What is inherent to all or most SaaS applications that makes the model so appealing to companies?

Ephraim Schwartz   

February 13, 2007 -- If we are ever to cut through the hype in hopes of determining how good software as a service (SaaS) really is, the best way would be to talk to companies that use SaaS. Of course, each application or service must stand on its own. SaaS can't turn a pig's ear into a silk purse, as they say, but I've been wondering what it is that's inherent to all or most SaaS applications that makes the model so appealing to midsize and large companies.

I spoke with Jeffrey Falk, director of product development at The Members Group, a midsize payment-processing company. The group uses Innotas, a SaaS offering for companywide project management (PM).

Falk says the group looked into a SaaS PM application almost five years ago, but the functionality wasn't there yet, so they went with an on-premises application. Five years later, when they wanted new software to "take them to the next level," Falk says, they looked again at SaaS.

"What struck us was that the functionality had caught up, and in some cases, the UI had surpassed what the on-premises solution provides," Falk tells me. As a result, the group deployed Innotas.

The reason for that, Falk says, is that in most cases Saas applications were designed from the beginning to be Web apps, not just ports of fat clients. Most SaaS start-ups stay on the cutting edge of all issues related to running an Internet application: service-oriented architecture, AJAX and mashups are all part of the DNA of any worthwhile SaaS offering.

I also spoke with Rishi Ghuldu, manager of supplier development at Barrick Gold, one of the world's largest gold mining company, with revenue of $6 billion. Barrick uses Ketera Technologies' software for spend management. It has 27 operation centers, yet before it signed up for Ketera, it had no spend management system in place.

Barrick Gold went the SaaS route for two reasons.

"We didn't want to select a system that is too arduous to implement and use for tackling something that is fairly simple," Ghuldu told me.

And with so many divisions using different systems, Barrick Gold needed the interoperability of SaaS to get started.

Both Falk and Ghuldu also say that without additional infrastructure investment or upfront software costs, SaaS allows companies to test drive an application and change gears easily, as The Members Group has done, or dive in and deploy a new type of application, as Barrick did, without much risk.

Falk says The Members Group looked at traditional on-premise products and hybrid products for portfolio management, but they were too heavy and complex. "A lot was bloatware, some with a half-baked Web client," he says.

Falk is taking the next step. Something I think will be repeated time and again. The Members Group had been reluctant to deploy a CRM application because of the bad trade press that traditional CRM had gotten during the past several years.

"SaaS is a great way to put our toe in the water," Falk says.

From a business perspective, Falk believes because Saas is more nimble, with upgrades typically four times a year, it allows his company to be more nimble.

So, is SaaS a better alternative to on-premise applications? In some cases, yes, but technology is only part of the story. I think SaaS providers have another edge over traditional corporate software companies. They haven't grown fat and happy. They are lean and hungry. As SaaS is adopted by more and more corporations, let's hope that doesn't change.