Is SaaS Too Good to Be True?

Ann All

When it comes to newish technologies, it's often difficult to separate truth from exaggeration. On one side you have vendors and their marketing materials telling prospects that whatever they're selling has the ability to completely transform their business. It'll save them money, turn their employees into lean, mean efficiency machines and leave competitors gasping in the dust. On the other side you have the vendors whose products the newish technology could supplant and a whole bunch of skeptical analysts warning folks not to rush into anything without lots and lots of evaluation.


While this tension usually ends up being a good thing for technology buyers, there can be some painful missteps along the way. When backlash kicks in, it sometimes gets ugly. We've seen it with virtualization and service-oriented architecture, among others.


It's especially true of Tools for Understanding SaaS, which seems so compellingly different from traditional on-premise software. No convoluted licensing terms here, say SaaS vendors. Just pay a monthly fee for the number of folks using the software. Lengthy implementations? A thing of the past with SaaS, say the vendors, who promise their systems can be up and running in weeks, not months or (gasp) years. And hey, I hope you've got some stuff you want to spend capital on, because you sure won't be spending it on software. All of these points seem especially compelling in light of the awful economy.


Yet, at the same time, there are those niggling voices saying, "If it's too good to be true..." (Oh right, it's those darned analysts.) What about security? Do you trust a third party to take good care of your data? What if you need to customize an application or integrate it with other apps? Is SaaS really as cost-effective as it seems? And who are all these guys selling SaaS? Will they even be around in a few years?


To be fair, analysts aren't the only ones raising these kinds of questions. They are definitely worth considering. Many CIOs are, judging by a McKinsey & Co. survey that found tech execs were especially influenced by integration and deployment speeds when evaluating SaaS.


Jeff Kaplan, managing director of THINKstrategies, a consulting company specializing in SaaS, cautioned potential SaaS users to exercise care when I interviewed him a few years ago. Though the interview is nearly two years old, his advice is still some of the best I've heard. He said:


Users have to do a thorough job of investigating what is available so they can set the right expectations for themselves. The concept of on-demand is a relative term. There are many SaaS solutions that you can point, click, procure and use instantaneously. But there are many others that refer to themselves as on-demand which really do demand a certain amount of time and effort to deploy. They do still require some customization, some integration with existing applications, or they may require migration of data that might entail time and effort not only on your own part, but you may even need a consultant or integrator to help you. The other term that is a relative term is pay-as-you-go. Many of the services are genuinely pay-as-you-go, while others will require a certain amount of upfront commitment. Some require a first-year commitment. So that kind of thing has to be carefully evaluated. [SaaS will] still be more flexible than the traditional approach, but they may not be as on-demand or as easy to pay for as you think.


Noting that there has been "a great deal of hype around SaaS," Gartner analyst Robert DeSisto addresses five "myths" about it in an ITPro item. They are:


1. Does SaaS cost less than traditional on-premise software? Probably not, says Gartner. As with other arrangements that involve leasing a product or service, users save up front but tend to pay more over the long haul. Not everyone agrees with this, however. "I always wonder what happened to their calculators," said Ingres CIO Doug Harr when I asked him about such cost contentions during a recent interview about his company's use of SaaS. He told me the upfront fee for the on-premise software he purchased for his pre-Ingres employer was more expensive than seven years' worth of a similar number of monthly seats for Salesforce. The financial advantage becomes even more pronounced when the costs of software maintenance, upgrades and the personnel required to run it are included.


2. Is SaaS faster to deploy than on-premise software? Yes and no, says Gartner. While SaaS is certainly simpler and quicker for simple systems, it tends to become more complex if customization is required. While a vendor may promise it can get a SaaS system up and running in a month, it may end up taking more like seven months. I'm sure this is true, but the industry has yet to see (or at least to report) a SaaS implementation so complex it results in a company suing a vendor for a whopping $100 million, as happened earlier this year with a failed ERP project.


3. Is SaaS the same thing as utility computing? (That is, pay as you go.) Nope, says Gartner. Organizations almost always pay a set amount for SaaS applications, no matter how much they actually use them. As Kaplan suggested, it's important to determine how SaaS vendors charge for use before making any commitments.


4. Is it tough to integrate SaaS with other applications? Not so much, says Gartner, noting that batch synchronization, real-time Web services and even mashups may make integration issues less of a deal-breaker than some may think. At least one CIO found SaaS integration wasn't that big of a deal, wrote IT Business Edge blogger Loraine Lawson last spring. A growing number of vendors such as Cast Iron offer tools that promise to simplify SaaS integration.


5. Is SaaS just for basic systems? Not anymore, says Gartner. Platform-as-a-service facilitates SaaS customization. Saugatuck Technology VPs Michael West and Mark Koenig told me much the same thing when I interviewed them last spring. They said that platforms such as Salesforce's Force.com will make it easier not only for developers to create custom SaaS applications but also to migrate existing on-premise applications to SaaS.


I'd be remiss if I didn't let folks know about some of the valuable SaaS-related tools in our Knowledge Network, a new forum where readers can collaborate with colleagues and industry experts and (bonus) download useful tools such as ROI and TCO calculators and job-description templates.

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Add Comment      Leave a comment on this blog post
Feb 22, 2009 6:18 PM KT KT  says:


I have never read your blog but this is just the piece I was looking for.  I was just telling a colleague that all of this SaaS hype has the familiar feel of the dot com revolution circa 1999.

I'm currently working on a piece called "Is SaaS the next ethanol?"  While I'm not the skeptical analyst you refer to, my financial background has made me question some of the more specious ROI claims popping off the message boards and SaaS websites.  Are you privvy to any case studies or data that could shed some financial light on the general claims?

I've found that things like IRR, NPV and asset depreciation are a lot less susceptible to manipulation than say a marketing pamphlet or a blog.  It's important to note that I"m not against SaaS I actually want it to succeed but as  a P&L guy I'm just not seeing it yet. 

Feb 23, 2009 9:59 AM ted ted  says: in response to KT

Seems like SaaS is similar to time sharing concept in the late 60's and early 70's mainframe world.  I'm not comfortable with security issues; want to leave the company jewels (data) with a third party? If so, that certainly is trust...

How do you explain to your CEO that SaaS server you are using is down and you have nothing in-house to help the situation...

Feb 27, 2009 8:47 PM david david  says:

From the perspective of a small start up SaaS is great...I've taken on salesforce.com and its cheap up front, easy to configure, easy to use and great support... is SaaS really a utilitiy utopian world - of course not - if I wanted to switch from sf.com to another player it would involve work and costs....but quite frankly for myself and lots of other smaller companies i really don't give a dam!

whilst many techies are thinking about SaaS and its rights and wrongs and strengths and weaknesses a lot of them will make money and a lot will go bust...but its not a fad - even Gartner say this (the people who answer yes and no!!!)

May 18, 2010 6:21 PM Surge Surge  says:

It's been more than a year since this original post and I would have to say that "No, SaaS is not too good to be true". It seems to be proving itself worth its weight in gold. Your thoughts!



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