Posted by: lrrp | November 23, 2007

SaaS 101: What Managers Need to Know

Software as a service (SaaS) is simply the ability to offer access to live and running software through the Internet. According to research firms like Gartner and Forrester, SaaS is one of the fastest growing segments in the IT sector. Adherents claim it provides a far more cost-effective alternative for enterprises to achieve their business objectives than can be achieved with traditionally-packaged software applications.

In order for software to be offered through the web to consumers, the software must exhibit certain Web 2.0 “traits” such as

1) Using the Web as a backbone infrastructure for enterprise class solutions.

2) Static publishing and page views by individuals is replaced with dynamic publishing and collaboration by groups.

3) The harnessing of collective intelligence through collaborative solutions.

4) The elimination of traditional HTML with dynamic web pages and dynamic links that can render on-demand content.

5) The replacement of static content with transactional databases.

6) The elimination of traditional software development, deployment, and maintenance with managed solutions.

7) Far richer user experiences.

In essence, SaaS uses Web 2.0 traits to help eliminate the need for your enterprise to implement, provision for, deploy, host, manage, and support its own software. End users use their browsers to connect to live infrastructure that is provisioned and supported by a dedicated service provider who focuses on nothing but that domain 24×7.

While SaaS is relatively new, it’s not something that popped up overnight. SaaS providers have comfortably been around since transaction based processing has been available on the Internet and SaaS, as a paradigm, represents a more refined form of a managed service.

For instance, highly established SaaS providers include but are not limited to:

• Yahoo
• Google
• Ebay
• Amazon
• Salesforce.com
• CollabNet
• Business Engine Networks (BEN)

Note that the types of SaaS solutions that your enterprise will most likely leverage are those that directly solve internal business needs, most commonly those related to business processes.

So, for example, the primary offerings associated with providers such as Yahoo, Google, Ebay, and Amazon are typically not the types of SaaS solutions that most enterprises would leverage, internally, to address common business problems – they tend to target the needs of consumers more than those of an enterprise.

However, solutions like Salesforce.com, CollabNet, and BEN are specifically constructed to help address common enterprise business problems. For example, a solution like Salesforce will allow you to put a solution in place for Customer Relationship Management.

In addition to the plethora of SaaS blogs that are now available on the Internet, you can also find SaaS providers and information through established internet directories, such as ASPStreet and the SaaS Showplace.

The Benefits of SaaS

There are certain advantages that come with SaaS-based solutions, which you may want to explore and understand before you decide to dive into one. For example:

• Reuse.
• Lower cost solutions.
• Quicker provisioning of solutions.
• Flexible pricing models that fit your growth patterns.
• Better support.
• Better solutions.
• A smaller IT footprint for your enterprise.

Reuse: One of the greatest advantages of SaaS is “reuse,” which in my own opinion really is the foundation for all other benefits of the paradigm. When you buy into using a SaaS solution for your enterprise, you’re ultimately admitting that you’ve chosen not to reinvent the wheel and will simply leverage an existing solution, one that you can implement faster and cheaper, at a minimum, and where the solution will be “good enough,” if not the best.

Lower Cost Solutions: By leveraging SaaS solutions for your enterprise, chances are high that you’re accessing domain specific solutions at a fraction of the cost required for you to implement, provision for, deploy, host, manage, and support such solutions yourself. One of the biggest benefits of SaaS solutions is that they offer very significant economies of scale in pricing. The reason for this is because most SaaS providers can take advantage of “reuse” in their domain space, very easily. For the SaaS solution provider, offering “cookie cutter” solutions that are highly repeatable is the goal. The end result is that they commonly pass the benefits of such reuse on to their customers at very significant cost savings.

Quicker Provisioning of Solutions: One of the beauties of taking advantage of SaaS is that the domain solution you’re about to leverage has already been planned for, designed, provisioned for, implemented, deployed and tested. What this means is that your enterprise can simply tie into an existing solution that’s offered up in a fraction of the time your enterprise would need to implement the solution itself. In the case of most SaaS solutions, the software is already live and ready to be used. The “bottleneck” is nothing but the payment for the service and understanding how you will tie the tool into your own business processes.

Flexible Pricing Models That Fit Your Growth Patterns: When leveraging SaaS based solutions, your enterprise will typically have access to a subscription based and deterministic pricing model that allows you to buy what you need, when you need it. This means that you can match the purchase of software to the growth patterns of your enterprise. As your enterprise grows, you simply turn on new connections, eliminating the need to acquire new infrastructure and resources. As your enterprise shrinks, you turn off connections you don’t need. So you avoid getting stuck with oversized infrastructure and resources that you no longer need but have to continue to manage and support. Again, in either case the time to implement new connections or shut existing ones down is almost instantaneous.

Better Support: When using a SaaS solution, chances are that your enterprise is leveraging solutions that come from, are managed by, and are supported by experts who focus on the domain 24×7. With a SaaS solution, your enterprise is typically tied to a live service provider that, in many ways, acts as a live extension to your own enterprise. Tying to a SaaS provider is, in essence, a very low cost way to extend your enterprise’s resources by simply tapping into another enterprise that has resources focusing on the problem domain – all the time.

A Smaller IT Footprint for Your Enterprise: Since you’re typically pointing a browser to a SaaS provider hosted platform, the most infrastructure you’ll need on your end is the device being used to run your browser and a thin network that gives it access to the internet. This means you don’t have to provision, host, manage, and support your own internal infrastructure. For those enterprises that are small enough that they don’t want to dabble in the complexities of managing their own IT organization, SaaS is definitely an effective option to help ramp up your business solutions, while minimizing your IT footprint.

Understanding the Downside of SaaS

However, just like any decision that has an upside, you also have to be aware of the associated downside. It’s important to understand that the SaaS implementations you undertake, within your enterprise, will most likely not solve all of your business problems. After all, what you typically get with a SaaS solution is nothing more than the software platform. You will still have to worry about things like…

• Your internal processes.
• How you’re handling audit and compliance issues.
• Internal training of how to best use the tool(s) to solve your internal business problems.
• Making your payments regularly.
• Integrating external SaaS solutions with internal business solutions, as well as other external SaaS solutions.

It is important to understand that SaaS is not a “cure all.” Like any service that you get from an external provider, it’s important to ensure that you can rely on the service provider for constant, stable, and cost effective delivery of that service.

However, you may find that even with some of the built-in bumps and bruises that come with new SaaS providers (that are in the process of establishing themselves), it still might be worth the investment to buy in, especially if it means avoiding going through those growing pains, yourself.

SaaS: A Modern and Effective Form of Outsourcing

Given that SaaS is a relatively new concept in the grand scheme of the information age, it seems to be finding its niche.

Apparently, SaaS represents the next step in the chain of evolution for IT Outsourcing. Where outsourcing IT labor has been common in the last five to seven years, SaaS represents the outsourcing of complete IT services, including the associated infrastructure and labor.

SaaS allows pieces of IT to now be acquired through a controlled and repeatable service model, where the provider acts as a center of excellence that the consumer can easily tap into to leverage significant economies of scale. If this sounds like a “Utility Company” model, it essentially is. The end result is that enterprises can now acquire such IT related services the same way they do their benefits, payroll, accounting, and legal services, which is in the form of a utility.

However, since SaaS is still a relatively new concept, most enterprises are cautious about diving in. If you look around the industry, you’ll typically find three leadership scenarios that will welcome SaaS solutions:

1) Visionary leaders that are always looking to be at the head of the technology adoption lifecycle and who use SaaS as a way to accomplish this.

2) Leaders that understand that the areas covered by many SaaS providers are not, in fact, their own core competencies, so they look for external solutions providers to help supplement their own internal solution base.

3) Leaders that are under pressure to cut costs and create operational efficiencies as quickly as possible.

In any event, SaaS adoption is picking up and gaining momentum. It’s being heralded as a new outsourcing “flattener” (referring to Thomas L. Friedman’s book, “The World is Flat”), due to its ability to take labor costs out of the equation and make it so that higher wage western IT workers can now compete with lower cost foreign labor markets.

Still, while SaaS becomes more of an accepted form of outsourcing, it will not solve all problems. There will always be pieces of your value chain that your IT resources add direct value to. Deciding which pieces to handle in-house or outsource is simply the practice of properly managing your business and understanding what your core competencies are or are not. There is no solution you can purchase that will substitute for good old common sense.

(Frank Guerino is the founder and CEO of TraverseIT, a SaaS-based provider of IT Operations and Information Management Solutions designed to help IT organizations manage themselves more effectively.)

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