Trend: Why Buy Servers and Software?

It appears more companies are asking whether they should be hosting their own software and server solutions, and are instead looking at pay-as-you-use, web-based solutions. According to this article at TechCrunch, half of all IT spending is allocated to software and hardware purchases. That kind of money buys a lot of software services that can be accessed via the Web. It also eliminates some of the considerable costs and headaches that are associated with maintaining on-premise solutions. With many businesses concerned with the effects of a looming U.S. recession, there will be additional pressure for IT departments to find ways to provide essential services with less outlay. As a result, web-based solutions may be on the table.

Web-based software at first found its niche with smaller businesses that couldn’t afford (or didn’t need) the gold-plated enterprise solutions from companies such as IBM, Oracle or Microsoft. But, because of the growing sophistication of online solutions, what was once a smaller niche has grown ever larger to include medium and large businesses. This type of model is often labeled as software as a service (SaaS), and the growth of this sector has been impressive.

Salesforce.com is a good example of what is happening with the SaaS business model. Salesforce.com, which began its business life years ago as an on-demand business contact service has now grown into a full-fledged SaaS CRM system with a customer base of nearly 40,000 customers [disclosure note: Sundog is a Salesforce registered consulting partner.] However, there are many other examples of on-demand software companies that are fueling the growth of this sector. In fact, partly because of Salesforce’s growth, both Microsoft and Siebel (now an Oracle company) are pushing their own SaaS solutions.

The Business Week article (You May Never Buy Software Again) highlights the trend. The BW story explains how companies are using Google’s Gmail instead of Microsoft Outlook or Google Docs instead of Microsoft Office and Basecamp from 37 Signals instead of Microsoft Project. Google caused quite a stir this week with news that you may be able to soon use Google Docs offline as well as online utilizing Google Gears.

With the growing momentum witnessed in the SaaS sector, it appears what once was a niche is now rapidly becoming a full-fledged growing sector in the software marketplace.