Interest in SOA, SAAS Expected to Grow in 2007

For companies that use enterprise applications from the leading vendors, 2007 to some degree won’t offer many surprises. The top vendors—SAP, Oracle and to some degree, Microsoft—will continue investing in service-oriented architectures and will grow their investments in software as a service, according to industry observers.

All three companies will continue their investments in their respective next-generation ERP (enterprise resource planning) suites, with an underlying middleware platform: mySAP ERP, Oracle Fusion and Microsoft Dynamics.

SAP, of Waldorf, Germany, will offer its first completely SOA-based suite of applications for the mid-market, and Microsoft, of Redmond, Wash., will release Titan, its multi-tenant CRM suite for the mid-market. Both offerings have implications for end users. SAP’s hosted suite—the formal announcement is expected in the first quarter of 2007—could impact the mid-market, said Jim Shepherd, an analyst with AMR Research.

“SAP will announce a full mid-market ERP suite that is entirely SOA-based and all new code,” Shepherd said. “The question is if it is enough of a game changer where the mid-market buyer says, ‘I was going to buy [new software] this year, but SAP’s suite is not available until 2008. I’ll just wait and see.’ It could freeze the market. We’ve seen it happen before.”

Microsoft’s release of Titan will be more of a game changer for the channel, said Rob Bois, another analyst with AMR.

“Titan will send ripples through the indirect partner channel,” Bois said. “It has started to scare partners, but hasn’t fundamentally changed anything yet, and partners haven’t been forced to change. … All eyes are on Microsoft [to see] what role it believes SAAS plays in the channel.”

Infor, which has acquired 19 application companies in the past two years, could be the wild card in 2007 as it continues to buy other vendors. With a current roster of 70,000 customers, Infor, of Alpharetta, Ga., plans to increase revenue from $2 billion to $4 billion during the next 26 months—putting pressure on SAP, Oracle and Microsoft.

“It’s a different kind of model where presence in the market isn’t account control, but rather ubiquity,” said Shepherd. “That’s kind of the unique thing with Infor. They are quickly becoming best of breed.”

On the spending front, North American enterprises will significantly increase their cash outlay for new software initiatives and projects, said Ray Wang, an analyst with Forrester Research.

In his report “The State of Enterprise Software Adoption,” Wang states that enterprises plan to spend an average of 30 percent of their total IT budget of software related costs in 2007—licenses, maintenance, operations and development. The top software priorities for next year will be improving integration between applications (27 percent), upgrading security environments (21 percent), and adopting SOA (12 percent).

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Business intelligence software will represent the top application purchase, according to Wang, and ERP will remain the top major upgrade. Messaging, e-mail and collaboration software will lead the pack for minor upgrades.

SAAS spending will continue to increase among enterprises. Although medium and small companies (defined as those with 100 to 499 employees) lead as the current users of SAAS, 45 percent of Global 2000 and 32 percent of very large enterprises remain “somewhat interested” in adopting SAAS in 2007.

More surprising, according to Wang, among enterprises that use or are piloting SAAS, 54 percent of respondents named human resources as their biggest area of interest, and 40 percent named ERP, overtaking for the first time CRM (customer relationship management) as the biggest area of interest.

Salesforce.com, the poster child for SAAS, is expected to continue to grow in 2007. But it’s also the year wherein Salesforce.com, of San Francisco, can no longer point to AppExchange—its potentially game changing e-marketplace for third-party applications replete with a development environment, language and e-commerce engine in 2007—as an experiment. The company will have to start telling its story around actual numbers, according to AMR’s Bois.

“Next year [Salesforce] will have to say how much purchasing really happens from AppExchange,” he said. “That could take [Salesforce] from a software vendor with a nice idea to a pretty good software company. We still hear a lot of skepticism.”

A lot of the standard two-year SAAS contracts start to run out in 2007, which could lead to a brawl between line-of-business and IT as they work through maintaining “stop gap” SAAS implementations or replacing them with the intended on-premises solutions, according to Bois.

“I have a feeling that SAAS will turn out to be a longer term solution for a lot of businesses—more so than they had initially thought,” said Bois. “That will start to pan out next year. Customers will have a hard time justifying why they should switch.”

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