SaaS Expands its Footprint

Magma Design Automation, supplier of computer- aided design, relies on CRM func­tionality delivered as Soft­ware-as-a-Service (SaaS) from Salesforce. com to track orders and maintain customer satisfaction levels. Hamilton Beach- Proctor Silex, a major consumer appliance manufac­turer, facilitates its market research through SaaS- deliv­ered applications provided by statistical tools vendor SPSS. Robert Reid, group vice pres­ident for Oracle’s CRM On Demand service, told DBTA that ‘ a majority of Oracle enterprise customers’ are deploying Oracle’s CRM applications through its SaaS­based delivery service.

These are just three exam­ples of an increasing reliance on software provided via SaaS arrangements, in which enterprises only access the pieces of software they need, on a pay- per- use basis. Some industry watchers and leaders predict that SaaS is rapidly becoming the de facto method of software delivery, with on­site licensed purchases becoming the exception. ‘ Over the last few years, we’ve seen a growing number of ISVs moving to the soft­ware-as-a-service model,’ Dave Mitchell, director of software-as-a-service strategy for IBM, told DBTA. ‘ Most of the start- up application vendors are selecting SaaS as their primary model, and increasingly as their sole model for delivering applica­tions.’

For software vendors, the main advantage is that only one version of a solution needs to be maintained and updated, rather than attempt­ing to support multiple ver­sions deployed in the market­place. For end- users, there are other compelling reasons – such as only paying monthly access fees, rather than mak­ing massive upfront invest­ments in hardware and soft­ware.

In the traditional on- site license model, ‘ the risk is all on the customer,” Mitchell said. ‘ The customer buys the software, then has to figure out what infrastructure to run it on, on what hardware, on what middleware, and on what database. In the soft­ware- as- a- service model, that risk moves over to the provider.’

This may change the dynamics of the often ­contentious relationships that have existed between vendors and their customers over the years. Nick Blozan, chair of the SaaS Executive Council at the Software Industry Information Association, ob­served that “ many enterprise software companies have delivered questionable value over the last 10- plus years.” Unfortunately the licenses were paid up- front “ and if the customer couldn’t derive value there was little recourse,” he told DBTA. “ SaaS puts the power back into the hands of the customer and demands a culture of ‘customer suc­cess.’ ‘

CRM, ERP Lead

Survey data confirms that interest in the SaaS approach is running high among corporate end-users. A survey of 576 companies conducted last year by Unisphere Research for the Oracle Applications Users Group (OAUG), in cooperation with Noetix, found that a sizable segment of enterprises are tak­ing advantage of, or are aware of, SaaS or on-demand software. About two out of five respondents, 39 percent, were already using SaaS applications, and another nine percent were considering adoption of SaaS-based solutions with­in a year’s time. Those that already run on-demand or SaaS solutions reported that they were seeing benefits in terms of cost savings and skills availability.

ERP is the most common type of SaaS application, the OAUG survey found. A third of the SaaS users, 33 per­cent, reported that they are leveraging ERP-type applications through a hosted service provider. Ranking in second place were CRM/sales force applica­tions, which tied with human resource applications at 26 percent. Business intelligence applications were the fourth-ranked category with 24 percent, tied with collaboration tools.

Dilip Wagle, partner with McKinsey & Company, concurred that SaaS adop­tion is strongest for certain workloads, including CRM, HR, payroll, and anti­virus applications. ‘Others, such as development tools, storage and systems will likely take longer to move to a serv­ices model,’ he told DBTA. Plus, he added, ‘the high-end enterprise space is slower at adopting SaaS and will likely take a number of years to see broad­based movement.’

At Magma Design, SaaS-based appli­cations are highly integrated with onsite ERP applications to manage the compa­ny’s buy, sell, and make processes. ‘ SAP is our back- end system of record,’ explained Chip Vanek, director of corporate and CRM applications for Magma. ‘We use that for purchasing, for materials management, and also the core financials, so that we have a very defined way to recognize revenue and do order-to-cash.’

However, this func­tionality is augmented by functions pro­vided through Salesforce.com, which Magma also considers a primary sys­tem. ‘We use [Salesforce] as a platform for building a lot of different process­es,’ he said. ‘We use it for lead-to­order and customer support, and prod­uct build management, and other processes. It’s become the ‘core busi­ness OS,’ and that’s how its referred to internally.’

Moving Towards the Core

Hamilton- Beach’s market research department primarily relies on on-site software, but lately has begun tapping into SPSS’s SaaS-based platform to cover a growing workload that end­users simply don’t have time to sort through. ‘All the data manipulation on the back end is supported by SPSS,’ said Tracy Trawick, consumer insights manager for Hamilton-Beach. ‘We’re using it for very template-based itera­tive projects so we don’t use up a lot of programming time. I don’t have the time to learn the logic and the programming tools.’ Trawick uses the SPSS SaaS platform to create and launch consumer market research surveys, and manipu­late the data as it comes in. However, she still employs SPSS on-site software for more complicated projects.

In line with the Hamilton-Beach example, Oliver Halter, partner with Diamond Management & Technology Consultants, said that ‘companies cur­rently tend to use SaaS on the fringe of their operations.’ Often, he told DBTA, ‘this also means that the SaaS partner provides an additional service that makes it worthwhile for the company to outsource the software and function. Companies tend to have an easier time switching to SaaS if the data managed in these systems is ‘non core’ and is not considered a competitive advantage.’

Nonetheless, as found in the OAUG survey research, enterprises are looking at SaaS as a serious option. ‘You need only step back and observe other relat­ed trends to see where SaaS will take us,’ related Joe Dupree, leader for the integrity validation services business unit of Infogix. ‘Mills in the earlier part of the last century used to generate their own electricity. More recently, there were companies who wrote their own billing systems. In some cases this was because the solution wasn’t on the mar­ket. In most though, it was because they believed they could do it themselves cheaper,’ he said. ‘Of course, compa­nies don’t write their own billing sys­tems anymore. They will similarly learn that acquired enterprise software gob­bles up precious systems and IT admin-i­strators and equipment, and see the fruits of SaaS. It will gain ground with applications outside the core of the operation and gradually move toward the center.’

Integration Challenges

Moving to a SaaS model has its share of challenges, however. McKinsey’s Wagle cautioned, for example, that ‘counter to the promise, the deployment and inte­gration effort is not zero. Most effort is centered on integration and customiza­tion of single SaaS applications, espe­cially in the enterprise space.

Moreover, as companies increasingly move to more SaaS applications, integration challenges will manifest themselves in terms of integration with other SaaS applications.’ Vanek of Magma Design Automation said that his company needed to do quite a bit of integration work to mesh data coming from the Salesforce.com system into the compa­ny’s SAP system. ‘We have an issue where we need to take the information that we have in Salesforce and pull it back into our back-end system,’ he explained. For example, in the compa­ny’s ‘buy’ process, ‘we have hundreds of people around the world that are cre­ating purchase requisitions. We have to make sure that we have them properly approved. We needed a bi-directional synchronization between the two sys­tems.’ Another risk with the SaaS model is that companies with sophisticated processes may not get the customiza­tion and flexibility they need in SaaS­delivered applications, versus that from an on-site system.

‘To get the full TCO benefits of SaaS requires that the serv­ice be provided as a multi-tenant appli­cation in that all users essentially share the same instance of the software and run the same version,’ Wagle said. ‘SaaS applications are generally not as feature-rich and lack the level of cus­tomization capability that on-premise applications provide. Therefore, the ‘good enough’ functionality provided by SaaS applications may not be sufficient for a company’s needs, in some cases.’

Oracle’s Reid agreed that companies seeking greater customization are less likely to adopt SaaS. ‘Let’s say you’ve got a business, and innovation in your business processes in going way beyond your industry norm is how you com­pete,’ he related. ‘You want to put very customized processes into the software to support your overall business. It would be very logical for you then to move forward with a licensed type of environment.’ A more likely prospect for SaaS would be a company seeking cost efficiencies, he added.

Data Loss and Reliability

While SaaS ostensibly provides a ‘sin­gle throat to choke,’ end-user compa­nies may have less control over the reli­ability about how their data is managed, McKinsey’s Wagle also warned. ‘Pure ‘in-the-cloud’ services imply that all the customers data are essentially stored off-premise in a data center owned or contracted by the service provider,’ he explained. ‘In the event of data center failure on the part of the service vendor, the customer has no recourse but to hope that data were appropriately backed up and managed in a secure fashion. The problem can be exacerbat­ed if the SaaS vendor in turn, out­sources back-end data center operations to yet another third party. This can com­plicate accountability and liability in the event of failure or security breach­es,’ Wagle said.

‘Like any vendor, SaaS or utility vendors can have stability, security or financial problems,’ said Bert Armijo, vice president of marketing and product management for 3Tera. He recounted his own experiences to DBTA, noting that ‘I’ve had vendors go bankrupt, or their co-location provider went bank­rupt, without giving me the ability to remove my data. One app I liked stopped functioning last August and the provider hasn’t been able to bring it back online yet. I’m assured that ‘all the data is still there,’ but as you might imagine that data is no longer of value to me.’ Armijo also said that until recently, ‘the best way to counter this was with complex off-site backup requirements. I say complex because confirming the backups were being made isn’t simple and often the backup is of little real value since the customer doesn’t have access to the application to make use of the data.’ However, he added, new tools are helping address the challenge of ‘frequent off-site backups on an appli­cation level rather than a database level.’

New technologies now ‘make it feasible to cheaply have an off-site backup at a secondary data center that IS the application, ready to run.’ Still, SaaS has the potential to free up IT personnel for more high-level tasks as well. ‘

Most IT organizations spend 70 to 80 percent of their time updating, patching, and maintaining applica­tions,’ said Reid. ‘Where I think the real value is being able to understand the business requirements, and then proposing, here’s the best way for the corporation to utilize technology to achieve their goals. SaaS allows IT to elevate itself into being business part­ners with line-of-business units. SaaS helps IT professionals to do what they really want to do the most – have an impact on the business, as opposed to just doing patches, and maintaining things, and upgrading systems.’

SaaS adoption is strongest for certain workloads, including CRM, HR, payroll, and anti-virus applications.