61% of Enterprise CIOs Are Planning to Adopt SaaS Apps

I read about the latest McKinsey CIO survey on Nicholas Carr's blog. 61% of US and Canadian companies with over $1 billion in sales plan to adopt one or more SaaS apps in 2007. When McKinsey conducted the same survey in 2005, only 38% of the respondents had SaaS plans.

McKinsey says that CIOs are giving up on the notion that they must control 100% of their IT infrastructure. Instead, they are becoming more open to a "hybrid architecture" that combines internally and externally hosted components.

So I think Rackspace will see good ROI from its recent Salesforce.com certification. And I'm guessing other hosting providers will get involved with the Salesforce ecosystem next year. (ZDNet reports that in the last quarter, API transactions accounted for more than 50 percent of the 3.7 billion transactions on Salesforce.com's platform. They've got quite the ecosystem, and are expanding it with connectors and an outbound messaging API.)

Of course, SaaS apps developers are likely to be highly demanding hosting customers.

McKinsey says enterprise CIOs are very focused on maximizing vendor accountability. They're attracted to the idea of SaaS vendors being responsible for the infrastructure as well as the application, so that "they have nowhere to hide should something go wrong".

Vinnie Mirchandani goes a step farther. He says what large enterprises really want is Software as a Customized Service: "It is an aggressively negotiated software license and maintenance contract, combined with an on-demand outsourcing arrangement. The outsourcing would be a no-capex, utility computing, fractional resource, shared infrastructure, flex capacity with robust data center, connectivity, disaster recovery and security standards."

In the face of such high expectations, I doubt SaaS developers will be content with hosting providers who feel that their responsibility ends with replacing failed hardware.

In fact, take a look at how much more OpSource offers compared with traditional web hosting SLAs:

"Once your application is properly sized and delivered, there will be no increase in cost to you as new servers are added. You will pay per unit, with the "unit" is determined by you. As your application adds more units, you pay only for the number of units sold - meaning that you pay in relation to the success of your application. At OpSource, this pricing model creates a corporate culture that focuses our resources on driving success for our customers."

BTW, OpSource CEO Treb Ryan sold SiteSmith, his last company, for $1.36 billion. The deal happened before SiteSmith's first anniversary, putting Treb ahead of YouTube in terms of value creation velocity. Given Treb's track record, maybe we ought to keep an eye on his next pick?