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Editor's Note: Learn more about the future of application servers in the enterprise in ebizQ's upcoming webinar.

As a slowing economy forces a capital spending crunch, software-as-a-service (SaaS) becomes a more viable solution – saving time, money and resources. With the proliferation of SaaS at this time and the growth of on-demand platforms fueled by ever-more-powerful Web technology, we should expect exciting and challenging times for the CIO who is willing to roll with the changes as SaaS gets a larger slice of the application pie previously delivered by IT in the form of proprietary in-house or vendor packaged software.

New research from Gartner and IDC indicates that the SaaS arena will grow from $4.0 billion last year to $11.5 billion in 2010, almost tripling over the next two years. In fact, Gartner predicts that by 2010 SaaS will satisfy 25% of all new application demands. This seismic shift will significantly alter the role of the traditional IT department, especially the CIO and his/her relationship with the business owners. Gartner just published its “Hype Cycle for Software as a Service,” amazingly it covered 29 SaaS-related technologies.   The stock market has not ignored this massive IT paradigm shift that is underway, either.  The eight public SaaS companies trade at an average value of almost 8 times their sales.  This would make almost any CFO of a traditional software company green with envy.

Today, Salesforce.com, Ariba and Taleo are perhaps the best-known SaaS providers, delivering powerful customer relationship management (CRM), procurement and HR tools via their application exchange marketplace - a rich set of extensions ranging from cute to quite powerful.  This comes with virtually zero infrastructure beyond the network and little or no maintenance burden for IT depending on the degree of integration with in-house systems.  Reducing infrastructure investments, operational management requirements and upgrade costs provide SaaS solutions a huge advantage in Total Costs of Ownership (TCO).  A recent example by the Yankee Group showed a typical 500 seat Salesforce.com installation had almost nine times the TCO savings vs. a traditional in-house CRM application.


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