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Summary:

If you’re a Software-as-a-Service provider and want to wring the richest rewards out of what is already a lucrative gig, you should “verticalize” your services. That’s according to a newly published report from Forrester Research analyst Liz Herbert.

Liz-Herbert

If you’re a SaaS provider and you want to wring the richest rewards out of an already lucrative gig, you should verticalize your services, according to a new Forrester Research report.

Liz Herbert, a principal analyst at Forrester, writes that the already sky-high valuations of SaaS businesses could get higher if vendors start tweaking their services to suit the automotive, government, life sciences or insert-your-favorite industry here. Her findings reinforce other research that shows the valuations of SaaS companies far outstripping those of legacy software companies.

Software delivered as a service,  a trail blazed by Salesforce.com and NetSuite, was the public face of cloud computing to many businesses that had never considered offloading workloads to an Amazon Web Services–style Infrastructure-as-a-Service or a full-service Platform-as-a-Service (PaaS).

So SaaS may be a mature segment of cloud computing, but Herbert still sees growth on the horizon for this subset of SaaS providers according to the report, “Five trends that will change SaaS sourcing.”

Here are three takeaways.

Vertical apps: big and getting bigger

Customers clamor for applications that suit their specific needs and will pay a premium for them, Herbert said. Among the hottest verticals is the government arena, where the Obama administration’s Apps.gov marketplace of GSA-blessed cloud applications and “Cloud First” initiative have had an impact.

Salesforce.com, which started out offering generic customer relationship management (CRM) and sales force automation (SFA) functionality, has since added more vertical functions on its own and encouraged developers to offer their vertical offerings on AppExchange as well. Oracle offers life sciences, automotive and other industry-specific versions of Siebel CRM On Demand.

Systems integrators like Accenture are also building and deploying templates: They have “productized” some of their best practices for specific businesses and are making them available via SaaS.

Analytics boost appeal

SaaS players were early to the analytics party and continue to innovate. Workday, Dave Duffield’s human resources SaaS play, for example, serves up related information to users based on their activity.

As Herbert writes:

Workday’s latest release already allows users to click open windows of related information (such as compensation or performance data) to inform decisions. Similarly, SuccessFactors includes built-in workforce analytics to drive key decisions about succession planning and talent management.

Users balk at SaaS for mission-critical apps

As popular as SaaS is for many tasks, many companies still won’t put their lifeblood applications on someone else’s infrastructure.

“We still see reservations about putting mission-critical apps in the cloud,” Herbert said. The No. 1 concern is security, but there is also a question of cost, since many of these applications have run for a while and have significant customizations that make them poor candidates for SaaS.

Mission-critical apps include things like supply chain management applications. “Most companies define mission-critical as anything that can afford no downtime,” she said.

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