Cloud Vendors Increase SaaS Investments, as SaaS Outpaces IaaS

Bob Prince Alo | midsizeinsider

Cloud and SaaS (Software-as-a-Service) technologies will continue to be hot sectors for investment in the next 18 to 24 months. A recent research study finds that demand for SaaS is growing at a faster pace than IaaS (Infrastructure-as-a-Service) models.

According to the study “Cloud/SaaS Future: Bright and Growing Brighter” by advisory firm Headwaters MB, cloud vendors will be active in keeping pace with this trend through acquisitions. The report suggests that businesses are becoming more comfortable and experienced with the “as a Service” model, and therefore vendors will continue investing in the SaaS sector in the form of mergers & acquisitions (M&A), as well as product line expansion.

M&A with independent SaaS providers enable larger IaaS vendors to integrate multiple cloud solutions and facilitate cloud interoperability as customers search for diverse cloud services depending on varying IT needs. This comes as good news for midsize firms that previously avoided employing SaaS services from multiple vendors due to cost challenges arising from interoperability issues and vendor lock-in.

This trend also points to the fact that IaaS deployments may no longer be sufficient for businesses to compete in the corporate world where rivals are adopting SaaS cloud solutions at a rapidly accelerating pace. As the Headwaters MB report suggests, SaaS solutions could be making a significant difference in how businesses handle challenges associated with business analytics, BYOD, Human Capital Management (HCM), and Customer Relationship Management (CRM).

According to Headwaters MB, SaaS index has risen up to 40 percent since January 2012. This cloud market index is generally in line with Nasdaq and outpacing the broader technology market indices, as reported by CloudTimes. The SaaS market is continuing to develop as a strong target for venture capital and private investments. During the second quarter alone, almost 63 investment deals were reached, with investments adding up to $678 million.

Internet as cloudVendors are expecting significant returns on these multimillion dollar investments in the SaaS sector. A key reason for these investments is to serve the growing demand from corporate customers to sort challenges associated with big data and enterprise mobility. Despite spending on hardware and IT infrastructure, businesses remain unable to fully utilize the potential of emerging enterprise IT trends such as enterprise mobility and business analytics. Cloud vendors are capitalizing on the fact that businesses need to harness the power of cloud technology to process demanding workloads and enable employees stay connected across disparate locales.

These investments should result in developments in SaaS technologies that serve businesses of all sizes and industry verticals. Cloud deployments streamline business operations, but producing desired returns on cloud investments might still be challenging for small and midsize firms. The solution for midsize firms is to adopt aspects of the cloud to fulfill certain IT needs, while still maintaining on-premise infrastructure for functions that are security sensitive or company specific.

Also, IT managers should note that the window for realizing returns on SaaS investments is not as wide for midsize firms as it is for their larger counterparts since midsize firms have smaller cash reserves and are more dependent on faster returns on technology spending. Therefore, while the SaaS sector will continue to develop rapidly, midsize firms should still follow a strategic approach toward cloud and SaaS spending.

This post was written as part of the IBM for Midsize Business program,

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