This is a May 25, 2006 research note from Saugatuck Technology.

What is Happening?: User company IT executives need to be aware that their software environments will dramatically change between now and 2010. The increasingly broad and rapid adoption of varying types and levels of software-as-a-service (SaaS), multiple "flavors" of services-oriented architectures (SOA), and open source-based software can be expected to increase IT and business complexity, and management costs.

This will have a significant, negative effect on many firms' ability to more broadly innovate, either in business or in their use of IT. In short, the complexity and management cost challenges associated with adopting next-generation software technologies may ultimately reduce many firms' ability to innovate.

Why is it Happening?: Saugatuck research shows significant spending and deployment of SaaS, Open Source and SOA by year-end 2010, including:

  • 18 percent of executives expect to see more than half of their firms' new applications spending to be on SaaS-delivered software;
  • 26 percent of executives expect more than half of their firms' new software spending to be SOA-based; and
  • 22 percent of executives expect open source-based software will account for more than half their new software investment. (See Figure 1.)

Figure 1: User Open Source Software Presence, 2010

In our assessment, these investment forecasts are not cumulative - and, in fact, may (in many cases) represent overlapping pools of money. For example, many next-generation SaaS applications will be SOA-based and deployed wherever possible on open source infrastructure (e.g., OS, middleware and database). As such, taken together, Saugatuck expects that these three software types will account for 25 percent (or more) of new user software and services investment spending and deployment by YE 2010 - a huge chunk of the user environment.

This investment and adoption is being driven by expanded choices from more vendors at low prices providing viable alternatives. Examples include:

  • SaaS: Low upfront costs combine with SLA-based upgrades, scalability and maintenance, to convince users to adopt SaaS. Increasingly credible vendor presences boost SaaS adoption as well. Examples include such software Master Brands as IBM and Microsoft and the continued growth of game-changing newcomers such as, RightNow Technologies and Employease.
  • SOA: Growth is being driven through heavy promotion regarding user benefits by all IT and software Master Brands, including HP, IBM, Oracle, Microsoft, and SAP as well as by leading SIs (e.g., Accenture, BearingPoint, EDS).
  • Open Source: Credibility (and choice) is improving rapidly via the increasing presence of software master brands (e.g., IBM, Oracle) and the increasing size and market adoption of emerging brands (e.g., Red Hat/JBoss).

Even with all of the benefits that these next-generation technologies will bring to bear - the reality is that this multiheaded hybrid software hydra is likely to be a technology management and TCO nightmare for users. Despite increasing strategic alignment of IT and business in most industries, most user firms are ignoring the increasing presence of these three very disruptive software technologies.

As an example: Research for Saugatuck's recent SaaS market report suggests that SaaS deployment is much deeper than most business and IT executives recognize. Due to its highly decentralized procurement model (often sold in at the departmental level) - combined with the fact many users do not recognize some applications and utilities as being SaaS-based - formal audits at several very large enterprises that we talked to revealed SaaS penetration rates three or more times what was anticipated. Much of this is due to the "off-books" or non-IT-budget purchasing and usage of SaaS. Process-specific SaaS deployments and the continuing integration of business process functions and services as part of SaaS offerings, make it difficult to "see" the software and its impact on user and IT environments.

Saugatuck sees similar "unofficial" and departmental-focused deployments in SOA and open source-based software, especially in applications. SOA deployments yield re-usable, standards-based code, and reduce development efforts and costs for applications needing that code. But many SOA "standards" differ by vendor and require specific skills. Expanded use of SOA can easily yield similar, yet incompatible, code that requires further development/adaptation to be useful.

Most CIOs tend to see open source among their operating systems and web servers, but are unaware of its increasing presence in desktop applications and databases.

Market Impact:

User impact: The confluence of these innovative, disruptive software technologies is already having an impact on some early-adopter user firms. Management costs have risen, and begun to offset deployment and operational savings. Saugatuck expects widespread impact on the majority of user firms in the 2008 - 2010 timeframe, based on current and planned vendor offerings, user infrastructures and historical IT adoption trends.

The net result will be a mélange of disparate technologies, delivery means, usage models, and cost structures that will reduce many user firms' ability to take advantage of these very technologies. In other words, users' desire to innovate will be disrupted by their own deployment of innovative, disruptive software technologies - often in a highly decentralized and uncoordinated manner.

This suggests that user deployment of IT utility environments to enable greater business innovation and to improve operating economies will be negatively affected. The key means of avoiding this is a reinvigoration of IT management, including the imposition of standards for acquisition, deployment and management of all types of software and services, business or IT.

Project-focused, department-specific or point-solution-specific deployments have reduced the direct involvement of IT management in many ways. The blending of software and business services has exacerbated the issue. Trends toward de-centralization have contributed to the problem as well. It may be time to review and revise IT management disciplines.

Vendor impact: The same old cliches regarding the complexities of user IT environments will continue as deployment of these disruptive technologies increases user IT and business customization. In the short-run, this translates into tremendous opportunity for software and services vendors, especially in systems and application management, managed services and applications/systems integration. SaaS, SOA and open source will create more and greater opportunities for technological and process integration.

Saugatuck especially sees a need for coordinated and customized, managed services offerings to address the variations in SaaS/SOA/Open source technology, application and business process management requirements.

The author invites your comments and inquiries on this Resarch Alert. Please contact Bruce Guptill at For more information, please visit

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