Software as a Service Challenges Tradition

Software as a Service (SaaS) is catching on. One of the leading companies in the field, Salesforce.com, reports annual revenue growth of 71% over the past five years. They have over 38,000 customers around the world. Other major players include Concur, Google, Intuit, NetSuite, Oracle, RightNow and Taleo.

Many companies are saving time and money by using SaaS applications instead of traditional software. They are reinventing the way we purchase, deploy and support enterprise systems.

Most companies consider two options when implementing new enterprise software. They either buy an off-the-shelf package or build their own. Both of these solutions require buying computer and network equipment capable of hosting the software and delivering the data.

SaaS changes the equation. Essentially, you are leasing the software and the computers that host it. The service provider assumes the cost of installing and maintaining the servers. You worry about your desktop systems and network, components that you would have to manage anyway.

Your IT staff is freed from the burden of supporting application software. They can focus on their core competency of managing networks and infrastructure.

SaaS is not a new concept. Nearly 10 years ago, we learned about application service providers (ASPs); companies that offered software applications across the Internet. At that time, the Internet was immature and not quite ready to host enterprise software. The applications tended to be niche oriented.

ASPs did not have the web technology standards available today. They were forced to create unique solutions that drove up their costs and risked software conflicts in customer environments.

SaaS has reinvented the ASP model. By leveraging web standards and taking advantage of service-oriented architectures, vendors are able to deliver powerful software applications through web browsers.

Customers are able to customize the software to meet their unique requirements. For example, most SaaS applications allow you to customize the user experience. You decide which features to enable or disable and how to present them to your end users.

The idea of relying on a third party to host and support an enterprise application and its database can scare away some companies. It is difficult to relinquish control but there are significant rewards for those that take the plunge.

Here are some of the most common benefits and drawbacks.

Time to market can be an important advantage for SaaS applications. Without the need to purchase a variety of hardware and software infrastructure components, you are able to move fast in getting the software into the hands of end users.

SaaS applications are available anytime and anywhere. They can be accessed 24x7 from any domestic or international location as long as there is an Internet connection. Many SaaS applications also support smart phone interfaces providing true mobility.

Because SaaS vendors provide end-user support, corporate IT departments are freed from dealing with many application-specific problems. They are able to focus on core capabilities instead.

The drawbacks are few and manageable.

Your data resides offsite. What happens of the vendor goes bankrupt or simply closes up shop? Will you be able to retrieve your data?

Follow a rigorous backup schedule and maintain onsite and offsite copies. Should the vendor self-destruct, your only exposure is data entered or changed since the last backup.

Unauthorized data access and the resulting theft of proprietary information is always a risk factor. However, consider that your vendor is operating a business that demands high-levels of security. Does yours? Your data may be safer at a SaaS vendor site than on your own servers.

SaaS applications require an Internet connection. If a problem develops with your internal network or your ISP, the application may be unavailable. Discuss your concerns with vendors and explore connectivity options.

It can be complex to calculate the cost of software delivered as a service versus installing an in-house application. You are not just leasing a software package. You are also leasing the hardware it runs on including servers, load balancers, firewalls, routers, etc.

SaaS offers lower up front costs because you avoid having to make major capital equipment purchases and/or upgrades. However, long-term costs can be higher as you move passed the point where equipment purchases would have been amortized.

Do not forget about the cost of the supporting software components. For example, enterprise software often requires an operating system, application server, database server, antivirus software, etc. The costs of these pieces add up.

Factor in the time your IT staff spends installing, configuring and maintaining the hardware and software components. The true cost of an off-the-shelf or custom software application may surprise you. So while SaaS costs may seem high at first glance, they are often far more reasonable when taken in context.

If you are still not convinced of the value of SaaS, an alternative is just starting to appear. It is called a software or application appliance. Basically, you lease a dedicated server that contains everything you need to run the software. The server is installed at your site and managed remotely by the vendor.

You will have to provide your own 24x7 remote access but at least you have more control over your implementation and database. We will be hearing a lot more about application appliances over the next year.

As we move away from traditional software and toward web-based applications, SaaS and application appliances present viable alternatives. Put them on your short list of options to consider for your next major software rollout.

Vin D'Amico is Founder and President of DAMICON, your ADJUNCT CIO™. He helps companies avoid the subtle mistakes that cause missed deadlines, lost opportunities and fragile results. He shows them agile approaches that slash risk and cut development time so they get to market 25-50% faster. He helps them carry that momentum into the sales cycle using white papers and case studies that accelerate the selling process.

This article appeared in Vin's monthly Virtual Business column for the IndUS Business Journal in April 2008.

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