Software delivery is changing. And software companies without a Software-as-a-Service strategy are going to fall behind their competition. As a software vendor, how do you decide the best SaaS strategy to complement or replace your existing on-premise application?
The truth about software as a service
Analysts predict that in the next 5 years at least 18-20per cent of new software will be delivered via the SaaS model. Consequently, ISVs are scrambling to find simple, cost-effective ways to provide functionality, maintenance and support over the Web.
Companies like Salesforce.com are inundating business users and CIOs alike with pitches for all sorts of SaaS applications. Salesforce.com CEO even made a statement selling the benefits of the then-new concept for software as a service (SaaS), “What if we created a utility for enterprise automation? Then you don’t have to create a data center! Then you don’t have to have a CIO!”
Of course, today, SaaS vendors want to work with CIOs, not replace them, but do CIOs need to work with SaaS vendors? Maybe. Sometimes.
Call it tempered enthusiasm for SaaS if you will, but CIOs in the region are surely thinking of using it, albeit judiciously.
A mixed bag
Desmond Nair, Business Group Manager, Servers and Tools from Microsoft Gulf says that it’s highly unlikely that there will be a scenario where all pieces of technology will be completely Web based. So what are the barriers to adoption?
Today customers appreciate that with most commodity workloads SaaS seems to be the way to go. “However, at the same time, technology is being seen more and more as a competitive advantage. And having the ability to customize, and cater to customers in a specialized fashion offers numerous benefits.
So CIOs often question why they would want to share this same ability with another company?” Nair asks.
Microsoft however definitely sees a world of Software + Services, where services will take care of the basic or commodity workloads and in house software will continue to provide the difference.
Other challenges to overcome include the discomfort that end users have with having a third party handle their customer data. Network bandwidth and offline connectivity also continue to be a challenge.
“SaaS is a complete solution and CIOs would do well to be aware of what is available and more importantly know how they can take advantage of areas where they could save on efforts and time associated with managing these high maintenance workloads where little or no competitive differentiation can be found,” Nair advises.
Contract management is yet another area of concern.
“In this region, many software vendors do not have a direct presence and operate through a network of resellers/implementation houses. So a customer will have to manage contracts of multiple vendors/partners in the case of outsourced applications.Co-existence is the key to survival in this game and SaaS vendor management till needs to mature,” Jayashree B, Manager-presales from Dubai based software solution provider Columbus IT says.
A new entrant to this market, Productiva for example says its human capital and performance management solution – Success Factors — can be hosted fairly quickly and easily off-site. “However, customers still need to open up to the fact that off-site hosting can offer numerous benefits to their business. This understanding will be the turning point for the SaaS industry,” says Ahmad Bayaa, MD, Productiva.
Fit for SaaS
Today SaaS is more popular when it comes to ERP or CRM solutions. So far, the phenomenon has also been largely confined to smaller companies. For CIOs in the mid-market, SaaS may be the only way to get enterprise-class functionality. But as valuable as it may be to smaller companies, that value may not translate to serve the needs of larger enterprises.
For any kind of organization, it is important to understand first if SaaS fits in the organization, Bashar Kilani, software group manager, IBM Middle East, Egypt and Pakistan says.
“The needs of an SMB and large enterprise are different. SaaS has its limitations and complexities which have to be resolved by an organization before implementation,” Kilani adds.
“Many SMBs opt for SaaS due to start-up costs associated with set-up and acquisition costs of technology. SaaS currently provides businesses with a choice, offering a pay as you use model, thereby bringing upfront costs down significantly,” he says.
“We need to look at where SaaS fits best in the companies IT strategy. For some companies, where IT merely provides a supportive service, SaaS may well play a larger role. For those who see IT as being a dynamic part of their business and providing them with important insight on their business, SaaS will be part of the overall solution along with traditional software, enabling the organization to leverage the best of both worlds,” says Microsoft’s Nair.
There are many questions a CIO must ask when considering the use of a SaaS application. But perhaps the most critical question is whether your company wants to rely on software designed for use by many other companies.
“This competitive advantage is not maintained when you are using the same piece of technology, except the fact that it can take away some of the high effort / maintenance workloads and leave you to concentrate on the competitive advantage,” adds Nair.
This is definitely an issue for companies in the Middle East. Many companies are either personal investments/family enterprises which have grown into bigger businesses or ‘branches’ of international business houses which already have access to their own applications. Standardization still remains a challenge in this case.
What SaaS is and isn’t
SaaS is not known for its success with customization. “In our experience, in this region, minimizing customization is definitely a challenge. All businesses want to tailor software to suit processes and we as implementers fight a battle to convince the business to invest in industry standard packaged software,” says Columbus IT’s Jayshree.
The SaaS model that exists today provides for very basic customization. Contradiction though it may be, this is also its biggest value add.
“SaaS is all about offering a user value proposition. Customization simply means the customer will have to pay more. The reason why SaaS wins hands down for smaller companies is because these companies that typically lack dedicated IT resources now have a user friendly, quick and competitive way to use IT,” Productiva’s Bayaa notes.
The term is also often abused by vendors who frequently use it to refer to any hosted application that can be accessed over an Internet connection. “SaaS should not be seen as typical application outsourcing. What it offers you in reality is the ability to access externally built services which you see as best fit for your business being run by an external organization,ö says Nair.
With SaaS, there’s just one code base for the software, used by all customers, in what’s called a multi-tenant architecture. While the software might be configurable by users to their individual needs, the code itself is the same for all and is not customizable for any individual customer.
The underlying data model and system architecture of SaaS is also not customizable. The advantage in this for the vendor is that it spends less time managing compatibility and upgrades across several versions of the software. It also spends less to support customers, as they all use the same version and they don’t run it on their own equipment.
For CIOs, this all translates to several advantages: faster implementation (because there’s no on-premise deployment), easier access to current technology (because changes are made just to the one code base) and fewer bugs (because having one code base reduces the complexity that can lead to errors).
It can also translate to lower costs for the enterprise if the SaaS vendor passes on the savings. SaaS is thus a new wrinkle in long-available, on-demand, outsourced IT models, such as the application service provider (ASP), business process outsourcer (BPO) and managed service provider (MSP).
Where SaaS makes sense
The prime reasons for a CIO to consider SaaS are its faster deployment times, its lack of up-front license and infrastructure costs, and its ability to address vanilla business processes so you can focus your resources on custom processes that make a real difference.
Your start-up costs are not as large, and you have the ability to get up and running quickly and change direction if needed. Such flexibility is not available with packaged applications. Equally as important, SaaS gets organizations onto having standard processes and a standard system across all units.
But none of these advantages matter if the application area is highly integrated with or dependent upon other applications and processes. A SaaS application must address a fairly isolated function. That’s when SaaS is easy to do for the larger enterprise.
SaaS applications are less configurable than the packaged applications most enterprises run in-house. That’s often a blessing in disguise because it forces the business to use standard processes rather than invest resources in customizations that have no real value.
But using a standard SaaS tool does not necessarily mean that every enterprise gets the same results from it. The tool is the enabler of your processes.
The business processes are what you control. Several CRM tools, for example, are praised for enabling enterprises’ individual processes while delivering them through a standard but highly configurable code base. The configuration and how you use it is the secret sauce. Your process differentiations then come into play.
SaaS is best known in the CRM space and also widely used in the human resources and procurement spaces, both of which have a history of being served by outside firms in a service bureau model. Examples include SuccessFactor and Netsuite, both represented by Dubai based Productiva.
The former is an on-demand employee performance and talent management solutions and the latter is an online business application that supports an entire company from CRM to ERP to Web capabilities.
SaaS applications also can be found in a wide variety of specialty areas, such as Web analytics, container allocation analysis for shippers and help desk management–all of which have histories of being handled by outside service bureaus.
Applications in these spaces typically rely on batched data exchange and widely deployed, standard interfaces to internal applications, making SaaS an easy fit.
A third area that has seen broad SaaS adoption is Web conferencing, offered by WebEx, Citrix On-line and Adobe. Applications such as Web conferencing and surveying work well with a SaaS approach because they let IT offer users functionality without having to invest in expertise and operations.
Where SaaS doesn’t make sense
If applications touch upon the core of the enterprise–typically ERP, financial, business intelligence and manufacturing systems–then SaaS should be approached cautiously, if at all. The main reason is that these applications are usually highly customized as they reflect the fundamental processes that differentiate a company from its competitors.
Another reason to avoid SaaS applications is that the functions you’re looking for are so key to your operations that you must own them. If a SaaS application weren’t available even for an hour, it would cause a major business disruption.
A third issue that typically rules out SaaS is integration. The convenience of using SaaS applications–especially when adoption is driven by business users–can mask a significant IT challenge. That challenge is integration, both with other enterprise applications and with data sources.
In some respects, integrating SaaS can be easier than integrating in-house or ASP-provided applications. That’s because SaaS’s multi-tenant nature requires vendors to pay more attention to the data exchange and application programming interface (API) connections to other applications so that a broad variety of customers can use the SaaS application without any customization or significant hand-holding–both of which would defeat the SaaS vendors’ business model. Integration is a little bit easier because someone has already given some thought to it.
Another factor, is how separate the SaaS application is from other enterprise applications. In a loosely coupled application space, it may be easier to bolt on SaaS apps if they use common APIs like XML.
Integration with enterprise data is a more straightforward issue. Most SaaS applications are designed to export and import standard data formats for their application domains–vendors really had no choice if they wanted to be taken seriously.
Typically, SaaS works best when data is exchanged in periodic batches, not in real-time transactional environments.
The future: One SaaS step at a time
In many respects, adoption of multiple SaaS applications mirrors what happened in the 1990s as companies brought in so-called best-of-breed applications and then had to figure out how to integrate them to execute business processes that transcended any one application.
SaaS vendors typically are much better at connecting to other applications and better at using standards than vendors were a decade ago.
Back then, most enterprises decided the integration effort for best-of-breed wasn’t worth the cost, so they began adopting suites instead. The same is likely to become true for SaaS, where the first such suites are already emerging–and CIOs need to understand that adopting a specific SaaS application may put them on the road to bringing in additional SaaS applications, ones that may compete with existing suites they’re heavily invested in.
For example, Salesforce.com is intent on creating a suite based on its CRM software and its AppExchange platform through which other companies can develop plug-in applications for Salesforce.com that use the same architecture and data model, thereby eliminating the need for customization that could cause breakage when Salesforce.com is upgraded. ERP provider NetSuite has a similar strategy, though largely limited to the mid-market.
Reliability is not as much a question as it used to be because SaaS providers typically deliver the same availability as most enterprises do, with uptimes of 99.999per cent. SaaS contracts include a service-level agreement (SLA) of at least 99.5per cent availability, which is the common minimum.
Security concerns have also diminished in many CIOs’ minds. There have been no reported breaches at SaaS providers. SaaS providers must segregate its data onto separate storage hardware when critical information is involved although it will allow commingled storage in some cases.
As the industry matures, enterprises may find that they can depend on SaaS for more mission-critical needs, perhaps even one day running their ERP applications in that model.
SaaS is possible today because there’s less custom enterprise code than in the past. Twenty-five years ago, it was all custom code; 15 years ago, ERP applications were packaged and reduced custom code. But custom code today still accounts for about 60per cent of enterprise software, meaning there are a lot of areas that SaaS just can’t handle, just yet. But making a start cannot hurt.