All technology goes through an Innovation Cycle.  Early on, very few are using a particular technology, so it has the potential to provide a competitive edge.  As companies see that advantage in action, and learn where it comes from, the technology spreads.  Eventually, everyone has the technology and it’s no longer a competitive weapon.  Rather, it becomes a cost of doing business.  Having a local area network (LAN) with Internet access at work is not a competitive weapon, it’s a cost of doing business.  Try running a business without Internet access at your own peril.  E-mail, word processing, and a host of other things are cost of doing business technologies. 

Once a technology becomes a cost of doing business, it can be commoditized.  While there are differences in various alternatives, often the differences are not worth the price of being, well, different.  So one or perhaps just a few of the alternatives take over all the market share.  The primary distinguishing characteristic in the commoditization phase is cost.  Why choose the expensive option if they’re all pretty much the same?  By driving cost out, business makes room to redeploy some spending to new things that might make a competitive difference.

SaaS is a logical component in this cycle of innovation because it represents the ultimate commoditization versus perpetual licensing.  In fact, it reaches the extreme that in some cases no IT involvement is required whatsoever.  SaaS Week notes that SaaS is increasingly being brought in by the business side without requiring IT involvement.  Gartner revealed that three out of four SaaS decisions are made by business rather than IT.  I know I’ve personally seen a case where Salesforce.com was owned and managed by the executive assistant of the VP of Sales.  It worked great.  There was no real need for IT to get involved because the application was so simple to administer.

It’s impossible to invest in the best on every front, and paying too much for commoditized technologies is actually counterproductive.  Choose your investment targets so that they will make a difference for your business.  For the rest, go with SaaS solutions.  They’re cheaper and have a higher likelihood of being successful.  To really take advantage of the Innovation Cycle, Business and IT need to look proactively for commoditization opportunities.  The more you can find, the more budget you’ll free up to create an advantage elsewhere.  You can’t just wait for these things to fall from the sky.  When it comes time to upgrade the old software, look carefully at whether its worth upgrading or whether a switch to the SaaS equivalent doesn’t make more sense.  What will upgrading buy you in terms of new capabilities anyway?

Consider the many commodity services IT provides and ask which ones could productively be converted to SaaS:

• Backups:  Some or all backups could go SaaS.  EMC recently acquired Mozy to provide exactly this kind of service.  Small business, in particular, could benefit.  Bigger business could choose this route for less critical backups.
• E-Mail:  Does it make sense to have to say on top of an Exchange server, or does it make more sense to go SaaS?  E-mail is already dealing with the cloud.  Moving it to the cloud could be a real improvement.
• Less used desktop software.  Maybe you don’t want to move the core Microsoft Office apps yet, but what about less used software?  Gliffy is a great SaaS alternative to Visio.  I use it for diagrams and it works great.  Project managers are another class of software that not everyone needs that could be handled as SaaS. 
• Wikis instead of Sharepoint?  We started on Sharepoint at the last place I worked and found Wikis maintained by 3rd party SaaS organizations were radically easier and more productive.
• Expense reports and travel.  Why mess around with this stuff internally?  Concur makes a great solution as do others.
• HR software for reviews and the like.  Again, tons of SaaS solutions are available.

Most of the world understands the commoditization issue, even if only unconsciously.  Gartner predicts heavy pressure on software prices as disruptive  models like SaaS and Open Source come into play.  Open Source, BTW, is the other commoditization model that you should consider.