Business case for SaaS

DFN: Article lays out the current pros and cons regarding SaaS (software as a service). Simply, this is the difference between buying a license for Essbase and having its on your own servers, versus buying Adaptive Planning and having it hosted offsite on someone else’s equipment. An Essbase deployment can run $2M (all in) versus $100K for an AP deployment.

Business case for SaaS
by Dennis Howlett on November 1, 2009

View more presentations from David Terrar.David Terrar is pimping the Intellect SaaS Group paper: The Business Case for Software As A Service. (PDF download) He does so in a transparent manner saying that:

Our aim is to promote the use of SaaS in business and to government, and to act as a focus for anyone interested in the topic.

There is at once a pleasure and problem in reading this paper. The pleasure comes from seeing a group attempt to articulate the virtues of SaaS. In doing so, they cover many of the essentials in an easy to consume fashion. Setting out for example a comparison between on-premise and SaaS that talks about a variety of issues such as data access, data ownership and compliance, evaluations, IT maintenance and upgrades is informative and valuable. The same goes for comparisons drawn around implementation.

It is also good to the see the authors do not over egg data security and risk. I remain concerned that certain vendors overplay this aspect at the risk of failing to recognize their own issues. Similarly, it is the first time I’ve seen something said about the legal issues and in particular the contracting arrangements. This is an area many SMB’s do not take time to ponder. As the paper says: ‘No-one should overlook legal issues. The SaaS business model is relatively new, but most of the legal considerations are well recognised, albeit that some aspects have developed from consumer services, which were far less likely to be challenged by the customers.’ This is an ongoing challenge around which the SaaS industry could do some good things – like develop standard terms upon which all can agree. It cannot be that hard though I know that software vendors like to lawyer themselves up to within an inch of their existence.

As always the picture is incomplete and therein lies the problem. The paper has almost exclusively been contributed to by the sell side of the software house. David acknowledges that and by implication, readers should therefore have their antenna up for hyperbole. While I note the authors are careful to say that SaaS isn’t for everyone, there is a lack of balance that is inevitable in vendor sponsored material. The old adage: ‘he who pays the piper calls the tune’ springs to mind.

I’m also mindful that the case as presented represents an industry that is in the early stages of development. It is therefore no surprise that the paper is thin on case material. They could have done a far better job here and I am perplexed as to why there are no more than a handful of shallow vignettes. I wonder for instance why they didn’t notice some of the things that John O’Nolan has been saying. Or why they could not have cherry picked and expanded on the many examples Freshbooks offers. The list could go on. From that perspective I see the paper as losing a solid opportunity to do one of the main things SaaS vendors love – getting customers out front and centre. There are other weaknesses:

For example, the generalization that while: ‘Quick implementation typified by a simple ‘subscribe and use’ approach’ talks well to the general idea of consuming applications, implementations are not always the simple slam dunk people might be drawn into believing. It depends what you’re doing and what you’re using. So for instance the idea that I can simply shift (say) my Sage data to a (say) Netsuite or that I can do the same for the handful of systems I am using to (say) an SAP Business ByDesign is nothing like the relative simplicity of moving from shoebox/Excel spreadsheets to a Kashflow, Xero or other SMB application.

Any implementation that is over and above (say) a transfer from Sage to ANO SaaS provider will be as much a project as moving to another on-premise application. Getting your data cleaned up and ready to move elsewhere doesn’t go away simply because we’re talking SaaS. It can represent as much as 70% of the project. That is something the industry should be innovating around yet I’ve not seen much progress in that area.

Similarly, as SaaS providers flesh out their offerings, complexity will creep in. How that is handled and what it means for the user experience is as yet untested but one early example gives an indication of what it will mean. SAP Business ByDesign is positioned as a complete ERP offered as a service. It does not offer customizations (and neither should it) but there are many possible configurations. That means implementing BYD is not something you do over a weekend but will take at least some weeks if not months. Yes, the time period from inception to go live should be an order of magnitude less than a comparable on-premise application but then we are starting to see on-premise providers offering ‘accelerators’ to their offerings that do change that landscape. In other words, fast track implementation may be possible at the entry level but is not a done deal further up the food chain.

Let’s be clear though. SaaS economics (in the broadest sense) are proving a highly compelling argument. Compound that with the other benefits the paper lays out and it is easy to see why this paper is something you should read. There is plenty to to understand and enough meat for people to start asking the right questions. Provided that readers remember it is primarily written on behalf of vendors then all is well. And please also remember: in any evaluation, issues like vendor viability and customer references should be at the core of your thinking.


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