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What you need to know

Page history last edited by David Gauld 12 years, 7 months ago

Making the choice to SaaS is not a slam dunk. Despite the vendor rhetoric, SaaS is not going to be suitable for everyone. However, as time goes on, the argument becomes more compelling. 


Many arguments focus on the comparative economics of on-premise versus a subscription based service. At the entry level, some services like Quick Books are basically free. It is hard to make an argument against 'free' and for those businesses solely concerned with this dimension then the choice is clear. However, free to acquire is only one aspect of running software. Here are some the counter arguments:


  1. If you are looking at TCO and/or ROI, then this tool from Nucleus will be useful.
  2. New software often takes advantage of enhancements in the platform and operating system on which they are built. This may necessitate a hardware and/or software upgrade. SaaS does not demand hardware changes.
  3. Hardware require maintenance. This doesn't go away with SaaS but becomes less of an issue, especially where the application is connected to an internal network. 
  4. On-premise implementation puts all the risk with the buyer. If anything goes wrong then you are forced into support for which you will almost certainly be paying 10-22% of the original software cost. SaaS providers bundle support into the service price.
  5. Implementation is generally easier with SaaS. Solutions need to be intuitive with minimal training. They are often designed with the user in mind from the ground up. This contrasts with on-premise where the concentration of development effort is often focused on building infrastructure on which the application can run. This is not always true. The more advanced applications like NetSuite and SAP Business ByDesign are integrated solutions of different types that will require careful planning. Even so, SaaS providers are showing they can deliver time to value more quickly than their on-premise cousins. Check this story from NetSuite that talks about $275,000 in annual savings.
  6. The implementation approach for SaaS is usually different compared to a traditional on-premise project.  You can start with a small one or few user pilot (which can be free or certainly low cost), and then only roll out to a larger community of users if and when it works - that reduces the risk, and makes for a smaller project compared to the equivalent on-premise solution.   
  7. SaaS applications are generally available as 'vanilla' offerings. All customers get the same thing. However this doesn't work for all businesses. Vendors are taking different approaches to this problem:
    1. Some vendors have chosen to specialize. FreeAgent for example focuses on the freelancer and micro-business market.
    2. Other providers like  SAP Business ByDesign allow services to be configured according to broad industry templates and business process requirements. 
    3. Still others are developing extensible templates. See this from Intacct for purchasing and inventory.
    4. Others like Kashflow offer access to an API that is used by third parties as the jump off point for new applications.
    5. In a a variation to API access Intuit offers a platform for third party development.
  8. SaaS providers hold data for many businesses. Some providers are taking data and developing benchmarking information. Benchmarking provides a way for providers to give back valuable information about how different customer groups are performing. Here are examples from FreshBooks and MyCake. On-premise providers have no visibility to this data. 
  9. SaaS providers cannot know when customers will require access to information. They provide 24x7x365 access. This means information is available anytime you can get an internet connection. This might include mobile phones, internet cafe, laptop. Useful if you need to spend time with customers but also need access to customer data. That's not possible with on-premise software unless you have expensive virtual private network access. 
  10. Since service needs to be available 24x7x365, it follows that SaaS must be as reliable as possible. The same cannot be said of on-premise. Intacct provides continuous availability data that recently demonstrated 99.99% uptime over a 12 month period.
  11. SaaS is greener. There is an ongoing debate whether SaaS is greener than on-premise. As always, you pays your money and takes your choice. However, this discussion from Aplicor provides compelling data points for SaaS being 'green.' 


Other resources:

Business case for Software as a Service - page link (PDF download link)

Nucleus Research TCO toolkit  (XLS file)

Software-as-a-Service; A Comprehensive Look at the Total Cost of Ownership of Software Applications - an old 2006 paper from the SIIA with Siebel vs Salesforce TCO comparison


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