Everyday challenges and the future of Software as a Service

Once an enterprise chooses Software as a Service, it must consider service-level agreements, battle uptime challenges and keep an eye on costs, which might be higher than expected.

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This is part three of a three-part series on Software as Service from Barney Beal, news director at SearchCRM.com.


TABLE OF CONTENTS
Software as a Service: Working with Web-based apps
What constitutes Software as a Service?
Tackling Software as a Service integration issues
Everyday challenges and the future of Software as a Service


When integrating Software as a Service (SaaS), there are, of course, specific costs that need to be considered. Yes, implementation is generally cheaper than with on-premise software. Firms interviewed by Forrester Research reported implementation costs equal to or half of a one-year subscription to the application. That compares with reports of one to five times the license cost of on-premise applications.

But SaaS still requires process consulting, and SaaS applications tend to have a smaller functional footprint. That means that SaaS buyers must spend more in areas such as single sign-on and setting up integrations, according to Forrester.

Even with all the success, there's still going to be a bloodletting in [the SaaS] industry, and it's already beginning.
Jeff Kaplan, managing director of THINKstrategies,

Care Rehab ultimately adapted Salesforce.com to its business and its business to Salesforce.com. It used the opportunity tab within the application, for example, to track inventory but also adjusted its business processes. "The application forms the language with which we manage salespeople and how we manage our inventory," Care Rehab's Barrett said. "We've built process and people around it."

The per-user, per-month subscription model typical of most SaaS applications is straightforward and constant, which is a strong selling point for most organizations. But there are other recurring costs of which buyers should be aware. Some integration tools and add-on technologies can mean recurring costs for buyers. Additionally, some SaaS vendors have storage limits and can raise prices beyond a certain threshold.

"Salesforce.com is probably most famous for its storage charges," Herbert said. "It's an evolving area as SaaS moves into content where storage is more of an issue. It hasn't hit a lot of areas across SaaS yet."

Firms also need to be wary of underestimating change management, integration and fitting SaaS applications to their business processes, Forrester warns.

Because SaaS vendors tend to offer smaller functional footprints, companies planning on widespread organizational adoption of SaaS need to recognize that they will have to deal with multiple SaaS vendors and therefore should consider additional costs of vendor management, identity and access management, and integration, according to Herbert.

Still, SaaS return on investment (ROI) has fallen short of some expectations. A recent Gartner study of 333 SaaS users and prospects in the U.S. and U.K. found that those who considered but disregarded using SaaS did so because it was more expensive than they had imagined.

Getting SaaS right at the SLA level
Because SaaS applications were often brought into organizations through the back door, such as by a sales manager launching a small Software as a Service customer relationship management (CRM) deployment or a small division head looking to get a system up and running quickly, SaaS contracts historically did not pass through the same rigorous approval process as on premise-based software or hosting agreements. When the time comes to renew the contract and companies face price escalations and adding new users, that's left some companies surprised, analysts said.

As with any enterprise purchase, the best chance for a deal is when a company first negotiates with a vendor. Support and service uptime are critical factors here. Most SaaS vendors have standard agreements whereby they reimburse customers for an application outage. But losing an HR system or CRM system for a couple hours during the day is likely to cost a company far more than the reimbursement for usage.

According to a Burton Group survey of 318 organizations using SaaS, half of respondents did not know how downtime credits were handled. Of those who did know the service credit policy, only 14% reported that they received a credit greater than the proportional time of the outage.

When negotiating with a SaaS vendor, particularly for the first time, organizations should include their finance and purchasing departments. Contracts should clearly outline uptime guarantees and the penalty for missing those goals. But verifying missed services levels presents its own challenges.

"One of the biggest challenges," said Liz Herbert, a senior analyst at Cambridge, Mass.-based Forrester Research Inc., "is you write a contract and it guarantees uptime, but there's no clear way that can be tracked."

Several third-party services have emerged to track SaaS performance. HP's Cloud Assure for example, tracks SaaS uptime.

One of the biggest challenges is you write a contract and it guarantees uptime, but there's no clear way that can be tracked.
Liz Herbert, senior analyst at Forrester Research,

Still, outages are generally few and far between. Ferrara could remember only one instance in which the Workday system went down while Inverness was still a beta customer.

"My worst enemy is the Internet going down," she said.

Salesforce.com and a few instances of Google application outages have probably received the most attention. Following two high-profile outages of its service in 2005, Salesforce.com launched a website for customers that tracks its system uptime and performance.

When negotiating with SaaS vendors, buyers should also pay careful attention to service and support. Many organizations turn to SaaS hoping to offload some of their IT demands and assume that the SaaS vendors will take that on, Herbert said.

"Often companies are moving to SaaS because of IT constraints, so they're assuming a certain level of IT support," she said. "Yet some of these vendors are so small they don't offer full-time support. It may be email or limited phone and chat or an extra charge."

Getting some SaaS-tisfaction
Despite the generally glowing customer reviews of Software as a Service, not all SaaS implementations are without hiccups. When it came to perceptions of SaaS, the Burton Group survey received good and bad reports. SaaS delivered on financial expectations at 96% of the time, and 65% of respondents reported that SaaS reduced overall software costs. But SaaS did not always live up to expectations. The total cost of ownership (TCO) was generally higher than predicted, especially for larger organizations. Of companies with more than 10,000 employees, 43% found TCO higher than predicted.

Similarly, a survey from Stamford, Conn.-based Gartner Inc. found SaaS had not lived up to expectations. On a scale of 1 to 7, survey of users and prospects of SaaS software in the U.S. and U.K. gave the applications a satisfaction score of 4.7.

"I think that is underwhelming," said Ben Pring, a Gartner analyst and author of the survey report. "If you were really gung-ho for this and really blown away by the experience, you wouldn't give it that kind of score. People who are using these solutions see some benefits but don't see it as the slam dunk."

The future of SaaS
As much progress as the market for SaaS has made -- Gartner estimates that the market reached $8 billion in 2009, up 22% from last year -- it still has a long way to go.

"Even with all the success, there's still going to be a bloodletting in this industry, and it's already beginning," said Jeff Kaplan, managing director of THINKStrategies. "The shakeout and consolidation could be a reminder of what happened at the dot-com era. Will the customer view those failures as an indictment of the overall movement and turn away? I'm hoping that doesn't happen."

ABOUT THE AUTHOR:
Barney Beal is the news director at SearchCRM.com. Write to him at bbeal@techtarget.com.

Editors' note: This chapter on Software as a Service is the third part of an e-book on cloud computing that also includes chapters on CIO strategies for the cloud, development for the cloud and Infrastructure as a Service.

This was first published in August 2010

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