense of urgency for the big guys to pay attention of what’s taking place in the [SaaS] market and try to embrace what’s occuring out there.”

• SaaS makes enterprises more responsive: “There was always this vision that we could pull the best of breed into composite applications and deliver a great experience for users. From a business perspective, there’s always a lot of different extensions to the business processes and models over time. With a SaaS model it’s a lot easier to incorporate those process changes and service offerings into your [application] portolio and make them available to very quickly.”

• SaaS lowers risks and burdens: “One of the most compelling attributes of SaaS is the lower cost and risk of implementing these services. What has happened is that a lot of the cost burden that you’ve incurred has been shifted to your provider. Now they’re worrying about what they need to do to scale SQL Server in a multi-tenant environment and give you a service level agreement. They have to worry about the next set of architectures. This permits you to spend more time on what you do, which is the solutions and serving your customers.”

• SaaS should be embraced by the CIO: “At Microsoft, we think SaaS is a fundamental change in the way business has been done in the past and a should be a welcome change to the CIO. CIOs still have a lot of core infrastructures that they need to support. But, to a large extent, if you’ve got a business-line executive coming to you looking at a departmental, SaaS-based solution, it’s a lot easier for you to say, “Yes, I can bring that [solution] up with a very low risk and become very productive in a short amount of time.”

Bottom-line: SaaS has arrived as an acceptable if not preferable model for enterprise application delivery, providing economies of scale, effeciencies, innovation, and cost benefits that are difficult if not impossible to achieve with traditional installed software approaches. For supply management executives, SaaS provides a rapid and low-risk method for rapidly accessing best-in-class functionality that can adapt to your changing business needs.

Check the Supply Excellence library for more details on how to assess On Demand Supply Management solutions. Also, be sure to visit John Martin’s for Building SaaS blog for great insight into the operational, developmental, and financial attributes of the SaaS landscape.

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