AFI BLOG: Media and Technology

Rough Type

A new study, to be released today by McKinsey & Company, reveals in some of the clearest terms yet the sea change that is under way in business software. The consulting firm surveyed more than 850 corporate software buyers, from firms of all sizes, and found that software-as-a-service is rapidly “becoming mainstream,” with three-quarters of software buyers saying they are “favorably disposed to adopting SaaS platforms” for software development and deployment. The rapidly growing embrace of web applications is leading, says McKinsey, to a fierce competitive battle, between “traditional mega-vendors and the larger SaaS incumbents,” for the future of the enterprise software business.

Companies report that they will dedicate 19% of their total software budget to applications delivered as services this year, up dramatically from the negligible amounts spent on subscription software just a few years ago. Smaller and mid-sized companies are the most aggressive adopters of web apps. Companies with fewer than 100 employees are spending 26% of their software budgets on subscription software, while the largest companies are spending 11% on web apps. Reports McKinsey: “While the faster adoption in SMB is no real surprise, what is interesting is that there are some large enterprises that are converting to the models that underpin SaaS offerings. For vendors, this is a strong indication that there is a clear opportunity even at the largest prospects for those that can offer the right product in combination with the right selling strategy.”

The shift to web apps, says McKinsey, is beginning to reshape the software business, “fueling the rise of a new generation of platforms to develop, integrate, deploy and host these applications.” The platforms are taking three different forms, according to the firm:

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