The What and Why of SaaS

By Paul Ablack, President
  Tuesday, July 22, 2008

SaaS, otherwise referred to as Software-as-a-Service first emerged around 2000/2001. It has become one of the fastest growing segments of the IT sector, as it provides organizations with “turn-key” software solutions that can be implemented quickly, whilst avoiding the incremental infrastructure costs and eliminating the ongoing administrative resources of traditional on-premise applications.

A software vendor develops a web-native software application and hosts and operates (either independently or through a third party) the application for use by its customers over the Internet.

Many types of software are well suited to the SaaS model. Application areas such as customer relationship management, video conferencing, human resources, IT services management, accounting and corporate e-mail are just a few of the initial markets showing SaaS success.

The primary reasons that companies are turning to SaaS rather that continuing to struggle with traditional on-premise applications are:

• Faster deployment time and reduced time-to-market
• Reduced IT infrastructure acquisition and maintenance costs
• Greater ease of use and added business value
• Reliability and scalability

In 2004, MasterCard International decided to replace its employee performance evaluation and goal setting in favor of a SaaS alternative. The financial services company found its internally developed applications no longer satisfied their needs since they were not integrated with one another, leaving employee reviews and goal-setting processes uncoordinated. Their applications could not be accessed remotely and there was no automated way to notify users of updated information.

MasterCard’s human resources department believed a “SaaS” solution could overcome these challenges. A vendor was selected and, in just two weeks, MasterCard implemented an application suite to support its approximately 5,000 employees.

Acquiring on-premise software often requires additional IT infrastructure investments in servers and databases to store data, private networks to permit user access and security systems to protect the valuable information. This typically results in extensive approval procedures, multiple review committees and executive approval to make these capital investments.

MasterCard was able to make the decision to deploy a SaaS solution at a division level because the IT infrastructure impact was limited and the applications could be acquired on a subscription basis that would be accounted for as a business expense rather than a capital expenditure. This permitted an easier and quicker project approval and application installation.

Another key benefit of SaaS is that is eliminates the IT infrastructure required to support new on-premise applications. It also significantly reduces the cost of application maintenance and eliminates the issue of IT infrastructure becoming obsolete over time. (Source: THINKstrategies White Paper).

Despite the fact that large companies have become more reliant on sophisticated software such as customer relationship management, e-commerce and workforce performance management to run their business, a majority of these organizations are dissatisfied with their return on investments. Corporate executives are frustrated with the time, effort and cost required to deploy new business applications, as well as the ongoing resources consumed to keep them up and running, plus the cost to stay innovative.

SaaS is enabling large companies to more quickly deploy business software, more easily administer these applications, obtain best-in-class capabilities and redirect their scarce resources to strategic initiatives, such as business process improvement.

SaaS does not require additional IT infrastructure in new servers and databases to store data, or private networks to permit user access. Instead, companies can leverage the SaaS provider’s hosting facilities and take advantage of web-based access. The SaaS model also substantially increases application reliability because vendors perform frequent backups and utilize redundant hosting facilities rather that reacting to daily application availability, maintenance and support issues.

SaaS also eliminates the hassle and cost associated with software updates and upgrades. Rather than dedicate IT resources and acquire additional infrastructure every time an on-premise software vendor releases a new version of software (usually every 12 months), SaaS subscribers receive a continuous stream of software updates and upgrades automatically, without the need to re-code customizations or re-create integrations.

Companies using SaaS applications are General Motors, Reebok, Salesforce, Google, MasterCard, Tommy Hilfiger, John Deere, Nikon, Ebay, Panasonic, and the list goes on.

The expanding customer base, rapid revenue growth and increased profitability of these SaaS leaders are leading indicators of the tangible business benefits and corporate viability of the SaaS model.

So to sum up SaaS

• It is a quicker and cheaper way to acquire software while consuming less internal resources.
• It has proven to be more scalable, reliable and functional as on-premise software.
• Companies can leverage leading edge business applications immediately.
• No complicated upgrade processes and the IT infrastructure demanded by traditional software applications.
• SaaS has proven to be a powerful new business solution that allows IT to re-focus energy and resources to play a more crucial role within their company.
• Security: Look at all building blocks that protect your data. Let someone else worry about it, after all they have a lot more to lose, and so are more security conscious.