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SaaS Shifts to Vertical Business Networks

• By Will Kraft
• March 25, 2008

SaaS allows organizations to subcontract essential software tools such as payroll and databases solutions. It can reduce an organization's dependency on having a dedicated IT department in place. Because of the upfront cost savings of this model, small and medium-size businesses have been adopting SaaS.

Moreover, the latest SaaS trend of vertical business networks -- in which various hosted tools are bundled to address specific business-segment needs -- can make SaaS even more attractive by aiding in integration and addressing organizational specialization, Smith explained.

A shift is taking place with SaaS. Some independent software vendors (ISVs) now offer multiple SaaS tools packages as a complete solution -- a contrast to the older model where there were different vendors for each SaaS solution. This packaged approach is simply the next step in the evolution of SaaS, according to Smith, where one ISV is able to deal exclusively with a targeted customer demographic. The ISV may specialize in industries such as law firms, healthcare providers and education, among others.

"The real key benefits of vertical networks are that the service provider is responsible for taking care of the business process integration and making sure that the application is available to the end users and that the systems that need to be tied together are tied together," Smith said.

Large organizations may be less likely to adopt SaaS because they will still have their own dedicated IT infrastructure and staff. However, according to Smith, SaaS has made some headway at the departmental level in large organizations as it can address specific or specialized needs there.

For small to midsize organizations, SaaS remains the best way to gain access to solutions that would otherwise be out of reach, Smith said.