By Darrell Dunn
2007-06-07

Software as a Service lets companies rapidly launch a new system and keep upfront costs down.

Opportunity
Businesses are turning to Software as a Service, or SaaS, for fast software implementation with reduced upfront investment and minimal IT staff resources. They're taking advantage of a growing portfolio of applications using the on-demand model.

Accelerating time to market and reducing cost of operation keep CIOs in their jobs. Moving the software's management and operation from the internal IT department to a vendor with intimate knowledge of the software's capabilities also can maximize benefit to the enterprise.

SaaS offerings are growing in number and application type, but most of the new applications comes from small startups with short track records. Traditional licensed software platforms purchased and amortized over multiple years of a capital budget generally remain less costly in the long run than SaaS alternatives. Businesses also remain reluctant to relinquish existing investment in critical applications or to entrust control of their IT resources to a third party.

Still, SaaS is poised for tremendous growth. Granted, licensed software will continue to dominate the market. SaaS revenues will reach more than $19 billion by 2011 from $6.3 billion last year, according to Gartner, and will account for 25 percent of the total software market.

A recent survey of Service & Support Professionals Association members by consulting company McKinsey found the proportion of CIOs considering SaaS adoption jumped to 61 percent this year from 38 percent in 2006. The survey also found that, of 34 software application areas examined, only nine, including financial change and configuration management, are unlikely to see SaaS adoption by 2008. "It is clearly a disruptive force causing virtually all software players to provide some type of service solution," Gartner analyst Robert Desisto says. Indeed, industry software giants Microsoft, Oracle and SAP have either added an on-demand element to their portfolios or will soon enter the SaaS market.

Business are demanding vendors provide options for software purchase and management, and the largest vendors believe their ability to mix, match and migrate users among service-based and licensed portfolios is best. Some SaaS startups will provide acquisition fodder for the established vendors, and a great number will eventually fail, leaving some businesses reluctant to embrace the unknown. But the risk of using service-based products is lessening, and a decision to abandon an SaaS-based project generally carries less of a penalty than exiting a licensed platform. "CIOs are looking for ways they can out task rather than outsource their IT requirements," says Jeff Kaplan, founder of IT consultancy THINKstrategies. "The last wave of IT evolution was to hand as much of the mess as possible over to a third party. Now, CIOs are selectively finding specific tasks that can be addressed by software as a service."

Case in point: In 2005 Internet security specialist SurfControl was having a CRM meltdown. Growth fueled by acquisitions had left the company with engineering and sales operations strewn around the globe, each running a different version of Goldmine customer relationship management software. SaaS allows for the same software to be used everywhere in the enterprise, so SurfControl leaders were attracted to the on-demand CRM solution furnished by Salesforce.com. Not only that, but they hired Salesforce vice president of systems architecture Max Rayner as SurfControl executive vice president of products and services and charged him with revamping their floundering IT operation.

"There was no systems control, and business processes were significantly different country to country with each version of the software," Rayner says. "It was imposing an immense drag on the company. Just getting a forecast was like a meeting of the College of Cardinals in Rome, with the smoke rising only weeks later."

Last November, SurfControl implemented a phased rollout of Salesforce CRM to 300 workers in Europe, America and the Asia-Pacific region. It went live companywide in February. In the first quarter of use, SurfControl has seen a 10 percent increase in sales, with a smaller staff of commissioned reps. The company has also reduced demands on the IT staff, which had spent months attempting to coordinate the disparate Goldmine platforms, Rayner says.

SurfControl has turned to Salesforce for sales, marketing, technical support and internal case assignment. Staff meetings are now productive, with various groups working off a standard platform, distribution of software upgrades is easier, and use of a "modern" CRM platform improves sales staff recruitment, he says. "Every time we wanted to make a business process change, or introduce a new offering, it took months to coordinate differences. Now when a marketing campaign generates leads, we get direct and usable data. In the bad old days, the file had to be broken apart and loaded in the specific program, and two months later when the lead was dead, we'd see the information."

Ask Your CEO:
Do we understand how well regional and task-oriented groups within the company communicate?

Ask The Sales Staff:
Are you satisfied with the usability and reach of your salesforce automation and CRM software?


Strategy

Evaluate the tradeoff between fast implementation and the long-term cost of software acquisition. When in-house IT staff resources are at a premium, SaaS can be an opportunity enabler.

Business opportunities can be fleeting and fickle. Nimbly addressing the shifts and fluctuations in market demands can make or break a quarter, a year or a company. On-premise software efforts can take six months to a year to implement, while SaaS projects can be running in days and fully implemented within weeks. If the opportunity is short-lived, SaaS might allow a company to ride part of the wave with minimal investment. If the effort proves unsustainable, jettisoning SaaS-based projects can be easier and less costly than killing projects based on licensed on-premise software.

Grocery retailer C&S Wholesale, which uses acquisition as a growth strategy, had a data center relocation project waiting in the wings, and multiple internal sales and productivity efforts in place. It needed a comprehensive way to manage these projects, and quick.

C&S, a privately held company with revenue exceeding $20 billion a year, considered an on-premise project portfolio management software package, but found that it required a minimum two-year commitment and a 180-day implementation cycle. The retailer instead selected a project portfolio management package from on-demand provider eProject. The application was in operation within six weeks, providing immediate dividends in improved efficiency, C&S Director of IT Madeleine Kerr says. "The timeline for implementation was crucial," Kerr says. "Within a couple of months we identified projects that had slipped to the bottom of the pile that needed attention, projects that weren't as important as we had originally believed, and a tremendous amount of time and energy spent in doubling planning activities."

Getting that immediate insight let C&S salvage some projects that would not necessarily have failed without the eProject software, but would have failed to achieve the ongoing attention necessary for optimum success, Kerr says. And, she estimates, bringing the same functionality in house would have cost twice as much as the SaaS solution.

Cost also was a factor in promotional products distributor Gemline's decision to use SaaS to manage the assets at its Lawrence, Mass., headquarters, its manufacturing facility in southern China and its mobile salesforce. "We've seen very rapid growth the past few years, but like any midsize company, we don't have an abundance of resources," says Director of IT Ben Messar. "There are some top-of-the-line products that have their place, but they are pricey and I didn't have the resources to dedicate someone to learning and running one."

Gemline installed Everdream asset management software in phases, starting with asset tracking to get comfortable with the platform, and progressing to software distribution, patch and antivirus management, and online backup.

The company will be able to implement the enterprise resource module as soon as it can document its technology resources across all its facilities. Messar estimates the Everdream SaaS-delivered software cost less than half the on-premise solution from Symantec subsidiary Altiris he'd priced at $50,000 plus the salary of an administrator to manage the installation.

Like Gemline, Gevity, a publicly traded company, has limited IT resources. The human resources services firm with 2006 revenue approaching $648 million must comply with regulatory requirements such as Sarbanes-Oxley as well as internal policies and procedures. Gevity sought an IT package to control and document the rollout of policy training particularly as it relates to antifraud measures. Gevity wanted a fast implementation without impact on existing IT demands. Though an SaaS solution seemed logical, company executives expressed concern about placing critical operations in the hands of a relatively unproven company, according to Gevity Vice President and General Counsel Eddie Hightower.

Gevity opted for Axentis on-demand governance, risk and compliance management software hosted by IBM, an arrangement Hightower says increased his confidence in the application's reliability and security. The Axentis software deployed within 30 days. Gevity began with policy, training and certification functions, and later expanded to include compliance tracking and regulation. "It is important under federal guidelines that the company not only talks the talk but walks the walk when it comes to compliance," Hightower says. "Not only do we now have a way to push out the information and training programs, but also a fully auditable trail to prove compliance."

The key component of the effort was to improve communication within the organization about new policies and requirements, providing a tool for organizing and distributing related information. The software also tracks end-user delivery to provide an audit trail.

Sometimes companies have little choice but to employ SaaS. Take, for instance, online advertising facilitator LinkShare. Its homegrown e-mail management system failed sporadically in early 2006, and in July, it was down for 18 days. A system replacement hadn't been budgeted, and the increasing frequency of outages threatened LinkShare's service levels. An on-premise package would take months to implement, and would only provide a return on investment after seven years, says LinkShare Director of Affiliate Services Avik Mohan, citing a LinkShare analysis.

Using funds from a contingency budget, LinkShare did a two-and-a-half-week pilot run with Kana's on-demand e-mail management software; implementation took a mere five days.

ASK YOUR CFO:
Can SaaS purchases be made from the operating budget or a discretionary fund rather than the capital budget to accelerate deployment?

Ask Your Department Heads:
Are we passing up opportunities because we don't have time to deploy adequate supporting IT resources?


Implementation

Flexible implementation strategies provide a proving ground to weigh the value of SaaS, and cognizance of corporatewide needs can enable deployments that leverage other SaaS products and resources. Service-level agreements, where applicable, can help ensure objectives are met.

The need for speed, flexibility and cost control led holding company OHC to make separate CRM deployments at two of its subsidiaries, IT consultant Optimus Solutions and refurbished computer hardware provider Canvas Systems. By late 2005, both units had outgrown a homegrown CRM system, with its clunky user interface and inability to handle increasing level of data demand, according to CIO Steve McDonald. "We had really gone beyond the expiration date of the original system," McDonald says. "We needed a short ramp to implementation, and a product that was simple to use so the employees would take full advantage and create the benefit intended."

McDonald entered talks with Salesforce, but with some trepidation. In 2005, Salesforce had suffered some outages. It had addressed the problem by upgrading equipment and providing online access to real-time monitoring and maintenance information, but McDonald held off on deployment until he had a clear understanding of service-level agreements for the project and his own IT staff was available to work on it. Then, Salesforce was rolled out in phases across both organizations over two months. "It was a bit of a gamble," McDonald says. "There were some reservations, but Salesforce has done a good job and we have not had a single outage since we went live."

An expanding ecosystem of SaaS providers let McDonald customize OHC's CRM platform. He used the AppExchange, an on-demand marketplace launched by Salesforce in January 2006, to find applications to integrate with and expand the Salesforce platform.

McDonald chose authentication software from Sxip Access to synchronize ID and passwords of its corporate active directory with Salesforce. An application integration program from Cast Iron Systems was used to tie into the on-premise Microsoft Dynamics NAV ERP system. Eloqua marketing management software was added to handle e-mail and Web campaigns. "Our success with this level of integration between SaaS and on-premise applications has led me to go straight to the SaaS market to see if there is an appropriate solution each time we open the books on a new business challenge," McDonald says. "I even find myself looking at my ERP system and wondering, what if there were a Software as a Service package available that met our needs."

SaaS also can be used to supplement on-premise software when an operation needs to scale temporarily. Take, for instance, XM Satellite Radio, which mixed packages of on-demand and on-premise software to help manage its call center operations during peak periods. The subscription radio company had used a handful of third-party call centers employing various software platforms. XM sought to gain control of the operation, so it created a company-operated, 1,500-seat site in Washington, D.C., that runs on Avaya's call-center platform running on its own servers. But during the winter holiday season, the need for customer service reps could double. Instead of licensing more seats, XM chose to use the Avaya on-demand service offering the same functionality at a second site in Ellenwood, Ga., staffed by Avaya-supervised agents.

Tanya Callaway, XM director of technical operations, says the second site allows her to mix and match on-premise and on-demand as conditions change, such as distributing traffic over the two call centers to minimize the likelihood that customers will get busy signals. "I wanted a partner that could provide me a kind of shopping cart where, if I need a particular service today, I don't have to go and source it," she says. "I can just order it off the menu."

The continuing growth in SaaS means more vendor and deployment options for the enterprise. Licensed software will continue to dominate the market, but strategic deployment of service-based applications will find increasing favor in IT organizations.

Ask Your IT Consultants:
Which SaaS vendors have demonstrated longevity and technology advancement?

Ask Your IT Staff:
Where could current SaaS efforts be improved or leveraged with additional SaaS products?