Software 2006: Questioning the McKinsey Study

McKinsey and Company in collaboration with the Sand Hill Group, organizer of the Software 2006 Conference released their Industry Study (pdf) that I have to take issue with. (yes, I know, who am I to disagree with McKinsey?)

“Business Model Discontinuity: Software as a Service (SaaS) and Open Source. Two major business models are vying for an growing share of software spend: Software as a Service and Open Source. …SaaS has already gained traction in number of application areas – such as payroll, human capital management, CRM, conferencing, procurement, logistics, information services, and e-commerce) – and should make gains across a much broader cross-section of applications over the next 3 years. Out of 34 application areas we have examined, only nine are unlikely to see some SaaS adoption over through 2008”

Apparently McKinsey tells us that Financial Applications are the back-office function most unlikely to see SaaS adoption for years to come. Hm … I know the trendy app now is CRM, but there were widely-used web-based packages long before CRM. Intuit, NetSuite (originally NetLedger), Intacct, 24SevenOffice, WinWeb ..just to name a few.

Perhaps these companies can jump in here, and tell us what they think of McKinsey’s prediction that SaaS will not take off for financial apps?

Update (4/7): Dennis Howlett has a really good point bringing up Document Management, the other “unlikely” area per McKinsey. As to confidentiality concerns: the numbers in the financial apps are the result of real business activity that may very well have been in other hosted systems, e.g. CRM, Procurement..etc. Document Management? Oh, well, our external interaction is often on hosted platforms (email), sales contracts are largely in hosted systems (CRM)… I could go on.
Interestingly enough businesses lost more confidential data stored “safely” inside the firewall due to disgruntled ex-employees than due to “exposure” to SaaS providers.

But the point I made about Accounting systems, that this isn’t subject to predictions, it’s already happening, or has happened largely: accounting was available On-Demand before CRM was “born”.

Update (5/31): New McKinsey paper bullish about SaaS model. (hat tip: Nick Carr. Free registration required to read).

Update (8/17): Dennis points us at Gartner’s Hype Cycle for Software as a Service.

On-Demand Financial Management Applications and On-Demand Sales Force Automation are said to be at the peak.”

Interesting. McKinsey says it’s not coming for years, Gartner says it’s already at the peak. Go figure …

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