The consensus among these CIOs is that Cloud Computing will, at least initially, focus on IT Infrastructure – in short, “hardware as a service” – with the greatest emphasis and use on storage, computing power, and similar offerings. Over time, however, Saugatuck believes that Cloud Computing will evolve to into a series of converged platforms for the delivery on on-demand infrastructure services, SaaS enablement and cloud-based development. In support of this thesis, the top-of-mind providers of Cloud Computing cited by these CIOs were Amazon, Google, IBM, Microsoft and Salesforce – not a typical group of IT hardware-centric vendors.

Saugatuck's stance is that “the cloud” will envelop all aspects of IT delivered and used as services, whether on demand, on a subscription basis, or more frequently, some combination of these. However, user enterprise IT organizations, practices, funding, strategies, acquisition, management and usage still force separation of software and hardware, and of traditional IT and service-based IT. The hardware-centric attitudes and insights of senior-level IT executives must, of necessity, reflect these realities.

Cloud Computing is still embryonic, but its compelling economics and game-changing advantages assure its maturation. By 2013, Saugatuck believes that at least 20 percent of enterprise IT workloads – that historically would have operated on-premise – will be run in the cloud, providing significantly enhanced functionality, lower costs, fewer staff, and reduced carbon footprint.

Saugatuck sees Cloud Computing as the successor to our long-standing “Three Waves” model of SaaS evolution and deployment. As the Fourth Wave, Cloud Computing represents the rise of on-demand infrastructure in support of business objectives. Figure 1 illustrates this model .

Note the second S-curve in Figure 1, which is a dotted line indicating the rise of Cloud Computing. In context with the evolution of SaaS, Cloud Computing can enable and supplement SaaS as enterprise development and workloads shift from on-premise to on-demand providers.

In this regard, the focus of SaaS shifts over time from cost-effective delivery of stand-alone application services (Wave I), to integrated business solutions enabled by web services APIs and ESBs (Wave II), to workflow- and collaboration-enabled business transformation (Wave III), leading to measured, monitored and managed business processes (Wave IV).

The presence of top IT Master Brands as top-of-mind cloud providers should be expected. But the strong presence of Salesforce and Microsoft indicate that there is further room within CIO brains to adapt and expand their definitions of Cloud Computing. Even though the consistent sentiment centers on hardware delivered and used as services, SaaS and software obviously play a significant role in CIO thoughts and plans. And the top-of-mind presence of Amazon and Google can be explained as due to their recent marketing efforts as capacity/compute on demand providers. But this shows how quickly non-traditional providers can gain mind share among senior IT executives.

1. Most CIOs see Cloud Computing as IT infrastructure delivered as a service, and these views lean more toward hardware as a service than SaaS. Cloud Computing is increasingly viewed as a mechanism for development and eventual “hosting” of new applications. Some of the CIOs we interviewed focused less on the infrastructure aspects, and instead on how new innovation can be created and deployed in a new "‘Internet Cloud' (without foreknowledge or regard for any of the layers underlying [the] code – Database, OS, Networking and connectivity or Computer)."

2. Amazon, Google, IBM, Microsoft and Salesforce are currently viewed as the de facto Master Brands when it comes to Cloud Computing. This, too, is consistent with Saugatuck's SaaS user survey research. But this positioning of vendors by CIOs comes despite the overwhelming sentiment that Cloud Computing is, at its core, hardware/infrastructure on demand, with only one traditional hardware Master Brand recurs in the CIO comments – IBM.

The other leading providers include “the” user software Master Brand (Microsoft), today's leading SaaS Master Brand (Salesforce), a leading web-based retailer (Amazon), a couple of mixed references to ERP providers (SAP, Oracle), one Web 2.0 player (Facebook) and today's leading search/advertising Master Brand (Google).

Recent browser news and releases include the following:

* Mozilla has announced a June release of its Firefox 3.0 browser that includes significant changes to web site classifications, bookmark organization, and the abilities and use of browser-driven user and site identification (e.g. cookies).

* Microsoft has intimated significant changes for the upcoming Internet Explorer 8, including dynamic web site and web page identification and bookmarking, content copy-and-paste, and content mapping.

* Apple recently initiated a strong push of its Safari browser into the Windows realm, including making the browser available via iTunes and to iPhone users. Apple also recently included Safari with its automated Windows Software Update application, leading to a tripling of market share - and a flood of user complaints when Safari automatically installed itself on user machines. Safari also made headlines this year when PayPal advised its customers not to use the browser, due to Safari's lack of some anti-fraud safeguards.

* Opera Labs announced in early May the availability of file I/O access in widgets, which allow users to access data stored on the device the browser is running on and thus expand the combined functionality of the user device and the Web-based application.
* And investment firms are backing newer browsers (e.g. Flock) that are architected to provide and enhance social networking and similar Web 2.0 environments and applications.

The rash of announcements and news spotlight not only the continuing and increasing differences between browsers, but the pivotal role played by browsers in the evolution and adoption of SaaS, Web 2.0, and cloud computing.

As browsers become more complex in most cases, more specialized in others, and more different overall, the development, adoption and deployment of SaaS, Web 2.0, and cloud computing become affected. Browser incompatibility with user devices, services, networks, applications, and each other, becomes more likely.

Browsers are free. So, why are browser providers moving aggressively to enhance and extend their offerings? And why is compatibility such an important issue?

Put simply, browser vendors are looking for additional power to gain market share and associated revenues. Saugatuck sees the following factors at work behind the resurgent browser aggression:

1. The browser is the client. With SaaS and Web 2.0, the browser becomes, in effect, the client software. Control of the user interface enables control of the user interaction and relationship. The browser provider thus plays a strategic role in the adoption of SaaS, Web 2.0, and Cloud Computing.

2. Advertising revenue. Browser vendors are at the center of the search engine wars, which are currently targeting web-based, search-engine-driven advertising revenues.

3. Simple forward progression of IT. All IT, especially software, gets more powerful and more complex over time. Users expect and demand more from even the simplest technologies over time. Vendor/user relationships depend upon this. Browser providers want and need to protect these relationships.

4. Virtualization of IT. More sophisticated browsers can provide server and OS transparency or independence for SaaS or web-based applications. As users and SaaS providers increasingly adopt various forms of virtualization and multiple OSes (e.g., Windows, Linux, etc.), the browser can provide compatibility for a wide range of web-based applications (i.e., SaaS). One reason browsers have to become more powerful and sophisticated is the advancement of IT virtualization. The user infrastructure is becoming its own cloud, extending to and including multiple outside clouds.

5. Device transparency. Functionally-rich browsers can enable a single version of a web-based application to support devices ranging from varying displays on PC, to PDAs, to smart phones, using different OSes and with vastly different capabilities need to be able to interact/interoperate with these multiple clouds in order for users to do business.

Unlike many, if not most, competitive software offerings, browsers are based on very standardized technologies. Their differences lie mostly in how the browsers are architected and how the technologies are utilized within the browser. Such proprietary implementations and adaptations provide browser vendors with some competitive differentiation, and some advantages, in specific markets.

Given that browsers are key to a series of huge and expanding markets – i.e., SaaS, Web 2.0 and cloud computing - we should expect browser providers to more and more aggressively develop and promote their proprietary offerings.

Device vendors will play a major role in this. Software vendors, especially Microsoft, learned decades ago that users seldom remove or swap the OEM software. So browser vendors should be expected to more and more aggressively pursue exclusive relationships with user device vendors that load or bundle their browser. These devices will include not just PCs and PDAs, but smart phones, standard telephones, game/entertainment consoles, video recording devices, printers, automotive electronics – and anything else that connects to the Web.

Software and SaaS vendors will also play a role in the browser “wars.” Software and SaaS providers will specify, bundle, and/or recommend the browser(s) best-suited for the use of their applications. SaaS platform providers, including development platform/platform-as-a-service (PaaS) providers, can be expected to follow suit, as can marketplaces that coordinate SaaS offerings from multiple providers of complementary or competitive services. And as web advertising revenue expands, SaaS and software vendors will expand their browser relationships to include customized toolbars and search features that enable ad revenue sharing.

The development of the Android mobile device OS driven by Google could spawn yet another browser – or more. At the least, if Android is widely adopted by mobile vendors and users, it will force browser developers to further complicate their offerings.

And given Google's position, resources, and web-centric revenue model, it makes some sense for Google to partner with, acquire, or develop their own browser. Browser developers in general can be expected to work for more slices of the web-based ad revenue pie.

In fact, the expected explosion of SaaS, Web 2.0, and cloud computing can also be expected to bring more browsers to market. Saugatuck expects to see browser proliferation in devices, networks, services, and industry-specific markets etc. Browsers can be expected to come to market based on device affiliations (e.g., Blackberry), service affiliations (e.g. game services), feature sets (e.g., higher-education student needs), and other factors.

Thus we come to what Saugatuck sees as the most significant problem for users and vendors: Browser glut. This will vary by market, by device, and so on. We do expect two to three “mass market” Master Brands to dominate the browser landscape, but we also expect to see a range of browsers optimized for devices, services, networks, applications, industries, and more.

In such cases, software and services providers will need to develop to the lowest common denominators, including the “average” features and functions required by the majority of users. Browsers could therefore become an inhibitor to the growth of SaaS, Web 2, and cloud computing, through redundancies in versions, overlapping capabilities, conflicting implementations of standard technologies, and the resulting need for more dedicated governance by users and vendors.

The browser enables a vastly increased user independence from IT. But as browsers, and the browser marketplaces, become more complex and require more resources from users (and from vendors), will we need to enable independence from the browser?

In the last week, two announcements from Google have directed a spotlight onto an area that Saugatuck believes will have a significant impact on the long-term evolution of the IT industry: the emerging importance of SaaS development and SaaS enablement platforms, collectively Platform-as-a-Service (PaaS).

In the first announcement, early last week, Google introduced the Google App Engine. The App Engine is a developer tool that enables a developer to create scalable web applications run them on Google's infrastructure -- and Google promises 500MB of persistent storage and bandwidth and CPU for 5 million monthly page views. True to form with Google, it is a "preview release," open only to the first 10,000 developers who sign up. According to Google, the preview release of the development environment includes:

* Dynamic web serving, with full support of common web technologies
* Persistent storage with queries, sorting, etc.
* Automatic scaling and load balancing
* Google APIs for authenticating users and sending email
* A fully featured local development environment.

During the preview period, applications are "limited" as follows: 500MB of storage, 200M megacycles of CPU per day, and 10GB bandwidth per day. Over time, these quotas will remain free, and developers will be able to purchase additional resources as needed.

In the second announcement, earlier this week, came the long-awaited news that Google Apps and salesforce.com would be integrated. This ability, which is provided to existing customers at no charge, gives Salesforce customers the option to link in Google's productivity tools such as Gmail, Calendar and GoogleTalk as part of their cloud workspace. Customers that want telephone support for end users, unified billing and provisioning and additional APIs may access those features for an additional $10 per user per month.

Most analysis of these new offerings has focused on Google as an emerging force in enterprise computing, and its multi-front war with Microsoft, and whether a Google-Salesforce merger is on the horizon. Speculation aside, Saugatuck believes the burgeoning Platform-as-a-Service (PaaS) movement will have a more disruptive impact in the long term. Meanwhile, the synergy between Google and Salesforce in redefining the computing environment is, we agree, a serious threat to the Microsoft hegemony.

Saugatuck has been among the forefront of analysts arguing that Google has enterprise computing square in its sights, writing as far back as September 2006 that user executives can expect Google "to continue to deliver new SaaS solutions aimed at the business market". (see Challenge and Response: Saugatuck Principals Debate Google's Impact , MKT-270, 13Sep06) and as recently as March 2008 that "for those doubting that Google has enterprise computing ambitions -- doubt no longer" (see OpenSocial Foundation - Next Step on Road to Enterprise-Grade Web 2.0, RA-446, 26Mar08). And we believe that talk of a GOOG-CRM merger is an effective red herring for the competitors of both companies to chase while each company seeks to put distance between themselves and their competition in the segment that really matters to both: Platform-as-a-Service.

we have predicted both a proliferation and an evolution of SaaS platforms through 2010 as they evolve to embrace user development and runtimes (see Notes 1 and 3rd Annual SaaScon Shifts the SaaS Industry Spotlight to IT Executives, RA-451, 02Apr08). Our research lead us to develop the following two Saugatuck Strategic Planning Positions:

* Through 2010, SaaS Platforms will evolve beyond ecosystem-driven integration in support of customers, complementary long-tail offerings and other business partners to embrace development and runtime services.
* By 2010 robust SaaS platforms continue to evolve, going beyond providing critically important integration, application sharing, delivery and management services to include cloud-based development and runtime capabilities that are viable alternatives to on-premise application development and data center services.

Saugatuck believes that it is this evolution in platforms, more than any other advancement related to SaaS, which will drive the rise of cloud computing and usher in the post-SaaS era of measured, monitored and managed business processes.

The two announcements noted above represent two important examples of the type of robust cloud-based software development platforms and run-time environments that are emerging with a diverse set of supporting service offerings that make them viable alternatives to traditional on-premise development. More importantly, each PaaS example is predicated on a different strategic purpose, a distinction which we believe should not be overlooked in attempting to understand how this PaaS will develop over the next three years. We refer to these different types of PaaS as SaaS Development and SaaS Enablement platforms.

SaaS Enablement Platforms are built for one of two purposes:

* to enable ISVs to build and deliver SaaS applications (e.g., OpSource's On-demand or BEA Systems' Genesis or IT Factory's PaaS offering) or
* to enable solution partners of SaaS vendors to integrate and extend the SaaS solutions for their customers (e.g., Cisco's WebEx Connect, NetSuite's NS-BOS, Salesforce.com's Apex and force.com).

These SaaS enablement platforms host and administer SaaS solutions in support of these strategic objectives, and in fact, were it not for force.com, the Salesforce for Google Apps offering would not have been feasible. Thus far, only the force.com platform from Salesforce has attracted cloud development that can be considered independent of its SaaS solution. This brings us to SaaS Development Platforms.

SaaS Development Platforms typically target cloud developers with technical languages like Ruby on Rails or Python and either offer runtime services themselves or resell those offered by partners in the cloud. With the App Engine preview, Google joins Bungee Lab's Bungee Connect (also in beta), Coghead and Morph Labs in targeting cloud developers. Other SaaS Development platforms include Facebook's platform targeting social networking developers that can be run either on Joyent or on Amazon's AWS (EC2, SQS and S3) -- as well as Engine Yard which specializes providing execution services for Ruby on Rails.

ISVs and other IT vendors looking to leverage the SaaS phenomenon (and that is about everyone these days) must understand the difference between these SaaS enablement and development platforms. They must also understand that the selection of a platform is an investment in a particular ecosystem that may in the future become a limiting factor to growth, even if it is a short-term accelerant. Careful consideration should be given to the underlying technology, technology standards and projected adoption curves for each.

We should take note of the other traditional IT Master Brands waiting in the wings.

* IBM with its Bluehouse project, appears to have a coherent plan, as well as all the partners, tools and other capabilities required to provide a PaaS offering. We expect to hear more from IBM about Bluehouse and how it will contribute to cloud computing in the very near future.
* Similarly, were Oracle to combine BEA Systems' Genesis with Oracle Tools, the result would be a comprehensive SaaS Platform environment offering both enablement and development for cloud-based applications.
* Although Microsoft has its Connected Services Framework and Dynamics CRM environments in support of "software+services," the Redmond-based giant has yet to articulate a clear story around how it will enable the development of next-generation, cloud-based applications. The more time that passes without Microsoft making it clear that they are seriously in the PaaS game, the dimmer Microsoft's prospects as an enterprise SaaS player going forward appear to be.

Both SaaS Enablement and SaaS Development Platforms -- regardless of the targeted developer community -- reduce the capital required for an ISV to remold an existing application or launch a new application while at the same time expanding access to skilled developers who can help build the applications. This will only serve to accelerate a nascent trend toward the micro-vertical focus in applications that will soon move to the core of SaaS success and is one reason why we believe PaaS will be such a disruptive influence in the software industry over the next two years and beyond.

IT executives recently converged on Computerworld's Software-as-a-Service Conference (SaaScon) inSanta Clara, CA (March 25-26), to share their experiences and best practices about implementing SaaS solutions in their businesses.

Having participating in the two previous SaaScon conferences in addition to this one, it was a refreshing change to move the discussion beyond issues related to provider ecosystems, business models and distribution channels -- to real-world customer deployment issues and best practices.

The conference featured a keynote from Manjit Singh, VP and CIO, Chiquita Brands International, as well as a variety of user presentations and panels on various aspects of their SaaS experience (from more than a half dozen additional CIOs, from companies such as Colorado Capital Bank, Shaklee, and Schumacher, among others -- see Note 1).

They were joined by 29 system vendors, ISVs and SaaS providers -- as well as almost a dozen industry analysts, pundits/bloggers and bankers from firms such as Forrester, IDC, AMR, Saugatuck Technology (see Note 2), ThinkStrategies, Procullux Ventures and TripleTree. As with prior events, all took the opportunity to network with partners, ecosystem ISVs, and customers, and to showcase their latest offerings and educate end-users on their Software-as-a-Service.

On day two of the event, Saugatuck presented some preliminary highlights from its most recent SaaS research program, including results from our January 2008 worldwide web survey of buyer demand, conducted in partnership with BusinessWeek Research Services. Much of this research will be published to our CRS subscription research clients in the coming weeks, as we dig deep and finish writing our newest 30+ page Research Report on the state of SaaS (see Note 3), as well as in a variety of Strategic Perspectives and Research Alerts that we will publish throughout April, May, June and July.

In the interim, find below seven key SaaS industry trends and takeaways that we highlighted in our presentation.

* SaaS adoption / penetration continues to grow in enterprises of all sizes: Although collaboration and CRM continue to lead the SaaS charge, "core" systems of record (e.g., finance, HR) and BI / CPM are growing quickly as well. Longer-term acceptance of SaaS for mission-critical business processes is growing -- not only with SMB customers, but Large Enterprises.
* SaaS goes international, especially in key geographies: European SaaS adoption is on the brink of exploding, lead by local innovation and strong demand in the UK, Benelux and the Nordic countries -- which appear to be following a similar trajectory to the US (albeit with a 12 mo lag). Adoption in Germany and France is growing, as well as in much of the Asia/Pac region -- all of which are projected to experience a similar adoption scenario (particularly in the SMB space), but with a 18-24 month (or longer) lag to US curve (although in many cases, adoption will dependent on availability of high-speed bandwidth).
* SaaS customer satisfaction is surprisingly strong: This is especially true around SaaS Wave I requirements, such as solution functionality, response time, availability and pricing. Satisfaction around SaaS Wave II and III requirements -- especially around support for customized, personalized workflows, integration with on-premise data and process, and greater inter-company collaboration -- is much lower, and something that vendors need to focus on to succeed longer-term.
* SaaS becomes more fully integrated with on-premise architectures: The focus of SaaS shifts from cost-effective delivery of stand-alone application services (Wave I), to integrated business solutions enabled by web services APIs and ESBs (Wave II), to workflow- and collaboration-enabled business transformation (Wave III), leading to measured, monitored and managed business processes (Wave IV).
* SaaS Platforms proliferate -- and embrace user development / runtimes: Robust SaaS-based software development platforms and run-time environments emerge with a diverse set of supporting service offerings emerge that are viable alternatives to traditional on-premise development.
* ISVs migrate en masse to SaaS: But transitions prove difficult for most, primarily due to the need for substantial cultural and operational (not only technical) transformation.
* SaaS merger & acquisition will accelerate: Through 2010 M&A is fueled by ISVs gobbling up smaller venture-backed SaaS providers (as an important culture-change driver), as well as by mid size -to-large pure-play SaaS vendors seeking to solidify key solution areas franchises.

As noted above, Saugatuck has found that user organizations are overwhelmingly satisfied with the SaaS solutions their organizations have adopted thus far. In fact, we were surprised by how the high satisfaction levels actually were. Eighty four percent (84%) of the 418 senior business and IT executives who participated in our 2008 worldwide survey were "satisfied" or "strong satisfied." Satisfaction is especially high with regard to application functionality, system response time, availability and pricing.



However, evolving mainstream adoption will increasingly center on the IT organization, and issues of customization, personalization, integration and access to - and analysis of - data. These are all Wave II and Wave III requirements.These key attributes of enterprise-ready SaaS and On-demand Infrastructure will require IT organizations and their business users to work together on best practices, and a consistent approach to architecture (and to process flows) to bring SaaS into the fabric of the broader applications portfolio.



At SaaScon, many CIOs and other speakers addressed the need for these best practices, and provided case studies of best practices in action. Saugatuck has found that while best practices will vary from industry to industry, the following ten will consistently yield value in organizations adopting SaaS:

* Establish a SaaS Task Force with senior representation from both business and IT users and leadership
* Create a consistent evaluation process
* Define an IT evaluation and oversight policy
* Establish guidelines for solutions contracts
* Get serious about Service Level Agreements (SLAs)
* Create a formal relationship and contract management process
* Establish a rigorous data management policy
* Establish a SaaS customization strategy
* Establish a SaaS integration strategy
* Establish a SaaS and Business Process Management strategy

One additional best practice is full participation in SaaS user groups and online collaborative networks through which the ten best practices above can be enriched and tuned more perfectly.

In ensuring that SaaS and On-demand Infrastructure is enterprise-ready:

* Responsiveness to Support Requests
* Security and Privacy Concerns
* Data Access and Analysis
* Personalization Capabilities
* Customization Capabilities
* Integration Capabilities
* Workflow Capabilities
* Build Active User Community

Issues Users Should Address:

* Align Management and IT Expectations
* Develop Consistent Practices
* Proactively Manage Contracts and SLAs
* Create SaaS Architecture
* Work with SaaS Providers
* Participate in User Community

First-Generation Focus. While the U.S. and parts of European SaaS markets are moving rapidly into enterprise-level application suites, integrative platforms and complex marketplaces/ecosystems, the vast majority of SaaS provider development in the Asia-Pacific region is still focused on first-generation, low-cost, easy-to-install offerings. Selling SaaS to user enterprises focuses on industry-specific applications and process functionality (what Saugatuck refers to as Wave-I deployments). SaaS in the Asia Pacific region today tends to be developed and sold as a replacement for existing, on-premise applications software. (An in-depth examination of Saugatuck's latest four-wave SaaS deployment and adoption model will be included in our upcoming SaaS research study, to be published in April 2008 (see Note 1)

Expect Leap-frogging. However, there is an expectation among regional ISVs and SaaS providers that Asia-Pac providers, especially Indian firms, will likely leapfrog from first-generation SaaS to third-generation, complex marketplaces and ecosystems -- and ultimately to "cloud computing" - faster than their Western counterparts, catching up to and surpassing many in terms of offerings and capabilities within 36 months. But this depends on a number of factors, from supply/demand to IT infrastructure and cultures.

Bifurcated Customer Base. The basic business environment of the region includes a very few, very large user enterprises and a vast array of very small, disparate user companies. The opportunities for SaaS offerings tend to be oriented either toward very large, mostly industrial firms (with some very large banks, healthcare providers, and IT services firms), or very small firms with very specific business operations (e.g. small manufacturers, services firms).

Selling Wave-I / First-generation SaaS into Rigid-yet-Custom IT Cultures. There still is a huge and influential presence and culture of custom IT in the region. And there are extremely strong legacy IT buying practices based on this customization and historical vendor relationships. "The way it has always been done" is the standard model for IT buying. This is a strong influence on how software and services are bought and sold. First-generation /Wave I SaaS tends to be somewhat configurable, but rarely customizable by or for users. Several fledgling SaaS providers in our discussions lamented this and wondered how they could be successful selling basic SaaS into such an environment. "How do we sell something that's new to executives who don't even want to know about it?" was the way the co-founders of an Australian ISV put it.

Why Is It Happening? As with any geographical region, trying to label and categorize the greater Asia-Pacific region is at best an intellectual exercise. The broad and deep diversity of cultures and languages, spread over the largest physical geographic area on earth, means that there are dozens, if not hundreds, of markets to be sold into.

But there are a few basic, generalizable factors driving and influencing the above factors. These include the following:

Diversity, Distance and Segmentation. The combination of geographic, cultural and business factors noted above tend to keep the region somewhat behind the U.S. and Western Europe as regards the adoption of any emerging IT influence, including SaaS. This is changing somewhat, especially in India, which has become a hotbed of IT development.

Relative Lack of Broadband. The widespread availability of reliable, inexpensive broadband networking services is a critical factor in SaaS deployment and adoption. Users need broadband to take advantage of SaaS; providers need broadband to speed development and to deliver service to users. With the exception of Australia and Singapore, and major metropolitan areas in India, Malaysia and China, the Asia-Pacific region lags much of the industrialized world in availability and cost of broadband networking services.

Newness of SaaS. Even in data-driven Western markets, SaaS is still relatively new and emerging as a user enterprise IT portfolio component. Its adoption growth is rapid, but its presence is still a small fraction of the overall user software marketplace. In the largely manufacturing-driven Asia-Pacific markets, IT has had a very different role for most user enterprises than in the West. The evolution, development, and adoption of IT, including SaaS, differs as a result.

Market Impact: While growth rates in the Asia-Pacific region will be spectacular, remember that it is starting from a much smaller base -- and that in general SaaS development, deployment and adoption across the region will lag most of the West through at least 2010.

Geographical differences mean key differences in user demand and in provider needs throughout the Asia-Pacific region. There may be a worldwide market for SaaS, but understanding key local and regional differences -- and timing -- is still paramount for user and providers.

Saugatuck expects that basic IT market conditions in the Asia-Pacific region will continue to stunt region-wide SaaS growth relative to the U.S. and Europe through at least 2010. These conditions include a relative lack of networking infrastructure, bifurcation between very large and very small user firms, an IT user culture oriented toward custom solutions, and uneven national investment in infrastructure and other resources essential to growth.

But significant investments are being made. Once enough infrastructure -- especially high-speed bandwidth -- is in place, and a critical mass of large and mid-sized user firms emerge, Saugatuck expects the region to catch up to and even leap-frog many Western marketplaces.

Ultimately, Indian, Malaysian, Chinese and Australian firms will deliver strong SaaS competition on a regional and global scale -- with the internal Chinese market an especially ripe opportunity for SMEs and very large enterprises.