The start of a new year is always a good time to pull out the crystal ball to anticipate what’s in store over the next twelve months. Here’s what I foresee for the Software-as-a-Service (SaaS) and Managed Services markets.

SaaS Goes Mainstream

In many ways, I firmly believe SaaS achieved mainstream status in 2006 because an increasing proportion of individuals and businesses were willing to give SaaS a try to satisfy their day-to-day software needs.

Much of the momentum has been driven by the explosion of on-demand, consumer-oriented services. As individuals have comfortable taking advantage of on-demand audio, video, storage and security services in their personal lives, they are also beginning to expect the same ease of use and economic advantages in their professional, work lives.

Over the course of the past year, 64% of the people visiting THINKstrategies’ SaaS Showplace who chose to participate in our quick poll stated they view Saas as essential to their operations. THINKstrategies’ second annual SaaS survey, in conjunction with Cutter Consortium, conducted this past fall, found that the percent of survey respondents considering SaaS has jumped from 34% in 2005 to 43% in 2006.

Over a third of the survey respondents reported they are considering SaaS to replace their existing legacy applications–a statistic which should send shivers down the spines of established independent software vendors (ISVs). The remainder of the survey respondents are considering SaaS to address unmet needs.

I think one of the greatest drivers of accelerated growth in the SaaS market will be the emergence of a vast set of brand-name, global corporations who are already using SaaS applications and will be willing to talk about their experiences in 2007. These customer success stories will lend support to the business benefits of SaaS and encourage many companies who have been apprehensive about the pitfalls associated with SaaS to give it a try.

Managed Services Gain Acceptance

The managed services will also experience significant growth in 2007, albeit well below the rate of the SaaS market.

Nearly two-thirds of the visitors to THINKstrategies’ Managed Services Showplace believe managed services are essential to their operations. A recent survey we conducted, in conjunction with Business Communications Review, of 550 IT professionals and business executives found that approximately 40% are using one or more managed services.

Additional growth will be driven by greater recognition among IT and business decision-makers that many mundane IT management functions can be offloaded or ‘out-tasked’ to managed service providers (MSPs). This permits organizations to redirect their limited internal IT staff to more strategic or valuable activities. As the number of customer success stories grows, the confidence level among potential customers will also rise.

However, managed services still lacks some of the key drivers which are fueling the extraordinary growth in the SaaS sector:

1. Managed services are inherently more risky than SaaS solutions. IT professionals see managed services as a threat to their jobs, while business managers are apprehensive about relinquishing responsibility for all or part of their IT operations to a third-party.

2. MSPs have a harder time packaging free trials of their services like those offered by SaaS vendors. This prevents MSPs from leveraging the same ‘try and buy’ sales engine which has been instrumental to the SaaS success.

3. It is more difficult for many traditional IT suppliers to shift their operations and corporate cultures from a product-centric to a services-oriented model.

4. The managed services market lacks a clear leader and flamboyant evangelist like Marc Benioff of Salesforce.com in the SaaS sector. As a result, there is no model for success or higly visible spokesperson advocating on behalf of the business benefits of managed services.

Nonetheless, I believe the managed services market will continue to mature.

You can find more of my views regarding the outlook for on-demand services in 2007 in my latest NetworkWorld commentary.