APICS magazine received a lot of reader feedback about “Unraveling Software-as-a-Service Spin,” an article in the November/December 2008 issue, which discussed Software-as-a-Service (SaaS). I thought Gd take a moment to offer my thoughts on the matter.
In the early days of enterprise computing, the hardware was so expensive that only the largest companies could afford to buy their own systems. Demand for computing capability led to the emergence of the time-sharing industry, wherein a business could rent computer time, paying only for what was used. However, that trend essentially disappeared when the cost of computers came to within reach of the mainstream user.
Over the last few years, the “rent it instead of buying it” idea has been finding its way into the world of enterprise software. Early on, mainly point solutions–such as expense reporting and sales support—benefited from remote access. Now, complete enterprise resources planning (ERP) application suites are available on a pay-as-you-go basis. Known as SaaS, this incarnation of rental computing is an attractive option for company leaders considering an ERP system upgrade or replacement.
Benefits and concerns
The most obvious benefit of renting these applications is the elimination of many up-front costs. In the traditional model, a firm would buy a computer and associated equipment; install and configure them; purchase the software license; and load, implement, and configure the software. With SaaS, there is no central hardware or software. Instead, users access the solution securely over the Internet. Note that the business still must maintain personal computers and networking and communication systems. In addition, it’s necessary to convert or load data files, train users, and develop effective procedures.
There are many benefits to SaaS, including an arguably lower total cost over time, easier budgeting for annual expenses, reduced need for internal information technology resources, and
quicker implementation. While SaaS is available from third parties, many major ERP developers offer some products on a complete subscription basis, as well as an option to buy the license and pay for hosting and system management–a hybrid approach.
While there has been significant adoption of this alternative, I don’t believe SaaS will become the predominant form of enterprise software sales in the foreseeable future. There are limitations and concerns that are preventing more widespread interest, the biggest of which are security and control. The enterprise system holds and manages a firm’s most important information and critical functions. Executives thus are reluctant to relinquish direct control of this resource.
Ironically, the data actually may be more secure in the hands of SaaS professionals than in a company’s own data center. With a professional SaaS vendor, users can be sure files are backed up daily and the backups stored in a secure, offsite facility. The supplier has emergency and disaster recovery plans in place, as well as set maintenance, bug fixes, and new release enhancements, as they become available. However, that can be good or bad news, as the opportunity to customize applications may be more limited with SaaS.
Lastly, it’s important to consider the issue of access. Today’s communications infrastructure is very reliable. The Internet is no longer a wild frontier; it can be a safe, secure, and dependable communications medium. Nevertheless, there is more opportunity for interruption when communicating to a remote site than there might be when the connection is limited to internal wiring.
Statistically, it is much safer to fly in a commercial plane than to drive on a public highway. All the same, most people feel safer in their own cars than they do when strapped into a seat in an airplane headed down the runway. It doesn’t make logical sense, but that’s human nature. The same is true for SaaS. We may know our information is safer with a SaaS vendor; still, it somehow feels better to know company data are right down the hall.
Anyone considering upgrading or replacing software should at least look at the pluses and minuses of SaaS. The article in the November/ December magazine did a good job of laying out SaaS’s associated concerns, costs, and risks. However, reduced up-front investment and more stable, more easily budgeted recurring costs can significantly change the economics.
Reprinted from APICS magazine: Enterprise Insights January/February 2009
