Won't Try SaaS? Let Us Count the Reasons

Ann All

Most outlooks for software-as-a-service are pretty rosy, including Gartner's forecast that SaaS applications will see annual growth of 22 percent through 2011, vs. annual growth of 9 percent for the overall software market.

 

Still, not everyone plans to buy SaaS. A CIO.com article offers eight reasons why some companies are still balking, drawn from a Forrester Research report. According to Forrester, just 16 percent of respondents are using or testing SaaS applications. Forty-six percent of respondents expressed interest in SaaS, but 37 percent said they were "not at all interested."

 

The single biggest issue, mentioned by 66 percent of SaaS-phobic companies, is integration. Yeah, there are some integration issues with SaaS, wrote IT Business Edge blogger Loraine Lawson in February. Yet they may not present as big a hurdle as some folks think. Lawson followed up in April with a post about a company that found that integrating SaaS with its existing applications was no big deal.

 

Sixty-one percent of the Forrester respondents mentioned total cost of ownership. That's a legitimate concern. As I wrote last month, experts such as IBM's David Lashar say SaaS becomes more expensive than on-premise software over time, typically within five to seven years. Companies might end up sacrificing even more, adds Lashar, due to lost opportunities that can result from SaaS' limited functionality.

 

Of course, cost isn't everything. As I wrote back in November, citing Yankee Group research, SaaS users cited improved application quality and performance and faster time to value as top benefits of SaaS, ahead of reduced cost. This seems especially interesting, since application performance concerns were mentioned by 39 percent of the Forrester sample.


 

Other drawbacks, according to the Forrester survey: lack of customization (55 percent), security concerns (50 percent), trouble finding specific applications a company needs (42 percent) and complicated pricing models (39 percent).

 

It should become easier to find specific -- really, really specific -- applications, with the advent of platform-as-a-service development models. As Saugatuck Technology's Mark Koenig told me in an interview last month:

I think developers and ISVs are realizing there are a lot of markets out there they haven't been able to tap under the old application development model that now, because of the new economics, they can reach. Our working thesis is really that verticalization is going to be the driver that is behind massive amounts of SaaS growth. So now you have the capability to economically develop applications at a micro-vertical level, and you can make money at it.

As far as "complicated pricing models" go, they could get even more complicated if Ken Bender of the Software Equity Group is right. As I wrote in February, Bender contends that SaaS vendors have underestimated the costs of building infrastructures to support their apps and will have to charge higher fees or otherwise tweak pricing models, perhaps by breaking out and charging separately for services or basing charges on number of transactions processed rather than number of users.



Add Comment      Leave a comment on this blog post
Jun 12, 2008 11:50 AM Wayne Byrne Wayne Byrne  says:
I think that a lot of companies see that there is very rarely an upgrade path for a SaaS application, if a small app grows (as they invariably do) in size and scope with many SaaS offerings there is no upgrade path to eventually moving what has become mission critical back behind the firewall.I like what netsuite have done with their hybrid model and of course our own platform www.geticeberg.com allows migration to and from SaaS to locally hosted and back. Reply

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