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Survivor's Guide to 2007: Business Strategy: Page 3 of 9

However, SaaS won't sideline IT. Far from it. Departments rolling out SaaS applications need our help in evaluating the provider's ability to deliver the service--including complying with internal and external privacy regulations. IT must also work with lines of business to evaluate the true TCO of a SaaS deployment. That means cutting through vendor hype to ensure the balance sheet reflects expenses beyond subscription costs, such as increased data storage capacity requirements and the internal work required to integrate the service into the organization.

Once the service is running, business groups will also call on IT for customization to accommodate specific business needs and to integrate services with other key applications.

Both software vendors and customers are investing in SaaS. This past November, Microsoft launched Office Live, which delivers Web hosting and business applications as a service for small businesses. It's also preparing to launch hosted versions of its CRM and ERP applications. Meanwhile, Oracle offers Oracle Database and Oracle Fusion Middleware; it will host these in its own data center or manage them onsite for customers. Oracle also offers a variety of Siebel, JD Edwards and PeopleSoft applications as hosted offerings or as services.

But the newest entrant to the SaaS market is a start-up called Workday, which is taking on Oracle and SAP by offering ERP as a service. The company, launched by former PeopleSoft CEO and founder Dave Duffield, is going after midmarket customers with 1,000 to 5,000 employees.