Is software-as-a-service for your business?

Adoption of the software-as-a-service (SaaS) sales model is accelerating at a phenomenal rate in the region, changing the way vendors do business and the way organisations use business software, writes Paul K. Berger.

SaaS has been one of the IT industry’s hottest buzzwords over the past couple of years, and for many good reasons. The ease of use, rapid deployment, limited upfront investment in capital and staffing, plus a reduction in software management responsibility all make SaaS a desirable alternative to on-site solutions.

Simply, SaaS is a term that is used to describe a software application delivery model which sees a software vendor host applications over the Internet and deliver those applications to the customer for a recurring license fee.

Data from Springboard Research shows that the noise around SaaS is more than hype. The market researchers show significant growth in awareness and adoption of SaaS across the region, with the market increasing 92.5 percent in 2006 to reach a market size of US$154 million this year.

The SaaS market in the APAC region will reach US$1.16 billion by 2010, with a compound annual growth rate of 66 percent, to comprise 15 percent of the enterprise software application market.

The success so far of vendors offering customer relationship management (CRM), collaboration, and management software has shown the power of the on-demand software delivery model. However, many organisations are not aware that there are pitfalls in what looks to be the answer to all their software problems.

Issues around control, integration, security and limited application are some of the very real downsides that need to be considered before a company turns to this increasingly popular software buying model.

SaaS and Control

Control, or the lack thereof, of organisational data is arguably the biggest downside to the SaaS model.

Previously an organisation had total control over data as it was all stored on-site in its file servers. Under the SaaS model, the level of risk rises as your data is transferred from your own premises to those of third parties and their applications.

If a potential SaaS user neglects to fully investigate a SaaS provider and determine what they will do to protect sensitive customer, sales and other data, then there is increased risk of that data getting into the wrong hands and all that implies.

There are also questions of internal control over who has say over what applications get installed and used. Because it is so easy to obtain such SaaS-based software (often all you need is a credit card and an Internet connection), businesses need to determine who has the authority to buy/download and use what software—Is it the IT manager, or your IT fix-it guy or the MD?

According to a 2007 IDC study, concern about data security is the factor most frequently cited as discouraging the use of SaaS among firms of most sizes in the U.S.

In addition, channel access and support should also be brought into consideration.  While traditional software products are well supported by numerous reseller partners, SaaS does not share the same amount of favour from the channel sector.

IDC points out that the partnering business models in the SaaS ecosystem are still in a nascent stage and most of the activity is just occurring on a trial and error basis. Besides, the disruptive nature of the SaaS delivery model has progressed along the path of seriously impacting traditional partner revenue streams. Channel partners are mainly challenged with the subscription revenue stream associated with SaaS solutions as well as selling “virtual” products where there is nothing to physically ship, implement, or keep on the shelf.

It is not a surprise to find small sized businesses are less interested in SaaS in general, as indicated in another IDC report. According to analyst Merle Sandler, “Providers of on-demand software face a number of challenges when targeting SMEs, including establishing appropriate sales channels and deciding how best to market to these firms.”

Thought also needs to be given to the end of a relationship with a SaaS provider; that is, once the relationship is over, can the organisation still use the SaaS provider’s software to access their database to read its own data?

Many SaaS providers will provide access to the data once the hosted solution is turned off, but not the software to read that data. This effectively makes those files useless.

There’s also the question of application failure. Can an application delivered by a hosted service provider be resurrected faster if it falls over compared to one run by your in-house IT staff or IT partner?

With an in-house application, you at least gain the benefit of knowing who and how many people are working to fix it, whether it is truly a priority to them, and what the current status is in terms of repair operations. This way, the problem can at least be managed and worked around.

The organisation needs to ask two questions: “Which one is more likely to go down?”, and “Which one will be faster bringing things back up?”

SaaS Integration & Security

Having full ownership and control over your data allows you to embark upon software integration projects that would otherwise be impossible.

Recently, Happen Business integrated its Jim2® Business Engine accounting and workflow software into distributor Ingram Micro’s reseller e-commerce website TechLink, enabling Jim2® customer Leading Edge Computers to view real-time stock pricing, product availability and place orders direct from Ingram’s warehouse.

If all these parties had to go through the SaaS software partners to get all the required data then this integration project would be a lot harder. It’s a great example of what’s possible if all the parties involved own and control their own data.

We mentioned before that because SaaS is so easy to initially deploy, individuals in businesses have begun procuring SaaS applications themselves—leaving the IT manager or partner out in the cold.

This is also an issue when it comes to security and IT management. Again, as these applications reside with a third party, and are typically being initiated and implemented by non-IT professionals these applications invade existing business processes, creating more work for the IT guys and creating possible security issues.

Just because an application is web-based or hosted offsite, it doesn’t mean it doesn’t have to adhere to a company’s security, privacy, and internet use policy requirements. There is also the question of data backups. With SaaS, data backup is typically offloaded to the SaaS provider, but many organisations feel much more comfortable being in total control of their own data.

Organisations have to look to IT to ensure that SaaS usage in their environment is consistent with the policies and controls they’ve developed for traditional on-premise applications.

Limited SaaS Application

Larger, more complex applications such as accounting and enterprise resource planning (ERP) currently do not lend themselves to being delivered over the web. They require very detailed implementation and integration with a business’ other systems, applications and processes.

Market researchers Gartner argue that the on-demand model is not suitable for complex business uses like logistics support and order handling, and for larger companies requiring business process support.

SaaS should be avoided when dealing with transactional-intensive applications such as in a warehouse management system; when data is exceptionally sensitive, and when on-demand service providers don’t have the functionality or provide the level of integration required.

SaaS has its benefits, but an organisation needs to bear in mind that SaaS lends itself to business functions like sales and HR for a reason. A SaaS advantage is using the SaaS providers’ hardware, however with cost of hardware becoming a negligible part of the overall investment in a business system; this advantage becomes much less attractive. Often a business will be able to run software such as Happen Business’ Jim2® Business Engine on their existing hardware with little or no additional costs.

Ultimately, successful deployments of software such as Happen’s workflow management solutions are more likely to be managed in-house.

—Paul K. Berger is managing director of Happen Business, Australian owned software company.