Consolidation in the SaaS market was inevitable. I think we’ll continue to see some of the big boys like Oracle, Microsoft, or SAP acquire SaaS/cloud computing companies to accelerate their migration to the hosted services world. Saas and cloud computing have too much momentum not to, and the benefits they provide to smaller, or even bigger businesses can’t be underscored.

But I do agree with you when you mention the hype surrounding SaaS. On-premise installations have never been easier, and there’s always going to be reasons for adopting that deployment model. The “shakedown” you mention will take place between on-premise and on-demand, with cloud computing providing a happy middle ground where companies can either deploy their solution’s in the vendor’s cloud or their own.

T.J.

I agree there is a looming shakedown in the SaaS market, but entirely for the reasons you suggest. First, Salesforce, NetSuite and Successfactors are just a few companies that have proven that the SaaS market is very viable – just look at NetSuite’s recent earnings. I also believe that SaaS has fundamentally changed the way companies think about software and has made it much easier for IT to deploy needed solutions faster. This translates into competitive advantage and productivity gains. Anyone who has gone through a traditional enterprise software implementation versus a SaaS implementation will tell you SaaS wins hands down.

I think the consolidation will happen, just for other reasons. First, the major enterprise players need to have a SaaS story. At this point, its likely easier to acquire this than build it out themselves – though with Sun, Oracle has the infrastructure if they wanted to make this investment. I aslo think we need to consider the venture capital environment, where investors no longer have the staying power they once had and will likely pressure combinations to get scale faster. Also, there are likely some SaaS companies funded in the last 5 years that will combine as a natural course in the lifecycle of any new space.

But don’t discount the advantages that SaaS has and the value is has delivered. It will not go away.

Bill

But for other vendors that don’t offer both on-demand and on-premise products, they’re going to be left behind in the long haul. Being able to accomidate a businesses’ different needs are critical these days. I see virtualization and private clouds as being just as important a trend as cloud computing.

Cloud computing doesn’t equal vendor hosting.