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Cloud Computing Blog Post

 Software as a Service & Cloud Computing

The SaaS Value Proposition

Despite the continuous growth and market adoption for Software as a Service (SaaS) solutions, or perhaps because of it, many SaaS vendors are attempting to alter or advance the SaaS definition to more closely align with their particular solutions. Sales pitches that include terms such as 'multi-tenant' versus 'isolated tenancy' - or - 'SaaS' versus 'Software + Services' are just a few of the technical arguments which ultimately cause more confusion than value for IT evaluators and buyers.

To separate claims and hype from substance and benefits, focus on the true definition of SaaS as well as the SaaS value proposition.

SaaS Defined

While SaaS is a broadly defined term for which there is no definitive consensus, the below definition of SaaS enjoys general industry agreement.

SaaS is a software delivery model which provides web-based application access from a central shared services hosting facility over the Internet based on a subscription pricing model.

Key SaaS characteristics include the following:

  • Browser-based access to software applications
  • Pay-as-you-go subscription pricing - akin to rental
  • IT management is performed centrally rather than at each customer's site
  • Shared services application delivery which generally includes impressive Tier 4 data centers and may consist of a multi-tenant architecture or in some instances a single-tenant (or isolated tenant) architecture
  • Centralized software management and upgrades (which eliminates the need for end-users to download and install software patches and upgrades)

Software as a service characteristics remain relatively constant despite the continual evolution of category naming for this disruptive technology. The change in the delivery, pricing and support model has evolved from its original moniker of ASP (application service provider) to utility computing to on-demand to SaaS and likely will fold into the cloud computing nomenclature and paradigm. Notwithstanding progressive naming escalations, the SaaS business model has consistent, profound and sustained value. According to Nicholas Carr, a former editor of the Harvard Business Review and IT visionary, the SaaS or utility computing model will have similar economic and social impact as was incurred a hundred years ago when companies stopped generating heir own power with steam engines and dynamos and plugged into the newly built electric grid.

SaaS Value Proposition

The core tenants of the SaaS value proposition are unchanged regardless of vendor and include the following benefits.

  • Subscription pricing for lower TCO (total cost of ownership)
    • SaaS solutions forego hardware and software procurement, annual maintenance fees and upgrades
    • SaaS enables acquiring only the amount of software needed as opposed to traditional licenses per device
    • SaaS allows subscribers to access business functionality at a lesser cost than paying for licensed applications
    • SaaS reduces or eliminates IT salaries expenses for DBAs, system administrators and support or help desk staff
    • Some software vendors facing eroding market share to the SaaS solutions have attempted to suggest that SaaS TCO is higher due to the recurring subscription model, however, while costs vary by customer, several analyst firms have developed TCO models which demonstrate SaaS TCO is normally lower over the life of the application software
  • Faster implementation (faster time to benefits)
    • With no hardware, platform software or application software to install and configure, SaaS business software implementations are typically performed in 45% to 55% of the time and cost of on-premise CRM or ERP applications
  • Outsourced expertise
    • SaaS operations are managed by outsourced experts for improved product delivery and support; hosting organizations offer expert resources such as data center architects, DBA, security and help desk
    • Offloading IT administration and management allows companies to apply greater time and focus to core competencies
  • Predictable IT expenditures
    • Hosting clients turn otherwise variable costs into predictable monthly payments
    • Fewer over-budget IT project surprises
  • Reduced risk
    • Failure to achieve SaaS implementation success or post production results offers customers the option to terminate their subscriptions
  • Vested partnerships
    • Unlike traditional software licenses which are sold without any money back provisions, SaaS agreements are dependent upon recurring subscription renewals; With SaaS, the hosted vendor has a financially vested interest in the customer’s satisfaction and software success
  • On-demand scalability as business grows
    • With SaaS, there is no need to purchase and maintain hardware in advance in order to be able to support cyclical demands or increased business growth; SaaS offers on-demand scalability
  • SaaS solutions forego a highly depreciable (hardware and software) asset which offers no intrinsic financial value. When performing the buy versus rent scenario, remember that if something appreciates over time you may opt to buy it, however, when something depreciates you often opt to rent it. Information systems only ever depreciate. Use the asset – don’t buy it.

Recognizing the true definition of SaaS and the core tenants of the SaaS value proposition will empower IT evaluators and buyers to bypass vendor injected self serving claims and imposed confusion as well as maintain focus on the business value and benefits realized from the SaaS delivery model.

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READER COMMENTS

By Beth Ann ONeil
I'm speaking with SaaS CRM vendors and being told by the multi-tenant providers that single-tenant is not real SaaS - and at the same time I'm being told by the single-tenant SaaS vendors that their more autonomous architecture is SaaS and provides significant advantages in terms of data segregation, information security, privacy and performance over multi-tenant solutions. Any advice on who is right?

In my opinion, this is one of those technical debates that can consume hours of review while not being germane to the decision making process. Most SaaS CRM solutions are multi-tenant. This architecture provides economies of scale for the SaaS manufacturer and presumably those cost savings can be passed on to customers. Several leading SaaS CRM vendors use a single-tenant architecture, which is not to say they each customer has their own equipment as most single tenant providers share equipment but dedicate a separate database instance to each customer. Single tenant systems can provide more customer flexibility when it comes to system integration or software customization and they may or may not provide greater assurances with privacy, security and performance. Several large and security conscience enterprises such as the federal government and financial services firms often prefer single-tenancy architectures as they remain uncomfortable with commingling their data in the same database as hundreds or thousands of other companies.

comments

By Vivian Cabano
We're speaking to an accounting system vendor who can host their financial software at their facility. Is SaaS the same thing as ASP?

SaaS is not the same thing as ASP (Application Service Provider), however, SaaS did evolve from the ASP model. ASP's generally host a business application without the shared service economies inherit in the SaaS hosting model. SaaS accounting software or other on-demand business applications differ from prior era client/server or fat-client applications in that they are purpose built for Internet delivery using using thin-client browsers, web technologies and shared data center infrastructures. The data center shared services are key in enabling multiple customers to access a common central delivery platform. As compared to the prior era ASPs, SaaS solutions leverage web-native technologies to offer increased performance, scalability and user experience benefits while simultaneously leveraging a common infrastructure to gain economies of scale in software deployment, delivery, management and support.

comments

By Jim Erhlick
We're evaluating a SaaS customer relationship management software. One of the vendors places great emphasis on SOA? I'm failing to see how SOA offers value to my users. Can you advise?

A SOA (Service Oriented Architecture) may be applicable for system integration, linking 'mash-up' third party programs or performing software customization or development. Many SaaS CRM systems can take advantage of SOA to permit their applications to more simply communicate with other applications. Each software service can act as a service provider, exposing its functionality to other systems via public brokers or WSDL (Web Services Definition Language) documents, and can also act as a service requester, receiving data and functionality from other services. If your planned CRM deployment does not anticipate integration, mash-ups or customization, it's quite possible SOA is being touted as an advantage that is not relevant to your decision making process.

comments

By Diane Wittenberg
We're looking at hosted sales force automation. Any downsides to SaaS SFA systems?

Of course, while the on-demand model delivers many strategic benefits it is not a panacea. Common caution areas include Internet-limited performance, technical issues and less mature business systems, With SFA hosted applications, data transfer is limited to Internet bandwidth speeds instead of Ethernet speeds. The distance between your users and the hosting data center can also introduce latency that will affect the user experience. Hosting can also introduce new technical complications - often around the firewall, pop-up blockers and antivirus software.

SaaS SFA and other business applications are less mature than prior era on-premise applications simply because they are younger. In this regard, software evaluators may or may not discover that on-demand systems have less functionality or feature depth - and often will discover that the availability of SaaS vertical market or industry specific solutions is more scarce than on-premise applications.

Information security and hosted uptime (or the threat of downtime) were at one point the most common SaaS concerns, however, with impressive information security safeguards, globally redundant data centers and financially-backed service level agreements (SLA) these areas have been extremely well mitigated and proven false for nearly 10 years.

I have heard claims that SaaS also imposes 'vendor lock-in' upon customers. However, this argument seems unfounded as when compared to the alternative of on-premise business systems, SaaS provides more flexibility in changing vendors more quickly and at a lower cost.

Send comments to blog[at]Vantivemedia.com.

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