2007 - SaaS that people pay for!

Looks like 2007 is shaping up to be a real blockbuster year for services that people actually pay for!

Yesterday, SalesForce.com announced their 4th QTR 2006 results, and showed strong growth acquiring 90k new users during the quarter.  My take away from that isn't that SF.com is great, but that people are waking up to the SaaS model and that if you offer it they will come.

Today's offerings are Phase 1 of the real story...By that I mean what we are seeing is generic applications being made available at affordable costs.  In addition to SF.com, you see Microsoft in the sand box with its Office Live, and soon to be CRMLive!.  Google also announced today they have begun to deliver a set of business software applications for paying customers. Boy, that must be a shock to the culture @ Google! People paying for stuff @ Google other than search keywords! Who knew?

As Phase1 heats up, I think you will see large investments by the key players to compete. SF.com clearly showed that in their financial results --- great revenue growth, but their profit margin was sucking wind.  That's because they're gearing up for a huge battle in 2007.  I'm sure if Google and Microsoft shared their similar numbers it would show the same, fierce competition for the SaaS market that each feels is heating up beyond belief.

Offering generic commodity SaaS will dominate 2007, but will soon bore people as they demand and desire more.  Phase 2, or what I believe is the real story, is VSaaS. That's when you get vertical SaaS plays that actually have traction.  And the reason is because, as more vendors want to play in the SaaS market, they must differentiate from the Microsofts, Googles and others.  So the simplest play is a vertical play.  For example, why not offer insurance agents something that allows them to find and manage customers easier?  Oh sure, any CRM can do that now, but wouldn't they be more productive with one tailored to their industry? 

As the users warm up to the SaaS idea, they will get more adventurous and be willing to pay for differentiation.  VSaaS will heat up in late 2008-2009 as the combination of users willing to pay a premium and vendors wanting to differentiate reaches critical mass.

If you have a plugable service, figure out how you plug into the SaaS model. If you don't , now's the time to start brainstorming ideas and get plugged in.  It's no longer about building a standalone application, it's about your integratability and how you can play well with others. 

The ones that will win will offer the best mix of integratable capabilities and a flexible pricing model that promotes broad adoption and integration.  The one's that will lose?  Oh that's simple...the ones that lack integration and the ones that think they can lock in uses by inflexible pricing models.  

What's your plan? Will you use a SaaS Vendor?  Will your offer your product as an SaaS Plugable component?  Or are you one of those that just believe SaaS is hype?