Although there are those who believe Software as a Service (SaaS) represents the dream ticket for many businesses today, it is not without it's doubters. While it removes the need for upfront capital investment and costly upgrades and is seen as a saviour to small and medium sized businesses (SMEs) in times such as these, questions have been raised as to whether companies may be putting themselves at risk through their choice of supplier – many of whom are new entrants to market themselves. So is there any reason to fear SaaS? Mark Dye, FSNs contributing editor, reports.
SaaS – A Risky Business?
Yet, despite these misgivings this burgeoning market continues to gather pace and if reports are to believed could hit 40bn within five years. According to a recent survey of 850 enterprise customers by McKinsey & Co and the Sandhill Group, Software-as-a-service (SaaS) and service-oriented architecture (SOA) represent two of the most important trends in software today, with nearly three quarters of firms reporting that they were 'favourably disposed' towards adopting SaaS platforms going forward. This year, those surveyed also suggested they would spend nearly one fifth of their software budget on subscription and on-demand purchasing models.
To me, this move towards SaaS is more down to a shift in mindset as we all get used to trusting companies to deliver us with services over the internet much in the same way that we take our household utilities. After all, we give little thought to where our electricity comes from and millions of us use hosted providers such as Google or Microsoft for our email.
As Mark Davies, UK Country Manager, e-conomic, attests, the market is growing rapidly as new players grasp the opportunity to carve out market share in an area where he thinks older, more traditional vendors have been slower to move and change their game. "The reason SaaS is growing so rapidly is that businesses love the pay-as-you-go approach and value for money," he says.
Indeed, the model provides welcome relief from the up-front licence fees, annual upgrades and maintenance charges many have been subjected to for years. However, even though the flexibility of SaaS presents many possibilities for business, companies must invest time in stringent research to ensure that they are working with the right vendor going forward, according to Bill Schuh, European VP of Callidus Software. "Investing in a SaaS application is no different from buying traditional software," he says, "companies need to take the time to ensure it meets their needs long-term."
Transparency of operations is key here and Davies believes it's important to look towards suppliers that are open about their operations and what could potentially happen in times of trouble. "We publish on our website a copy of the agreement we have in place which ensures that the system will to continue to operate for at least 3 months, giving companies ample time to export their data from e-conomic into another accounting system," he adds.
Also built into the system is the ability to export your data, a definite component to look for when trying to avoid things like vendor lock-in. It's your data after all, so why give up control? "We have also had to show resilience in our technology, corporate structures, our financial strength, management team credentials and more," adds Peter Bauer, CEO, Mimecast, a SaaS provider in the email archiving, continuity and security arenas. "I think we make it easier too because we provide great self-service tools for customers to be able to take their data back should they need it and we offer bulk extraction tools for customers who want to unload very large data sets from us," he adds.
"As in any business decision, the buyer has a responsibility to effectively assess the risks of doing business with any vendor," says Hugh Scantlebury, director, Aqilla.
However, such risks further diminish when you consider that most SaaS offerings store customer data in securely, fully redundant data centres as standard though. Five nines reliability is enough for most investment banks after all.
"Furthermore most SaaS vendors explicitly state that any data remains the property of the customer and that it is returned at the end of any service period," adds Scantlebury.
Of course, some firms with a history of PC-based solutions for businesses continue to provide these, backed by a network of experienced and dedicated resellers who are in close proximity to their customers. Kevin McCallum, commercial director, Pegasus Software, believes these solutions still have some advantages over SaaS too.
"Elements that are currently missing [with SaaS] are the domain knowledge that a locally sited experienced consultant or reseller can offer, as well as the frequency with which our systems are bespoked to provide absolute fit for that particular business," he says. "The alternative is to already have designed and make optionally available every eventuality and functional requirement, almost impossible to do."
He also questions the robustness of the UK telecoms structure and its ability to provide the level of 'always-on' reliability businesses need.
Having said this, the evidence suggests that SaaS is going from strength to strength. Davies rejects ideas that companies like his will suffer as a result of 'cut-throat' pricing models we're seeing.
"Our multi-tenant architecture, with one instance of the system for all users, means that we have a cost-base which has enabled us to build a healthy, profitable and growing business at the current pricing level," he says. "We are entirely self-funded. There has been no need to go to the stock market or take on venture capital and we entered the UK market on the strength of the revenues being generated by our business in Scandinavia . We will expand further based upon the contribution from the UK operation."
And while size is no guarantee of stability – just ask those at Northern Rock and Bear Stearns – Eldar Tuvey, CEO at ScanSafe, says the beauty of SaaS is that it is easily deployable, so even if a provider were to go bust, customer data can be moved elsewhere easily. "This is much better than having invested in hardware to find you can't upgrade or purchase any more because the vendor has folded," he adds. Furthermore, with the world seemingly finally waking up to SaaS, it would seem fairly likely that the model would grow throughout a recession, rather than being a risky choice, as more and more enterprises face up to more capex budget cuts and open their eyes to the lower cost of ownership that the model brings.
"Look at the number of organisations that switched from expensive and maintenance hungry on-premise CRM solutions to SaaS offerings," adds Scantlebury. "Simple, cost effective and secure delivery. Most finance management teams want the same for their solutions. Why wouldn't they?"
Key questions to consider when investigating a SaaS vendor.
- How viable is your vendor? Has it got a track record and sufficient backing/profitability to ensure it is around for the long-term?
- Is this software proven by your peers? Does the vendor have similar customers to yourself that you can talk to?
- What happens if your needs change? Will you be able to migrate between On Demand and On Premise versions of the application?
- Is the solution mission critical? What would be the impact to the business if it failed and how can you mitigate this?
- Does the vendor offer watertight SLAs (Service Level agreements)? Does the vendor's SLA meet your corporate guidelines – and do they have a track record of delivery?
- Is it scalable? Can the software (and vendor) grow at the same pace as your business?
- Is it secure? It goes without saying that security is paramount, so make sure your vendor meets and advocates international SaaS security standards like Saas70 and Safe Harbor .
Source: Callidus
