Taking an All-or-Nothing Approach to SaaS

Ann All

Interest in software-as-a-service appears to be growing in much of the world, with a recent Gartner survey showing that 77 percent of North American companies plan to increase their SaaS deployments and 64 percent of European companies plan to do so.


One of the most interesting takeaways from the survey was Gartner's finding that 37 percent of global respondents are interested in eliminating traditional enterprise applications from their IT environments in favor of SaaS. IT Business Edge recently spoke with several companies that have already migrated many of their on-premise apps to SaaS or, in some cases, chose a mostly SaaS model from the beginning.


A clear advantage that these companies enjoyed that may not be found at other companies pondering such a move was a relative lack of legacy infrastructure. For example, open source database software provider Ingres was divested from Computer Associates in 2005, essentially creating "a startup with a multi-billion dollar revenue stream," says Ingres CIO Doug Harr. The company's CRM (Salesforce.com), financial management and accounting (Intacct), project management (OpenAir), human resources (ADP's HRIS) and other applications are delivered via SaaS. Budgeting is a notable exception for which Ingres still uses more traditional software, says Harr, because of a dearth of available SaaS options.


Where Ingres doesn't use SaaS, it generally uses open source, says Harr. And it's not uncommon for the company to combine the two. For example, it created a homegrown business intelligence platform using the Ingres Icebreaker BI appliance for Salesforce.com, Intacct's financial management software, and reporting and analytics tools from Jaspersoft.


There are no on-site servers at Zuora, a SaaS billing and payments engine for subscription-based companies. Among the software services it utilizes: contract management from eFax, software development management from CVSDude, CRM from Salesforce.com, and Google Apps for creating and sharing documents and other collaborative functions. Zuora also employs Amazon Web Services for storage and CPU.


For small companies with limited or nonexistent full-time IT resources, SaaS is a "no-brainer," says Tien Tzuo, Zuora's CEO. "If you don't know a thing about SQL Server or installing Windows NT patches, why would you want to deal with any of that stuff?"


Both Tzuo and Harr are among those who say SaaS makes financial sense for larger companies, as well. As the former chief strategy officer for Salesforce.com tasked with promoting SaaS in large enterprises, Tzuo says he found "again and again" that it was generally less costly for companies to switch from maintaining an existing infrastructure to using SaaS. That was true in Harr's case in a pre-Ingres position, where he investigated replacing several on-premise applications with SaaS. "If you do your cost analysis correctly, you should be able to justify transitioning at least some of those existing applications," he says.


Harr disagrees with those who contend that the cost-of-ownership for on-premise software is lower than SaaS' TCO over time. "I always wonder what happened to their calculators," he says, noting that the upfront fee for the on-premise software he purchased for his previous employer was more expensive than seven years' worth of a similar number of monthly seats for Salesforce. The financial advantage becomes even more pronounced if the cost of software maintenance, upgrades and the personnel required to run it is factored in, he says.


Using SaaS allows internal resources to focus on revenue-generating activities rather than maintenance of standard business applications, says Chris Yeh, vice president of marketing for PBwiki, where employees use Salesforce.com for sales and customer support, Unfuddle for bug tracking and development, the online version of Quickbooks for accounting, Google Apps for e-mail, and its own software for collaboration.


"When you have on-premise software, you need to build an IT team to feed and care for it," he says. "Especially in tough economic times, we want to focus on things that move the needle for our business. Maintaining an app that is the same one used by thousands of other people isn't a differentiator. It doesn't make us any money."


PBwiki does not use SaaS for applications used for creating its own code base, says Yeh, because it wants to maintain "as much control as possible" over that process. "For bug tracking, we want a standard system. For CRM, we want a standard system. For our own code, we want as much flexibility as possible."


An all-SaaS business makes it easy to add employees without building out a physical office. "Being able to hire a new employee in Beijing and not have to set up a new infrastructure has been an advantage for us," says Tzuo. The company's far-flung employees make heavy use of the collaborative features found in Google Apps such as Google Video Chat, which allows folks to open video sessions during chat using the cameras on their laptops.


Ingres is a more innovative company, thanks to the research and development dollars spent by its SaaS vendors like Salesforce, says Harr. "Every dollar that Salesforce puts into R&D shows up at my doorstep without me doing anything to gain access to it. Similarly, when you pick open source, you know there's a large and vibrant community behind it."


A benefit that may not be as obvious to many folks, says Yeh, is SaaS' ability to make it easier to disseminate information throughout an organization. "The more your people are aware of the issues of your business, the challenges and opportunities, the more you can get everyone involved in building stuff. We've come up with some interesting additions and changes to the product, because everyone in our organization is empowered to enter them in the bug tracking database."


SaaS isn't without challenges, however. Among the key concerns raised by SaaS users and companies considering SaaS are integration, global reporting and user provisioning. SaaS vendors are improving these areas as their products mature, says Harr, and Ingres uses third-party products like Boomi's integration software and Tricipher's single sign-on. For reporting, Ingres created a solution with its own appliance and additional software from Jaspersoft.


SaaS is generally simpler to integrate than traditional software because it's based on Web services, says Harr. While that's true, says Jeff Kaplan, managing director of IT consultancy THINKstrategies, Web services and application programming interfaces (APIs) may not fully satisfy data migration requirements, especially for companies with entrenched legacy applications. It's important to ask vendors about integration capabilities with both traditional and other SaaS apps.


Another key area to address: support. Ask vendors to explain their policies in detail, suggests Yeh, to determine if it's a company you can trust. PBwiki's experience thus far has been good, he says, largely because vendors "know you can turn them off" with relative ease.


Trust is crucial with SaaS, Tzuo agrees. "That's the difference between products and services. Once you take a product home and start using it, it becomes yours. So if the company goes out of business, you still have the product. With a service, the trust factor needs to be higher."


Be wary of newcomers offering rock-bottom prices, he cautions. "You don't necessarily want to go with the lowest-cost provider because no matter what, your cost is going to be cheaper than investing in your own infrastructure. You want to look for stable companies with a proven track record."


While it should always be a part of the software selection process, the relative newness of the SaaS model combined with the current down economy makes it especially important to ensure vendors are financially viable, says Kaplan, echoing Tzuo. And they aren't the only ones who think so. In a recent report, "Five Key Issues for CIOs in 2009," Saugatuck Technology predicts that 30 percent or more of SaaS and open source start-ups with annual subscription revenues streams of $5 million or less will fail.


Consolidation will be a likely result of the shaky economy and is already starting to occur, says Harr. "When done right, that's a good thing, because you get more power behind the solution."


If you decide to move toward SaaS, don't become so focused on functionality that you forget the underlying business processes, says Kaplan, noting that such processes are "where the rubber meets the road." If enlisting the help of a consultant or other service provider, look for those that focus on aspects such as change management in addition to technical issues such as integration, he advises. "If your processes are not attuned to taking advantage of SaaS, you're not going to get the benefits of it."

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