Are Growth-Oriented Companies More Likely to Use SaaS?

Ann All

Two years ago I interviewed several companies whose software-as-a-service applications outnumbered their on-premise apps. They spoke of benefits that went far beyond the reduction of initial capital outlays. A statement from Chris Yeh, VP of marketing for PBwiki, stuck with me. At PBwiki, employees used 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. Said Yeh:

When you have on-premise software, you need to build an IT team to feed and care for it. 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 preferred to use its IT resources to create improvements for its software, not to administer and maintain commodity apps like e-mail. I remembered my discussion with Yeh when I read about a MarketBridge study showing growing interest in and adoption of cloud computing among small and medium size companies. According to an Information Management item about the study, 44 percent of companies surveyed by MarketBridge say they have at least one business application on the cloud, and more than 70 percent plan to move more apps to the cloud in the next 12 months.


Information Management cites a number of interesting snippets from the study. The one that interested me most, since it seems to support what Yeh told me: Companies growing at greater than 10 percent per year were nearly twice as likely to move software and infrastructure to the cloud. Interesting, yes? Fast-growing companies are likely focused more closely on revenue-generating activities than some of their peers and recognize the value of freeing up internal resources, taking more mundane IT tasks off their plates so they can focus on lucrative opportunities.


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Informatica CIO Tony Young makes a statement similar to Yeh's on Informatica's Perspectives blog. He notes that Informatica now uses more SaaS apps than on-premise ones, which has had a "profound" impact on the company's IT and overall business. Its IT Apps team devoted 60 percent of its time and budget to innovation activities over the past two years. It's obviously more common for IT organizations to spend roughly that amount of time and money on "keeping the lights on" rather than on more forward-looking projects.


Informatica's impressive percentage is due to two things, Young writes. One of them is SaaS, which has allowed Informatica to "focus on business value-add and not the infrastructure." The other thing, no surprise given Informatica's core business of data integration, is its highly scalable integration infrastructure or "lack of hairball connectivity" found in many organizations.


(Paul Turner, senior director of product marketing for NetSuite, also used the term "hairball" to describe overly complex IT infrastructures during our recent interview about cloud-based ERP. Maybe it's because I own a cat, but I hope the term catches on. I like it better than "spaghetti," another term I've heard. Spaghetti is tangled all right, but I think hairball better conveys the mysterious mess of ingredients found in many IT infrastructures.)


To Young's credit, he doesn't present SaaS as a tech panacea. He lists three important caveats:

  • While SaaS apps can technically exist in the absence of integration, they shouldn't. Companies must consider back-end administration and integration requirements for SaaS apps.
  • Though IT is a "natural gatekeeper" for on-premise software applications, the same is not always true for SaaS. Companies must create appropriate governance and architecture models to avoid the kind of irrational exuberance for SaaS that could create data security issues.
  • Don't assume SaaS will reduce headcount. Young says Informatica has found this isn't true because staff is still needed to manage the requirements process and configure the system. While fewer administration resources may be required, "it's hard to eliminate 20 percent of a DBA, 20 percent of an SA and 20 percent of an app administrator, as these are all different people supporting a system." Instead of cutting staff, reallocate those resources. (Put them to work on some of those revenue-generating projects, perhaps?)

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