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I’m a big fan of Software-as-a-Service (SaaS).  I’ve been involved in this industry since it was in it’s infancy, and now it’s just starting to gain momentum.  Most tech magazines now have an article or two about SaaS in almost every publication.  We’re on the cusp of tremendous change in the IT industry, but the question is, will Microsoft be a part of this new paradigm, or will it go the way of the buggy whip? 

One of the reasons I like SaaS (also known as Cloud Computing), is it levels the playing field for small and large companies alike. 

When I was involved in a startup company, for example, we were able to create some incredibly sophisticated automated workflows and customer management applications on the salesforce.com platform.  In the past, these kinds of workflows and automation was only available to larger companies at a cost of hundreds of thousands of dollars.  In fact, one small company for which I worked was paying $170+K per year in technology development and the end-product was substandard and barely worked.

When I stepped in I was able to cut that budget by 50+% using salesforce.com and the end result was a multi-million dollar, highly sophisticated application at a fraction of the traditional cost.  They lowered their IT investment by 50% and had a far superior product.  This is the reality of the new world of technology.  Some companies are beginning to see this, and others are sticking with their older home-grown applications.

I recently talked to a VP of a 140-person company and they do not own a single server – anyone in IT should fear this fact.  They run their company on a platform that exists 100% on the Internet - salesforce.com and google apps.  The cost of their technology is a small percentage of other companies of similar sizes.

I’m convinced that we’re entering a new paradigm in the technology industry, and Microsoft has never been more vulnerable.  The reason is most of their revenue comes from the server/desktop model, and for them to switch to a SaaS model will destroy their revenue stream.  Later this month Microsoft will be launching their own version of a “SaaS” application to compete with companies like Google, Salesforce, Amazon, and WorkDay, which will include a blending of desktop/server model and SaaS.  This will be a huge mistake, and it could mark the first crack in the Microsoft armor. 

To me, this is like telling some people to ride on the right side of the street and others to drive on the Left.  There is no question that Microsoft (and the entire IT industry) is on the cusp of tremendous change.  While most industries like telecommunications, publishing, banking, etc, have capitalized on the efficiencies of the Internet, the IT industry has remained surprisingly in the 90’s. 

I believe this industry has remained so far behind because most people in this industry have a vested interest in the older technology model, which is anchored by Microsoft.  Here’s the deal.  If Microsoft moves into the SaaS marketplace, they essentially become less influential because they’re cutting off their main revenue stream and admits to a better deployment method (SaaS).  In order to survive, Microsoft needs companies to continue to use servers, desktops, software, software patches, homegrown applications, local networks, etc.  If these elements go away so do they. 

Let me repeat this, if all these hardware and software elements go away, so does Microsoft.  Think about that!  SaaS gives companies the tools to shed these expensive elements, and CIO’s are flocking to the SaaS deployment method.    

Microsoft is at a crossroads.  If they choose a pure SaaS deployment method, then it’s a huge leap of faith and has tremendous risk because their competitors are already well down the road to the cloud.  If they stay with the old technology, then companies like Google, Salesforce, WorkDay, and Amazon will continue to chip away at their market share until the industry hits the tipping point and the Microsoft way will be swallowed up in the new paradigm. 

I know this sounds a bit dramatic, but it’s absolutely true.  There is no middle ground here.  If Microsoft chooses the middle ground (which it appears that’s the direction as they coined the phrase Software and Service), then they choose the old technology, and will lose huge market share.  The two deployment models (server/desktop/software vs. Software-as-a-Service) do not mix, it’s a zero sum game.  Trying to bridge this divide is like MS asking CIO’s, “I know servers are expensive and keeping up with patches and upgrades are costly and risky, but we think you should stick with us even though the SaaS model is cheaper, better, and faster.”  

IT Departments are looking for ways to save in this economy and SaaS is what they’re looking at.   Fast deployment, lower cost of ownership, lower implementation costs, and a superior end-product.  The small company I described above is an example of what’s beginning to happen on a larger scale.  CIO’s are far more risk averse than small companies and are careful about making changes, but believe me it’s happening.   

Drip, drip, drip, drip…  it may take decades for small drops of water to break a giant stone, but when that final drop hits the stone and the first crack appears, it’s the beginning of the end – then each drop has more and more impact.  This is where we are.  The cracks are beginning to form.  The signs of these times are all around.  Microsoft’s SaaS strategy, which will be announced shortly, will tell us if MS will be in the game 10 years from now.  During times of transition the companies who have the big vision and are willing to take huge risks are the ones who prosper.  

I’m looking forward to Microsoft’s SaaS plan, and I hope you are too!!  They could go bold and change the IT world forever, or they could try to bridge the gap with incremental change and get eaten alive.  This should be an interesting few weeks.