WRITTEN BY JEFFREY CLARK
WEDNESDAY, 23 MARCH 2011


In an information-based economy like that of the United States, IT resources are critical to business success. But not every company is able to afford a full-fledged data center to provide all those resources, and this is particularly applicable to small and medium-size businesses that have little capital to invest in extensive IT infrastructure. Even for large businesses, the capital costs of IT can be daunting. Add to this mix society’s increasing interest in mobility: many companies want to provide their employees the ability to access their work from anywhere, and consumers are focusing more and more on mobile computing through devices like smartphones, tablets, netbooks, and similar devices. Industry observers are even beginning to speculate about the demise of the PC in the face of rising tablet sales.

These conditions have made fertile ground for increasing use of the cloud and SaaS as a means of delivering IT resources to companies and individual users that are looking for an economical way to access a variety of services on the go or from remote locations. For instance, Google’s Gmail is a well-known cloud-based service that allows users to access their email using a variety of devices and from virtually anywhere in the world that offers an Internet connection. But is the cloud sailing to a bright future, and what kinds of services are likely to emerge as big winners?

The Cloud? SaaS? What’s the Difference?

If there’s one question that’s likely to elicit about nine different answers if you ask 10 people in IT, it is this: “what is the cloud?” Okay, so the answers may not always differ in a fundamental manner, but the details of what constitutes the cloud can get a little murky. Is the cloud simply the Internet? Some would say yes, others no. Regardless of the details, however, most IT professionals will likely differentiate between the cloud and software-as-a-service (SaaS). Colleen Smith, VP of SaaS for Progress Software, summarizes the difference as follows: “SaaS is a business model, and so it is differentiated from the cloud, because SaaS is the delivery of business applications and the cloud is the vehicle that is used to deliver those business applications.” And this view essentially fits with the Internet as being either strictly identified with the (public) cloud or, at least, as being a central part of it: the cloud is the forum or the means by which users—whether companies or individuals—access IT services. In the particular case of applications, accessing those IT services is summarized in the term SaaS.

According to HP’s vice president of Enterprise Cloud Solutions, Patrick Harr, SaaS “is a delivery model for software in the cloud. SaaS allows a company to experience the full benefits of a software product without the need for costly, long-term infrastructure investments or perpetual software licenses. As a result, companies are able to refocus the IT organization on business initiatives and shift capital expenditures to operational expenditures.” Harr’s statement likewise identifies the relationship between SaaS and the cloud and also summarizes the key benefits of using SaaS through the cloud to avoid hefty startup IT costs.

So, when we’re talking about the cloud and SaaS and what services are likely to be big in the near future, the most accurate statement would be that we’re talking about what SaaS services, delivered through the cloud (or, perhaps, “hosted in the cloud”), are likely to be big. Often, however, little distinction is made between SaaS and the cloud, and although this lack of specificity may not be terribly detrimental to the conversation (since most people will know what you mean anyways), it’s sometimes important to be clear on this matter.

What’s the Big Deal?

So, we can be a little more precise when talking about the cloud and SaaS. But are these business models just a bunch of hype that will dissipate or settle into isolated niches, or are they really technological revolutions that will have a widespread and lasting effect on the way businesses and users do their computing? Chances are, the answer is somewhere in the middle. The increasing focus on mobility and the use of mobile devices like smartphones and tablets plays right into the hand of cloud-based service providers. 

Many users—whether as consumers, as employees of a company, or as a combination of the two—want to be able to access their software and information from anywhere and from any of their devices. But syncing a number of devices (such as smartphones for personal and business uses, laptops or tablets for personal and business uses, and so on) can be time consuming and inconvenient, and dealing with software licensing issues among all these devices can be a nightmare. So what would be easier than letting someone else host all your data and software, allowing you access to it from anywhere, anytime, and any mobile device? The cloud fits this bill almost to a tee. Andy Poulter, CTO of Runaware, summarizes the situation: “Today, for the first time in the computer age, people are ready for the cloud—something that wasn’t the case earlier. The continued growth of mobile devices proves that people really want to have access to their programs and data from anywhere in the world and in real time.”

Umesh Shah, senior manager of product marketing for Numara Software, believes that although SaaS has been party to its share of hype, the hype is giving way to a lasting business model. “Traditionally, there has been a lot of hype surrounding SaaS services. However, providers are adding more value and closing the hype gap in many cases. Security remains a concern but less so as times goes on. Also, providers are finding better ways to integrate with other applications. As technology improves, SaaS will become more of a viable option than it is today. SaaS allows companies to solve resource and budget constraints, and as long as those two problems remain, so will the possibility of SaaS solutions.”

Smith, on the other hand, expresses a similar opinion but makes a careful distinction between SaaS and the cloud: “There is currently quite a bit of market hype around the cloud, while SaaS is more proven [in] its value for the business.” She also notes that “SaaS is a realization and it’s a way to gain access to applications. Organizations have spent a lot of time and money to get applications implemented and never completely gained the value that was originally planned for the implementation. That is the main reason why today they are choosing to use SaaS as a business model to gain access to new applications.”

Why the Cloud/SaaS?

A major part of predicting what will be big in the cloud and SaaS in the near future is understanding what is driving businesses and consumers to the cloud. As discussed above, mobility and remote access are areas that mesh well with the cloud: software delivered as a service and remote data storage facilitate the use of mobile devices by allowing users to access their software and applications from anywhere. Furthermore, mobile devices like smartphones and tablets must be as stingy as possible with their power usage, since they rely on batteries; thus, letting a remote (and hard-wired to the electrical grid) computer do a good chunk of the processing allows the mobile device to focus its power usage on the user interface, thereby extending battery life.

The cloud and SaaS also promote scalability, and they can serve as an excellent supplement to existing IT infrastructure. Harr says, “HP views the cloud not as a trend, but as a fundamental outlet that allows IT capacity to scale as customers’ needs change and business adapt to meet those needs.” He further notes that the cloud allows users to consume technology on demand and in proportion to their needs. “This ‘pay as you go’ theme will become increasingly relevant within the cloud market. Clients now want all the benefits the cloud has to offer but without a large capital expense outlay.”

I Got All That—So What’s Gonna Be Big?

So, the cloud and SaaS have their benefits. The popularity of Google’s Gmail has illustrated this phenomenon in the consumer space (and even, to some extent, the business space). Gmail allows users to access their email from anywhere, making it amenable to mobile devices. It also offers the added protection of not locating email on a personal device (whether a PC or mobile device) that can easily suffer damage, causing data loss. Google is also expanding its SaaS offerings beyond email and into word processing and spreadsheets, for instance, through Google Docs. Data backup services like Carbonite also illustrate the potential success of SaaS delivered through the cloud. But what could be the next success story?

Poulter identifies the broad category of industry software as a market poised for explosive growth in use of SaaS: “In the near future it will be specific applications to specific industries, like an engineering firm having its engineering applications in the cloud so it is easier for employees to work from anywhere in the world. Applications like customer relationship management (CRM) have been the most successful to date, but any application where users need access from lots of places is a natural fit.” The cloud-based (or, more generally, SaaS) approach in such cases can ameliorate licensing issues that arise with complex (and highly expensive) software. Additionally, startups and other organizations without extensive capital resources can gain access to the software they need as they need it, turning what would have been an unaffordable capital expense into a more affordable ongoing operational expense.

Smith expresses a similar view, stating that “small businesses that don’t have the IT or capital budget to develop or build their own data center will most likely utilize cloud computing in this way.” Furthermore, she cites situations where a company needs a particular type of service that may not be central to business operations: “The types of applications that are gaining momentum are ‘add on’ or ‘gap apps’—applications that are not core to the business, but rather fill in the gaps that organizations may have (pricing apps, content management apps, etc.).”

Similarly, Shah believes that small to medium-size businesses (SMBs) are a growing market for SaaS. “Small businesses are turning to cloud services to speed time to market and make up for fewer resources. Since the functionality required is not very extensive for SMBs, many cloud offerings can quickly provide much needed services and therefore do very well when targeted to this market.” SaaS thus has several markets in which growth seems poised to accelerate. 

What About Individual Users?

The cloud/SaaS clearly offers a number of potential benefits for businesses (regardless of size), and several markets have potential to be the next “big thing” in this space. But what about consumers? Google has offered a number of SaaS products that are attracting customers, but such free services are not sustainable without other means of revenue. Carbonite offers a more self-contained model, with its data backup service being provided for a yearly fee.

Poulter identifies several areas in which services for individual users could see growth: “Now that home and wireless Internet connections are much faster and more reliable, I think that consumers will look to cloud offerings for many things, including hosted email, online storage/display of photos and videos, tax software, productivity software, and many applications that they might just need occasional access to.” Given the expense of many software packages (for instance, many of Adobe’s Photoshop products cost hundreds of dollars), companies that offer their software as a service that users can access in a pay-as-you-go manner may find a tremendous positive response from both individual users and even small companies that use these packages on a short-term basis or only occasionally.

According to Harr, “consumers will continue to drive the demand for cloud services that provide instant results, spurred by their attraction to free SaaS offerings like Snapfish (photo sharing), Facebook (social networking), and web-based email applications. The advent of the Internet and mobile applications has changed the mindset of customers and citizens, rendering instant gratification as a necessity rather than a nicety.” Thus, although a company may spend more than a consumer on cloud-based offerings, the influence of consumers on this market cannot be ignored.

Challenges of the Cloud/SaaS

Probably the foremost problem with the cloud is security. Regulations regarding data security, for instance, are stifling the potential of cloud-based services in the financial sector. But security is a nearly universal concern: after all, if someone else has a copy of your data, then someone else has a copy of your data—that’s another individual or organization with the potential of leaking (whether accidentally or otherwise) important information. Smith echoes this sentiment: “Additionally, many are still worried about cloud security and integration. People are still uncertain and feel uncomfortable when they don’t physically know where their data resides.”

But security is not the only concern. Cloud service providers also face challenges in implementing their products in a subscription0based form, as Poulter notes. “Another [challenge] is the perception that the cloud is free and you only pay for what you use. Eventually this is true for the end users [in that] they will only pay for what they use, but the [providers] need to pay big money to get their application into the cloud so they can offer it to the end user in a subscription model.” 

Even beyond such logistical challenges, however, providers must be able to sell their service as a real business (or consumer) value. According to Harr, “cloud providers are challenged to articulate their cloud offerings in the form of a cohesive portfolio. What is the buyer’s business challenge? What kind of offering will satisfy the requirements? What is available for the buyer to evaluate from the providers portfolio? IAAS? PAAS? SAAS? Private? Public? On-premise? Off-premise? Dedicated? Shared?” In other words, implementing the service is one thing, but selling it to real people and businesses and meeting their needs is another challenge altogether.

Conclusions

Identifying a particular product that is likely to be the next big hit in the cloud/SaaS is obviously a difficult task: so many factors influence the market, and sometimes, such things are plain old unpredictable. But certain markets can more easily be pegged as having strong potential for growth in their reliance on the cloud as a means to deliver software as a service. 

Clearly, the increasing prevalence of mobile devices, as well as the need to support remote access to software and data, is driving the cloud as a solution to a number of logistical challenges. Google’s Gmail is perhaps the quintessential example of a cloud-based software service, and its success shows that users—both consumers and many companies—are ready to take advantage of the benefits of the cloud. The cloud is unlikely to become the end-all be-all of computing: in many ways, it is a supplement rather than a replacement for more-traditional computing models. To the extent that this is true, the hype surrounding the cloud/SaaS is hype indeed, and the expectations of some industry observers and prognosticators are likely to be dashed. Nevertheless, the cloud is unlikely to be a passing fad—it offers too many real benefits that a wide variety of users can exploit.