Feature

Software Development Industry Serves It Up With SaaS

Focus On: Software Development
Top business challenge: To expand market presence by offering SaaS products, acquiring complementary technologies, or both
Solution: To work more closely with customers on product development; to integrate operations and product offerings
How IT can help: By implementing technologies such as portals and CRM systems to support interaction with customers and streamline operations

The software development industry is as varied as the companies that use its products. A search in Hoover's database yields more than 400 midsized, publicly traded companies in the business of developing software. They range from the nearly $2-billion Adobe Systems Inc., a publishing systems stalwart, to the $100-million security software vendor Webroot Software Inc. in Boulder, Colo.

Yet whether a vendor creates niche software for centralized scheduling applications or an integrated suite of enterprise resource planning (ERP) software, a common thread is the competitive and rapidly evolving nature of the industry. AMR Research analyst Eric Klein says that the overall state of today's software industry is healthy. In particular the markets for human capital management, ERP, customer relationship management (CRM) and supply chain management applications are growing at the double-digit pace of 12% to 15% annually. Vendors, say analysts, are shifting from selling software to providing services. The Internet and the rising use of Software as a Service (SaaS) are identified as central to the shift in the way software companies do business.

The transition toward services is occurring rapidly, says David Thomas, executive director of the software division at the Software Information & Industry Association trade group. "Traditional on-premise software companies are becoming services rather than product companies," he adds. According to Gartner Research Inc., in 2005, SaaS generated 5% of business software revenue; by 2011, 25% of new business software will be delivered as SaaS.

This was first published in November 2006

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