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June 20, 2006SaaS moves from niche to disruptive technology
Software-as-a-service applications from Google, Yahoo, and Salesforce.com are driving change in architecture, appearance and business model of enterprise applications, turning the sector from a niche into a multi-billion dollar market. But the business model isn't without its challenges. Calling the trend a "disruptive phenomenon," Merrill Lynch & Co. analyst Kash Rangan said in a report released Friday that upstarts, such as Salesforce.com, WebEx, RightNow, Taleo, Blackboard and NetSuite, will benefit most, compared with traditional software players Microsoft, SAP and Oracle attempting to move into the space. Part of the disruption will come from the method in which traditional software companies recognize revenue from SaaS sales, according to AMR Research Inc. senior vice president Jim Shepherd. "If SAP sells a system today for $1 million, they recognize the million dollars on the day they sell it and it goes into the revenue for that quarter," he said. "If they were to sell that same system as a software as a service, they may get $US20,000 per month for the next 10 years."
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