Sign up now and get the best business technology insights direct to your inbox.Ann All spoke with Siamak Farah, founder and CEO of InfoStreet, a provider of IT and productivity software-as-a-service.
All: Obviously, the lower upfront cost is always going to be a primary consideration for companies considering SaaS. But what about some of the other benefits?
Farah: The cost is very important. SaaS is paid in recurring payments. It's very similar to leasing a car, where you don't worry about the total cost, but you only have to be concerned with the monthly payments. This also gives people more freedom of choice. In the traditional sense, people would spend a million on software, and if they didn't like it, they were stuck with it.
We came up with a thought close to 12 years ago because we knew that the only operating system that would beat Microsoft Windows desktop was no operating system at all. Microsoft had already won the desktop battle. So I set out to develop something that was agnostic to the operating system and would make the OS irrelevant. Regardless of your OS, if you have a browser, you can use our software. I think this idea, of the desktop OS being irrelevant, is going to gain more speed. Even though iPod has been the reason for Apple's sales growth, the computer and laptop growth has been good also. I think the reason is that a lot of tools now are Web-based, and you can use any OS with them. It untethers the user. It's a real equalizer, so I think SaaS will continue to grow at enormous speeds over the next few years.
All: The leasing example you used is an interesting one, since you can end up paying more for a car by leasing it than you might if you bought it outright. I believe some analysts have made some similar statements about SaaS, that over time it ends up costing more than on-premise software. What's your take on that?
Farah: In my humble opinion, over time (SaaS) is still cheaper. We have a solution that does Exchange replacement. When you think about what it would take to buy the hardware, the software and a person to manage that Exchange, the cost that we charge is roughly 5 percent to 10 percent of what it would take (to run Exchange). So it's arguable that you would have to pay us 10 years to get the same thing you get for a year with Exchange. Since you pay monthly or bimonthly, yes (the costs) do add up over time. But the service doesn't last forever. Every three years, you have to upgrade (something like Exchange).
(The analysts) also do not take into account the multi-tenant nature of SaaS. It's like your cell phone. You have your own cell phone number and your privacy. But as soon as it leaves your phone, it's going through a multi-tenant environment. That is the only way you can afford to have a cell phone. If you had to set up your own cells and create a cell phone environment, no one would be able to afford a cell phone. The multi-tenant nature of SaaS brings the economies of scale that allow you to get service you couldn't otherwise afford. You use a shared infrastructure, but in a very secure and individual way — not unlike how you use your cell phone.
All: Do some applications lend themselves better than others to SaaS delivery?
Farah: We provide business productivity software, with a focus on small business. Let's take an example of a VPN. Let's assume you have a credit union with 200 employees and eight branches. The cost of setting up a VPN between the branches, with dedicated lines and expert IT staff to manage it, makes it prohibitive. Just by the virtue of our service being Web-based, and requiring only a Web server to access it, it is a godsend for those companies with employees under multiple roofs. It also lends itself well to extranets, where you have your dealers, and your vendors, and maybe your clients. If you had, say 1,200 resellers, it'd be very difficult to connect all of them together. But if you connect them all to a centralized scheduling site, that would produce a lot of efficiencies.
People have a lot of economic factors to consider now, some of which are hopefully temporary. You have the cost of gas. And you have a lot of single parents now. So if your son or daughter is sick, you may have to work at home. Some companies like to let employees work at home as a benefit. At our company, for instance, if an employee feels a virus coming on or has to stay home for whatever reason, they can work from home.
All: So is SaaS a more obvious choice for SMBs?
Farah: Larger companies are just as attracted to SaaS. The growth of Salesforce.com is a testament to that. The market space that we are focused on lends itself to companies with 200 employees or less. But that has to do with the nature of our products. A company with 12,000 employees may need a $200,000 knowledge base with another $200,000 worth of customization. Yet a company with 120 employees probably needs about 80 percent of that (system) and is scared to death of the remaining 20 percent. They want an out-of-the-box solution that they can customize themselves. They don't want to have to pay for customization. We have large customers, but we may not be as good of a fit for companies that require a lot of customization.
We chose this particular market, but I think SaaS as a market paradigm is agnostic to company size. Even individuals use SaaS. When you use gMail, you are using SaaS. So from individuals all the way to very large corporations, people are becoming more comfortable with SaaS. What is different is the bandwidth. (Saas) requires bandwidth, and you need a nice-size pipe. That used to be a big deal when some companies were using dial-up, but now everybody has some form of broadband. I think that within three to five years, there won't be a form of software that you can't also get as a service.
All: Are there cases where SaaS won't make as much sense as on-premise software?
Farah: If we look at a model where a tremendous amount of customization may be required, the SaaS model will probably not make sense. But I think there will be providers who will deliver even that kind of customization as a service. Let me give you an example. We have some clients who are banks. And for legal and compliance reasons, they do not want a multi-tenant architecture. So we have an appliance that provides the same kinds of services, but it's in a box inside their own offices. So in some sense, they have specialized software. But it offers the same economies of scale in terms of development, and maintenance, and other costs. So as a paradigm for development, I think SaaS is here to stay.
To ShareThis, click on a service below: