Ann All spoke with Chris Dixon, a senior analyst for Input, a firm that helps companies develop federal, state, and local government business and helps public sector organizations achieve their objectives.

All: Are public agencies beginning to show more interest in SaaS?
Dixon: Our impression in talking with state and federal agencies is, it's been fairly quiet. There's not been a lot of feedback about software-as-a-service. It's not something they are looking to investigate as an enterprise transition. They may be thinking of it under the rubric of the old ASPs. The ASP model didn't catch fire the way some people had hoped. SaaS takes advantage of some technology that has matured in the intervening period — SOA, XML and increased bandwidth, things that are available now that weren't as prevalent four or five years ago. SaaS has experienced all the generational technological improvements that you would expect. But it could be there are still certain characteristics to the way the governments do business that will put this sort of a hosted, Web-based option at a disadvantage.

All: Adoption of SaaS by government agencies appears to be lagging behind the private sector. Do government agencies have special concerns that are causing them to be leery of SaaS?
Dixon: SaaS seems to lend itself better to small or medium-sized businesses who are looking to save some of their resources, in terms of employee support and hardware and software maintenance costs, for other systems. They can't do it all, so they find places where they can tamp down some expenses in some key areas — e-mail management or something that is a commonly used, widely distributed function like salesforce support or CRM stuff. Most government enterprises, especially at the large city and county level, those are pretty big enterprises who generally have an expectation that they will buy a service that is hosted out of the central IT office, or they may have their own IT support within the department that is robust enough to support a 5,000-, 10,000- or 15,000-employee deployment of a given application. Smaller agencies might be interested in contracting for a hosted solution because they would qualify as a small business within a state government context.

But I think the culture in state government has been, "If we buy it, we have to have something to show for it when the legislature comes asking what we've done." You can point to a server rack or a data center, be able to point to assets you own. Even if it doesn't do what you want it to do, you can say, "We own it. We can show something for it." To raise SaaS on the radar screen, vendors will want to ensure that agencies understand they are really looking to buy improved outcomes in terms of productivity or efficiency, outcomes they could point to in terms of a justification of the expense.

Every IT director at the end of the day is going to report to a business manager, a department secretary or an assistant secretary, something like that. They're in turn going to be thinking about how they report to the governor's office or to the legislature. That's not the same as dealing with a corporate board. Are they going to be willing to say, "Last year we produced 5,000 instances of customer communications using our in-house software, which is miserable. But holding the line on our staffing, we were able to triple or quadruple the productivity using this hosted solution, which is much more robust." Are they prepared to make that sort of a case to a legislature and get them to buy it? It will take executive sponsorship to change that mindset in terms of oversight.

You want to be able to say, "We used a hosted solution and quadrupled our productivity and citizen satisfaction. We also gained valuable insight. Instead of buying it outright and finding out it wasn't needed, we've gained five years of business experience, and we are now ready to bring this in-house and own it." It's a pretty savvy business case that you have to lay out. It's difficult in the public sector environment. You're definitely going to expose yourself to additional political risk by going with that sort of an option. Vendors are going to have to be aware of that, and realize they are going to have to coach agencies through that and be able to explain that business case.

It's politically more damaging when you put trust in another organization and it lets you down than when you can't manage it yourself. If you had it in-house, you could point to a specific reason it went wrong. The political dynamics will always make it different than a for-profit, private sector business. Ultimately, the people implementing these systems want to be accountable to the citizens. But they are accountable through the prism of elected officials who are conveying what the citizen wants to the bureaucracy. There's that distortion that occurs. It's not like a business that is directly trying to satisfy its customers. The governor's or legislator's perception of what the public wants is what they are going to have to meet.

All: That said, do you expect to see increased adoption of SaaS among government agencies?
Dixon: SaaS, by all indications, is an option that is going to be becoming increasingly prevalent. And as it becomes more prevalent, it probably has to have twice the success as in the private realm to get half the attention it deserves in the public sector. That's where the public sector will lag and let the private sector be the early adopter. As IT executives with experience in the private sector come into government, especially at the state CIO level or county CIO level, we'll see a cross-pollination there. As they come over from the private sector into the public sector, they'll scratch their heads and wonder, "Hey why haven't we tried SaaS for some of these niche opportunities?" For example, if a state is outsourcing its help desk, they could very well be outsourcing to a company that is using SaaS for its CRM tool. That's one way it'll make its way into state government, through indirect relationships.

Some of the most notable successes in terms of hosted solutions have been on state Web site portals. State governments had particular difficulty getting cutting-edge talent and resources, so they outsourced their Web site templates and hosting to an outside company. In areas where there is a specific business need and states have a particular difficulty filling that niche, I think hosted solutions can come in. There's no previously established way the state has been doing it, and they are happy to bring in an out-of-the box hosted solution, adapt to the existing mechanism, and build their non-existent business process around that. The whole point of a hosted model is to not have a customized implementation.

In areas like social services casework management, where there are highly evolved practices that are common among non-governmental workers as well as governmental workers, there would be an opportunity to bleed over. [Vendors should] look for voids where governments would like to be doing something they can't do, and would be willing to take a low-cost solution that would help them get it off the ground. And look to areas where there is a high level of overlap between the private sector practitioner and the public sector practitioner. Also, at the end of the day, you have to be able to produce records in the formats that are generally accepted. Your output may have to be modified to meet state records guidelines.