Several factors are driving enterprises' adoption of Software as a Service (SaaS) solutions, chief among them the need for IT departments to do more with less. In 2010, 42% of organizations reduced their budgets for IT, according to a study by professors at the W.P. Carey School of Business at Arizona State University. SaaS solutions reduce capital and maintenance expenditures by allowing enterprises to pay for only what they use month to month.
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"The recessed economy, business frustrations with vendors and increasing acceptance of the SaaS business model provide a recipe for the perfect storm for increasing adoption of SaaS solutions," said Julie Smith David, director at the Center for Advancing Business through IT, and associate professor at the W.P. Carey School of Business at Arizona State University.
The SaaS market increased 14.1% in 2010 compared with 2009, generating $8.5 billion in revenue. It's predicted that the market's revenue will grow to approximately $14 billion in 2013. Smaller businesses and vertical industries have driven growth thus far, but SaaS suites for large enterprises are gaining ground and will be the driver for future growth, according to industry analysts. SaaS will constitute 17.7% of the total ERP market by year's end, according to a Gartner Dataquest forecast.
David and Michael T. Lee, assistant professor at the W.P. Carey School of Business, recently released a report sponsored by the Society for Information Management's Advanced Practices Council that addresses enterprise concerns about SaaS security, cost savings and integration with legacy systems.
SaaS solutions' security, cost concerns overblown?
Enterprise CIOs' security concerns about SaaS may be unjustified, according to David and Lee. After all, an organization's security can be violated simply by someone sending proprietary data and information through a business email. SaaS vendors can employ robust disaster recovery procedures to secure data and information either in their facilities or off-site.
Many SaaS vendors have earned independent certifications to demonstrate the security of their environments -- which perhaps are even more secure than their clients can demonstrate their own are. Enterprises should verify that a SaaS vendor has achieved SAS 70 certification, an indicator that it meets the minimum requirements for a Sarbanes-Oxley Act audit. In addition, government organizations can require SaaS vendors to be compliant with the Federal Information Security Management Act.
Subscribers to SaaS solutions also often wonder if the SaaS cloud computing model is less expensive in the long run. Predictable monthly costs are a good reason to select a SaaS provider, but the long-term total costs of a subscription can exceed the tangible costs of purchasing, owning and periodically upgrading the software on-premises, David reported. Nevertheless, she said, "What this evaluation ignores are the intangible benefits of SaaS vs. the other costs of purchasing and owning software, such as the disruption in business time and resources required to upgrade hardware and software." Intangible benefits extend to having best-practices backup, security and recovery procedures in place and on demand.
Two years ago, Intuit Inc. began using Vision Critical Communications Inc.'s Sparq SaaS to help the company innovate based on customer input. Intuit's software is used by two-thirds of the professional accountants in the U.S., according to Eric Rothdeutsch, manager for customer and market insights at Mountain View, Calif.-based Intuit. The tax software business is largely about renewals, he said, with a couple of companies that are entrenched and customers that rarely switch because of their familiarity with the products and conversion problems among vendors.
"We're really thrifty here. Some companies will spend more on one study than we do on dozens," Rothdeutsch said. Intuit spends about $20,000 a quarter on its Sparq surveys, he estimates. The company's four full-time researchers sometimes program the surveys, and sometimes they use Vision Critical's preprogrammed surveys.
Over the course of a year, "the $80,000 is money well spent," Rothdeutsch said. Intuit previously conducted surveys by mail or phone. "If we were using a paper survey model, it would be ruinous to our budget," he said. Besides lower capital costs, there are other, intangible savings from using SaaS: "Time savings is a big piece of it; calendar time savings is pretty critical," he added. Product development "was just not going to work [with previous] cycles of research."
SaaS vendor viability, integration big concerns
The biggest worries enterprises ought to have regarding SaaS solutions are vendor survivability and lock-in, not security or higher costs over time, David said. There will continue to be "a lot of consolidation in the market," she said. "We knew it intellectually, but when a SaaS vendor is bought, the worst-case scenario is that data disappears overnight." Or if a SaaS vendor gets acquired and becomes a small fish in a big pond, the new owner could spend too much time integrating it with existing products instead of close development with customers, she added.
The recessed economy, business frustrations with vendors and increasing acceptance of the SaaS business model provide a recipe for the perfect storm for increasing adoption of SaaS solutions.
Julie Smith David, director, Center for Advancing Business through IT, Arizona State University
A company considering signing a SaaS contract should identify how it's going to extract data if the provider is acquired or there's some other change in its status, David said. Prospective customers should make sure that data is in a usable format, and identify a second provider.
New classes of integration tools are emerging to integrate SaaS with legacy environments, and SaaS vendors are opening their technology platforms to encourage the development of a broader set of features and easier integration, according to David and Lee.
"Long-term success hinges on how well these applications can be integrated into the organization's technology architecture [and on] making strategic data available throughout the organization and integrating process activities with distributed technologies," David said.
Middleware in the cloud is maturing because of consolidation -- for example, IBM bought Cast Iron Systems, and Dell Inc. bought Boomi to provide clients a bridge to SaaS. Middleware vendors have developed such tools as data mapping and process modeling to simplify application integration.
David and Lee recommend that enterprises inventory their existing SaaS solutions and their integration expertise; perform controlled pilots of SaaS rollouts; conduct business process training; and develop a support procedures manual. The documentation should include the company's SaaS applications, their service levels and the methods for receiving vendor support. Documentation is critical because it's likely each application will be supported by several different methods, given the severity of the problems being experienced.
Critical applications should receive the highest level of support -- via telephone, with a rapid response time, for example -- whereas online forums or emails can provide assistance for other types of problems.
Documenting the information for whom to contact to resolve a SaaS problem -- and making sure it's available to all internal support people -- will reduce significantly the response time and effort needed to resolve difficulties, David said.
Let us know what you think about the story; email Laura Smith, Features Writer.