For many organisations, the idea of resources on tap sounds attractive, but many view Software as a Service as risky and don't like the idea of external control on resources.
The idea of Software as a Service (SaaS), broadly software rental, is one that has long been seen as a means to reduce overspend in IT for organisations worldwide. With the cost of technology on the rise many view the model as a great way of offering a degree of flexibility to enterprises while saving on costs. Mark Dye, FSN contributing editor looks at the issues.
Historically seen as the option for forward-thinking SMEs looking to reduce up-front investment costs and improve speed to market, SaaS now seems to be finding favour with organisations such as banks and insurance companies known as 'server huggers' because of the unease they feel about placing their faith in systems they can't see or don't own.
There are numerous SaaS options out there for companies, but for now, few could be classed as industry-specific, according to Jon Fuller, co-founder and director of operations at independent consultancy, Centrix. "Activities such as CRM, HR and supply chain management all have SaaS options that offer generic benefits," he says. "But this doesn't mean they should be ignored. The Bank of America and the National Bank of Canada for instance, have invested in online HR services to automate their recruitment processes."
With many SaaS vendors being small, young and still working towards their planned 3-year breakeven point Fuller believes you can forgive organisations wanting to seek out proven, stable partners.
But the established software vendors are catching up. Bill Gates has announced his intentions for Microsoft to move into this space, launching Windows Live, a single access point for web-based services. Oracle and now SAP have also made their on-demand intentions clear both initially in the CRM space, but the suggestions are that this will soon grow to wider business processes.
The move to SaaS, says Fuller, is a move away from technology and into business processes. "The need to discuss the functionality of an application makes way for discussions about whether the application will deliver the required service for the user. The organisation is then free to concentrate on service rather than improving or fixing technology."
Right now, most software companies are either trialling or seriously having a look at the service-led model amid fears that a new entrant could muscle in on their territory, says Alan Rodger, a research analyst at the Butler Group . And this is all good news for end-users in terms of pricing.
Typical of this change is Business Objects, which has recently announced the launch of a hosted service enabling the delivery and sharing of reports across an organisation.
"Corporate governance and risk management vendor Axentis is another to have embraced the SaaS route, providing its Enterprise Integrator tool as a service that can quickly be adopted for compliance initiatives," adds Rodger.
Rodger thinks that SaaS will be the catalyst to break away from the inefficient cycle of traditional software licensing models, pointing out that even where software is installed within an organisation, it is worth talking to vendors about pricing models that relate payment more closely to usage. "From a flexibility viewpoint, SaaS is a model that can be scaled upwards and downwards, or even switched off, at the touch of a button," he says.
James Brewis, managing director, WebExpenses, a SaaS provider which replaces customers' paper-based Time and Expense (T&E) reimbursement processes with web-based applications, agrees.
For his part, he says that all customers want the same thing - a quick and effective fix to the expenses process with ease-of-deployment and ease-of-use, at an inexpensive price. "The key issue here is that SaaS can be used to great effect to address a specific business issue, thus generating a high and quick ROI, rather than implementing a mammoth system that attempts to solve all their issues," he says.
But what about those that claim SaaS is an application panacea and the only way to go? Fuller doesn't think so. But, he says, as with most solutions, a hybrid of in-house and hosted will be most organisations best approach. "The mantra has always been, outsource non-core activities. And as many financial services applications hold business-critical and highly sensitive data that would certainly be classed as core, these, for now, will remain as internal services."
Over at Quocirca, service director for Business Process Analysis , Clive Longbottom believes that a change of mindset is needed in, for example, the financial sector to embrace Service Order Architecture (SOA) and the Utility model. Until then he feels that financial services companies will continue down the bespoke software, highly proprietary route.
"If finance went for standardised systems, with standard software based around SOA, they could be looking at 50 percent less hardware on site, 60 percent less maintenance resources required, less stand-by power and cooling, greater flexibility and capability to respond to the markets," he says.
In the past one of the main drawbacks of enterprise applications were the up-front costs of licencing, followed closely by significant implementation costs and this would often mean that it could take years to see a return on investment.
Rodger believes it is also difficult to make a business case that can then see payback for a large investment, and although budgets may be starting to ease, few organisations today have the stomach for such large up-front costs unless they can see a very clear business case for doing so.
"Renting software on an ongoing basis means that the cost does not have to come out of the capital expenditure budget, and can sometimes make a difference to how the business case is received," he adds. "Some vendors are now using a 'pay monthly' option even when the software itself is delivered on premise. This can make large expenditures easier to justify, and make it faster to see a return on what has already been paid."
