SaaS to Further Erode US IT?

InfoWorld‘s Immodest Predictions for 2007 are headlined in their December 18th issue.  They include:

• Sun Microsystems will bounce back with great technology and Open Source offerings
• CPU performance (64-bit and denser multi-cores) will trump “green” and low-watt
• Cisco will continue to push security and will make security company acquisitions
• Open Source Java won’t play out to be very much different that the Java we know now 
• Offshore SaaS providers will seriously challenge US incumbants like Salesforce.com

The last prediction about SaaS was made by Ephraim Schwartz and it may well have some truth in it.  He predicts that in early 2007 an offshore Salesforce.com clone, maybe from India, Russia, Botswana or someplace will come along that is cheaper and will be functionally superior to what Salesforce has to offer. 

Schwartz goes on to say, that based on Gartner’s prediction that by 2008 70 percent of SaaS offerings will target business units and line managers, SaaS also is creating a trend where business units will bypass traditional IT organizations.

Global SaaS is definitely alive and well.  In a recent Springboard study, analysts found that global growth of SaaS was robust, and in particular, identified India as the hub of SaaS activity in Asia.  The study shows that in Asia SaaS adoption is being driven by primarily by cost.  Winners in that environment are sure to be cost-efficient.

Does that mean that US-based SaaS players should be worried?  A dose of Andy Grove paranoia is probably healthy.  SaaS, by its nature, further lowers the barrier to entry, so it is likely that SaaS will take up roots world-wide, enabling ever more intense global competition.

But will Schwartz’s prediction be valid for 2007?  He has singled out Salesforce as the target, but it may be more likely that global SaaS offerings would be more successful first in other niche areas.  Hosted CRM is already crowded and populated with many Open Source offerings, like SugarCRM or Centric CRM, and Open Source eliminates many of the advantages of offshore development.

Further, Salesforce has the advantage of incumbancy and the fact that US companies prefer local support.  Salesforce’s AppExchange initiative which draws together a community of ISV and partners into what is being called an ecosystem will be something that will be hard for new players to replicate, offshore or onshore.  At least in 2007.