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By Marc Dietz, director of IBM SaaS strategy & marketing

Software-as-a-Service (SaaS) is not a new delivery model. The SaaS market has enjoyed rapid growth over the past few years and shows no signs of slowing. In fact the SaaS market is estimated to grow at a CAGR of 24 percent to reach by $66.9 billion 2016 and the applications segment is expected to grow to $36.9 billion by 2016. The SaaS market has been evolving as it’s been accelerating but there are still quite a few myths about SaaS. In this post, I’d like to debunk three of them.

Myth No. 1: SaaS is only about reducing costs. For many solutions and many companies, the economics of the SaaS model are certainly one key aspect of the value proposition. What is less known is how organizations are embracing SaaS for its real value: competitive advantage. While a recent IBM Global SaaS study did find that reducing total cost of ownership (TCO) was the top driver for adopting SaaS, 47 percent of IT and business respondents reported that SaaS was actually transforming their businesses and providing a competitive advantage in the market. The primary sources of this competitive advantage are speed, both in terms of time to value and agility to make future changes; and innovation, made possible by freed up IT resources, ongoing updates to business applications, and unique advantages of cloud solutions over on-premise solutions. In other words, SaaS is not just another delivery model and while it offers multiple economic advantages, the real value goes beyond the economics.

Myth No. 2: SaaS is only for business users and that means bypassing IT. Just because SaaS is easy to purchase and deploy by business users and has given rise to “shadow IT” and “rogue buying” in the enterprise, this is a big myth for two key reasons. First, cloud computing is disrupting and shifting the entire software industry, including software for IT practitioners. In fact, a recent study showed that IT practitioners “go rogue” and bring unapproved SaaS apps into the business MORE than line of business users! More and more IT management applications, such as workload automation and application performance management, are now in the cloud as well, with many more middleware and other IT SaaS apps to follow. The second major debunking factor for this myth is that innovative CIOs and IT shops are getting more involved with SaaS – and not to “clamp down” on shadow IT with iron fists, but rather with open arms. In a recent IBM Global SaaS Study, we found that in Pacesetter organizations LOB and IT strongly collaborate on SaaS selection and deployment and 65 percent of pacesetters actually describe the IT and LOB relationship as a strategic partnership. SaaS also allows IT to enable the business with innovative solutions much more quickly and then focus resources on more strategic business initiatives. Security, privacy, integration, hybrid environments are all certainly still important, so IT and the collaboration between the business and IT needs to consider functional business needs as well as these factors.

Myth No. 3: SaaS is for mid-market not enterprise. Another declining but still common belief is that SaaS is really only for small or mid-market companies, not large enterprises with mature IT departments and comprehensive data centers. SaaS, and cloud computing overall, is a great option for smaller organizations, of course, but many big companies are moving to the cloud for all the same reasons: economics, agility, innovation, competitive advantage, and more. Some enterprises do still evaluate solutions in a SaaS model and then bring on-premises. But more and more we see companies start with that intent, but then never make the change (why fix what isn’t broken?). And some enterprises are even now taking a “SaaS-First” approach for business applications and I predict we’ll see much more of that in the months and years to come. The reality of course is that major enterprises will have hybrid environments even if they start a “cloud-first” approach now. They need to evaluate how SaaS solutions fit with and integrate with other legacy applications, but with capabilities available today to integrate, secure, and orchestrate dynamic, hybrid cloud environments, this particular myth is definitely fading and is certainly short-lived.

The companies that are getting beyond the myths and embracing SaaS solutions are finding success in the market. These SaaS Pacesetters are collaborating better both internally and externally and improving business relationships. They are leveraging analytics across the organization and making better decisions. And they are increasing innovation and responding faster to market changes.