Don Fornes of Software Advice posted an interesting piece on how cloud solutions are a classic example of disruptive technology emerging from niche/small market and then growing, becoming ever more feature-rich and cost-effective and eventually starting to replace big market incumbents when it is already too late for them to compete on this redefined market.

He shows how SaaS to on-premise software is classical disruptive innovation from Clayton Christensen‘s “The Innovator’s Dilemma“.

Don's diagram of the disruptive innovation cycle applied to SaaS

While I don’t have much doubt in the argument as a whole, I would be very interested to see whether it plays evenly across all software markets or only apply to some of them.

I have little doubt that vendors with huge on-premise platforms and corresponding on-premise platform-dependent revenue streams – such as Microsoft and Oracle – will find this SaaS transition challenging. Just look at Microsoft’s operating income by division: the vast majority of their profits come from Windows client and Office. If SaaS transition would mean that users just need a browser running on iPad, WebOS or Chrome OS device – this would mean that Microsoft’s profits evaporate and go to the corresponding device and service vendors. If they try to go full speed into SaaS world to compete effectively against Apple, HP and Google – they can hurt their own existing revenue streams without necessarily succeeding in establishing new ones. That’s classical Innovator’s Dilemma.

Now, if you look at IT Management/Systems Management sector, the situation is somewhat similar but also quite different. I will use my own company – Quest Software – as an example. We provide a big set of software tools which IT professionals in enterprises use to better manage the platforms they get from Microsoft, Oracle and others.

On the one hand, we are somewhat susceptible to the disruption: SaaS may help competition release products faster and if platform transitions starts happening fast we can potentially see our addressable market shrinking.

On the other hand, the opportunities SaaS gives us, are way bigger than risks:

• New platforms: Platform fragmentation is great for us. We love heterogeneous environments and transitions. Quest is helping tens of thousand customers make sure that their Unix/SAP/Blackberry systems integrate seamlessly with Microsoft Active Directory, their Notes/Sametime communication systems co-exist with Exchange/OCS, and so on. This is the gap which platform vendors such as Microsoft cannot bridge, and as SaaS platforms start getting added to the mix our solutions become more important rather than less important.We are already switching gears and using this opportunity to expand the range of services which we support, provisioning identities and access to Google Apps,  providing monitoring and management and enabling development for SQL Azure, and so on.
• New way to reach customers: We are starting to offer our own IT Management technology as SaaS solutions, so customers can just point their browsers to our Quest OnDemand web site, subscribe to our service and start managing their local IT using our remote infrastructure. This means that not just big enterprises but small and medium businesses can start enjoying services such as secure offsite-stored Active Directory backup with granular recovery, or event log collection and management. This lets us expand, rather than cannibalize our market. We have a lot of great technology and can now repackage it for easier consumption by bigger audience.See this video for detailed discussion of Quest OnDemand and IT Management as a Service.

I think these are the reasons, why at the moment it looks like IT management companies will probably – with proper execution – find themselves benefiting from the very same disruption hurting their platform partners.

Judging by the recent Cloud Computing Explained: Knowing the Best Cloud Computing Vendors article published by The Latest Tech News – which included Quest in the short list of the vendors gaining from the SaaS transition, I am not alone who thinks that way.