Software-as-a-service (SaaS): friend or foe? SaaS—also known as on-demand or hosted applications—is becoming more and more popular in a number of enterprise application areas and quickly changing the minds of many a skeptic. SaaS is changing the way organizations pay for, implement, and run their software applications. Unlike traditional applications, which are paid for up front and installed on your company’s premises (on premise), SaaS applications are hosted at the vendor site and are paid for through a monthly subscription model. While it sounds like the best thing since sliced bread, there are some pros and cons of the SaaS as a model. Today’s TEC Research Analyst Round Table discusses the SaaS model—the trends, the benefits, and the pitfalls.
Sherry Fox (Research Analyst - Human Resources [HR], Learning Management, and Incentive and Compensation Management [ICM]): When SaaS comes to mind for most IT decision makers, the first thing they think of is: “What about security?” This holds especially true for those in charge of acquiring an HR system for their organizations—for which keeping employee records under lock and key is crucial. Maybe five years ago security was an issue, but today’s vendors are much more aware of their client’s security concerns and are willing to openly discuss this issue with them. The SaaS model is gaining ground, and more and more businesses—both big and small—are giving in to the trend. Some of the main reasons for this trend are directly related to the benefits that SaaS provides and include continuous access; rapid deployment; high levels of security; cost savings; and time efficiency. Rather than spending hundreds of thousands of dollars on software licenses and hardware, companies can choose to go with an on-demand HR solution for which they are billed on a monthly basis—and only for the modules they use. Additionally, there’s no need for complex upgrade cycles, since the on-demand applications are automatically updated and routinely delivered to customers. The bottom line: SaaS can deliver the same HR functionality as its on-premise counterpart—without worrying about leaking sensitive data.
Khudsiya Quadri (Research Analyst – Supply Chain Management [SCM], Enterprise Resource Planning [ERP] for Distribution and Retail): What does SaaS mean in the SCM and retail world? Many organizations need to understand one key aspect about SaaS: it’s just a delivery model. In my opinion, the hype should be about the software—not the delivery model. It’s critical in the supply chain to look at the business by operational component, and to analyze which business process of the supply chain can be optimized using the SaaS-based delivery model. SaaS has transformed many supply chain areas, including transportation management, demand management, and warehouse management. The focus now should be on production scheduling and planning in order to complete the procurement, build, and deliver cycle. In the supply chain and retail industries, organizations need to be make sure that the applications delivered through the SaaS model are able to communicate, collaborate, and provide end-to-end supply chain visibility (SCV). The business process and strategy within the supply chain is going to put the organization ahead of the competition and will make them weather today’s economical conditions; the tools and delivery models are just there to assist. The bottom line: Pick the software that works best for you whatever delivery model you find it in.
Kurt Chen (Research Analyst – Product Lifecycle Management [PLM], Quote-to-Order [Q2O], Business Process Management [BPM]): In the product lifecycle management (PLM) area, SaaS is a force that is democratizing the PLM business management approach. Although the majority of PLM projects are still delivered through the on-premise model, SaaS is gaining ground smoothly. Currently, PLM solutions that are delivered through the SaaS model are mainly limited to small to medium businesses (SMBs)—especially those that produce or distribute products with a simple or flat structure (e.g., consumer packaged goods). However, I have to accredit SaaS for making PLM more approachable for a wide range of organizations because PLM used to be considered as an expensive and complicated system that was used by mid- to large-sized companies. The bottom line: SaaS PLM solutions are not yet as powerful and comprehensive as on-premise PLM solutions. But SaaS PLM provides SMB users with an opportunity to know about PLM as a methodology—which is probably more important than PLM as a system.
Jorge Garcia (Research Analyst – Business Intelligence [BI], Business Performance Management [BPM]): The SaaS software model has definitive financial and operative advantages, especially when compared to on-premise software models. SaaS offers low initial costs—mostly based on subscription cost and further operation costs—as the service provider is the one that operates the system. This process definitely represents savings in terms of money, IT resources, and time spent from development to implementation. Some large enterprises are still reluctant to adopt this software model, or at least to implement it in some specific business units like finance or operations. SaaS providers still have some issues to address before gaining users acceptance (e.g., ensuring that no security problems arise during critical operations). Another issue is customization. Right now, SaaS services aren’t well-suited for organizations that require systems with a complex degree of customization, or for companies that require heavy customization. Given this, the SaaS model has some limitations. The bottom line: Like any other trendy technology, the SaaS software model still has to mature. It needs to improve its processing power, enhance its security schemes, and enable more complex customization.
Aleksey Osintsev (Research Analyst – ERP, Financials, and Project Portfolio Management [PPM]): For anyone who has been following IT trends, SaaS is an acronym that is heard often—so often, in fact that our readers may turn an iron ear if they hear it again. This is a joke of course, but it reflects the reality of SaaS—it’s significant and continual. There is a question that comes to mind, though: Is a company that needs a new ERP system—or any other business application—able to distinguish SaaS vendors’ various sales and marketing efforts? There is no single universal answer to this question because it depends on many factors that are unique to each company and its particular conditions such as industry vertical; geography; the importance and uniqueness of a company’s business processes; the way the company operates, its strategic plans and objectives; and availability of reliable and secure communication channels. The SaaS model has already proven that it’s capable of serving businesses in different areas. I, on the other hand, would still not apply it to core business processes. Although it looks attractive, there are flexibility, security, reliability, and non-standard situation operating matters that still seem fuzzy to me. The bottom line: Weigh up all options, define your priorities, and make a right decision in a calm and advertisement-free atmosphere.
Gabriel Gheorghiu (Research Analyst – ERP, Customer Relationship Management [CRM], Health Care Information Management Systems [HCIMS]): It’s safe to say that CRM was one of the first business software types to embrace the SaaS model. Nowadays, most CRM vendors offer SaaS, and more and more customers are choosing to use it. For CRM, having SaaS versus on-premise can be compared to sending a letter through the postal service versus sending an e-mail through the Internet. The letter takes longer, it’s more expensive, and no more secure than the e-mail. Of course, there are some concerns related to SaaS for CRM, but they are no greater than those of an on-premise model. These include downtime and security (data can also be lost or stolen when you store it in your own server). The bottom line: The advantages are obvious—low costs; reduced IT infrastructure; and the latest technology is being used. This explains why also big corporations use SaaS for CRM.
Josh Chalifour (Director – Knowledge Services): As SaaS popularity increases, so do concerns about its intersection with free and open source software (FOSS). Users should care about how SaaS affects benefits normally associated with the FOSS ecosystem, such as customization and lack of vendor lock-in. Using FOSS as the basis for their services, some SaaS vendors modify applications specifically for the service they provide. While this is beneficial (FOSS used well), it also brings certain problems to light. A FOSS application delivered as a Web service without reciprocating its code may grow out-of-step with the community ecosystem—losing some of the rising tide benefits. In the SaaS application market, you’re unlikely to the find wide-ranging customization possible through FOSS. What happens if your SaaS vendor goes out of business? One method to ensure continuity is to sign-up with a vendor that also provides an on-premise FOSS version. If the vendor goes under, set up a system to access your data as you’re accustomed. The bottom line: Excitement about low entry costs associated with both SaaS and FOSS shouldn’t pit one option against the other—they have different benefits and may not be mutually exclusive.
Predrag (PJ) Jakovljevic (Principal Analyst – ERP, Discrete Manufacturing): In a nutshell, SaaS and cloud computing are here to stay—especially in the realms of human capital management (HCM), talent management, transportation management, CRM, travel and expenses, etc. However, they are certainly not easy feats. For start-up vendors, being successful is about reaching profitability and revenues before they run out of venture capital (VC). For established vendors, it’s about a new business model, culture, and trying not to cannibalize the existing on-premise offering. Most big vendors are choosing the hybrid (software and services) route. Additionally, strategic sourcing is another good candidate for SaaS and cloud computing. For an in-depth review on cloud computing, read these four part blog series entitled Mega-vendors Warming Up to the Cloud or To SaaS or Not, Is That a Question? – SaaSy Discussions.
The technology industry is abuzz with SaaS, but while SaaS certainly has its benefits, it has its challenges as well. Like any software selection project, it’s important to understand what is right for your business not only in terms of the software you choose, but the way in which it is offered and implemented.
Let us know what you think about SaaS. In an upcoming blog, TEC’s Research Analysts will be interviewing a few of the bigger players offering SaaS. This is a great opportunity for our readers to ask these vendors some questions on the subject (concerns, advice, etc.). Feel free to ask a question and we’ll be sure to include it in our interview.
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The words “friend or foe” in the discription of the article gave me the impression it was a pro con look at things. I did not feel the information was that balanced, it seemed very pro SaaS with no real discussion of con’s. I’m not against SaaS, but seeking to get informed in a balanced way. This felt like a SaaS advertisement rather than an evaluation.
Thanks for your feedback “Hmm”
If you had a chance to read the two previous lengthy SaaS blog series that are linked in this roundtable, you should be able to find a number of SaaS caveats, and the impression that going SaaS is not a cakewalk (at least not for vendors).
We are always sensitive to being accused of favoring one vendor over the other, but this is an interesting case of “us favoring SaaS over on-premise.” Well, maybe the fact that this market segment is growing despite the overall economic malaise has something to do with it. Maybe we are just in tune with the market trends?…
It is purely Saas advertisement.