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On-Demand or On-Premise? This whitepaper evaluates Software as a Service


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The decision on whether to choose SaaS over an in-house deployment largely comes down to the level of IT expertise you have on hand, as well as the availability of the appropriate experts.

The decision on whether to choose SaaS over an in-house deployment largely comes down to the level of IT expertise you have on hand, as well as the availability of the appropriate experts.

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  • 1. ON-DEMAND ORON-PREMISE?Best Practicesfor MidsizeBusinesses
  • 2. As for those who contend that SaaS won’tstand the test of time and won’t have a signifi-cant impact on the software industry, Kaplansays a survey he conducted revealed that athird of respondents were already using SaaSand another third planned to in the comingyear. “As SaaS gains mainstream acceptance,it is becoming an important disruptive forcein the software industry,” he writes. “And aslong as the quality and reliability of SaaSsolutions continue to improve, the appeal ofSaaS isn’t going to go away.”Overview of SaaS vs.On-Premise OwnershipIt is certainly no myth that SaaS represents afundamental shift in an organization’s approachto IT resources. The age-old in-house modelof software ownership means the businessbuys all its application software or develops it in-house. SaaS operates on a utility model, wherecompanies pay for only what they need.Let’s look at the business requirements andcharacteristics of each model.Conducting a Self-AssessmentDeciding which model is right for yourorganization requires you to honestly assessvarious criteria.On-Demand orOn-Premise? With mythsout of the way,software as aservice can befairly evaluatedLLike most IT-related decisions, deciding wheth-er software as a service (SaaS) is right for yourorganization requires you to assess numerouscriteria, ranging from the internal IT personneland budget to how quickly you need the solu-tion up and running.Before diving in to those issues, it’s important to fully under-stand what SaaS is and what it is not. That means dispellingcertain myths about it. Jeff Kaplan, an independent consul-tant who focuses on SaaS and operates the SaaS ShowplaceWeb site, addressed a number of those myths in an April 2006article on is that SaaS is new and untested, which Kaplan re-futes by noting that has been around for morethan six years, and the payroll software and service firm ADPhas been in business for nearly 60 years. He also refutes thenotion that SaaS only saves users the up-front cost of softwarelicenses by pointing out that it also saves on the cost of muchsurrounding computing infrastructure and allows users toavoid paying for excess capacity.Another myth Kaplan cites is that SaaS only applies to cer-tain applications, such as sales force automation and customerrelationship management. “While SaaS certainly makes sensefor many front-office functions and team-oriented collabora-tion purposes, SaaS solutions are emerging to address nearlyevery business application need,” he writes.Fundamentals:[ 1 ]
  • 3. Implementation speedFirst, how quickly do you need to imple-ment the solution? In-house software imple-mentation times vary dramatically, dependingon the IT resources a company can dedicateThe in-house model requires the following:• Part- or full-time IT staff to install and configurethe solution as well as to manage and optimize itover time. Ongoing management and optimizationis an important consideration that many companiesfail to recognize. IT environments are like living,breathing entities that constantly change.• Up-front investment in software and the infra-structure to support it. Depending on the size ofthe organization and its specific requirements, thisinfrastructure may range from a single server to amulti-server farm complete with a storage net-work and backup facilities. Additionally, softwaremaintenance fees can run 15 percent or more of theoriginal purchase price every year.• Corporate commitment to routine upgrades. Fail-ure to continually update and optimize its variousapplications can, at best, leave an organization witha suboptimal solution that doesn’t take advantageof the latest features. At worst, the organizationmay be leaving itself open to security risks if it failsto update its applications with appropriate patchesas they become available.• Support for branch locations, where applicable. Itcan be a challenge to provide application supportto remote sites from a central location. If membersof the central IT team must travel to the branchesperiodically for support, that increases costs.Of course, for many organizations, these invest-ments in time and personnel bring important ben-efits, including:• Complete control over the IT environment, whichcan be important if the IT infrastructure is a distinctdifferentiator for the business, and to ensure regula-tory compliance, for example.• The potential to consistently produce innovativetechnology that provides the organization a com-petitive edge.• The organization owns the software and infra-structure and is free to use it for as long as it wants,and to repurpose components such as servers anddesktops as it sees fit.Now let’s examine characteristics of the SaaSmodel:• No up-front fee for software purchases. Customersinstead pay a lower fixed monthly fee.• No additional IT infrastructure. The solutionprovider provides all required server and storagefacilities, enabling the customer to avoid potentiallylarge up-front costs.• No need to increase IT staff. Indeed, companiesthat are outsourcing an existing solution may beable to reduce the size of their IT group.• Routine optimization and upgrades. As new soft-ware versions become available or vendors releasesecurity and other updates, the solution providerwill implement them in a timely fashion.• Predictable long-term cost. With the SaaS model,customers know exactly what they will pay eachmonth for service, support and updates.Naturally, the SaaS model also comes with its ownset of issues and challenges for user organizations,including:• Less direct control over the infrastructure, applica-tions and data.• The organization must be able to effectively man-age the SaaS provider in order to make the most ofthe relationship.• The organization is dependent on the service pro-vider for enhancements and innovation.• As in a car lease, for example, at the end of the con-tract or relationship, the user doesn’t take owner-ship of any of the software or infrastructure.• Many SaaS providers are startups, making it diffi-cult for users to determine whether they will remainviable for the long the solution and the depth of knowledge of its IT team. Inpractice, many companies dramatically underestimate imple-mentation times because they fail to dedicate resources.SaaS solutions can generally be installed quickly, sincecustomers benefit from the experience of engineers and tech-[ 2 ]
  • 4. nicians who have installed the same solution many times.Time to valueClosely related to implementation speed is time to value,which is the elapsed period of time before a business beginsto benefit from new software or other IT deployment. Thereal downside of implementations that drag on too long is thatthe business loses the potential value of its new solution, andperhaps new opportunities as well.For example, getting its SAP Business ByDesign solutionup and running quickly helped Viper Motorcycles realizequantifiable improvements in a number of areas, including:• 12 percent annual improvement in the productivity ofits purchasing and procurement processes• 17 percent annual improvement in procurementmargins• 27 percent increase in output per production worker,year over year• 18 percent average reduction in warehouse inventorylevelsSecurityCustomers must also ask themselves some honest questionsabout whether they can provide proper security for any newapplication. For an in-house implementation, that requiressignificant security expertise, which many small businesses andmidsize companies simply don’t have.With SaaS, security is handled by the solution provider. Butthe customer should ask the provider detailed questions abouthow it handles security. In a research note published in July2007, Gartner vice president and research fellow John Pesca-tore recommended customers ask potential providers aboutissues such as:• How the provider ensures administrative security for itsown routers and switches• Whether it performs routine penetration tests• How it protects against denial-of-service attacks• Whether the provider uses content monitoring and filteringor data leak prevention tools to detect inappropriate dataflowsVertical CustomizationCustomers in different vertical industries often use the sameapplication in very different ways. Here again, customers thathave internal software development expertise may be able toadapt an off-the-shelf application to meet its requirements.Alternatively, they may be able to purchasethe application from a value-added reseller orhire an outside developer to help. Both op-tions would mean an increased up-front cost,and potentially a longer time to value.Many SaaS providers already have ver-sions of their offerings tailored for differentverticals, or perhaps focus on just a handful ofverticals, giving them deep domain expertise.Serus Corp., for example, offers a SaaS-basedmanufacturing information system specifical-ly for semiconductor makers that outsourcemanufacturing. Other SaaS providers willtailor their solutions to a specific vertical at anadditional cost, but with their deep expertiseand dedicated personnel can often completethe job much more quickly than a customercould on its own.Netting It OutAs you can see, the decision on whether tochoose SaaS over an in-house deploymentlargely comes down to the level of IT exper-tise you have on hand, as well as the avail-ability of the appropriate experts. Be realistic:if your best and brightest IT folks are spend-ing 95 percent of their time just keeping yourcompany’s existing systems running, theyaren’t going to have time to implement a newsolution unless you somehow free them upfrom day-to-day chores.As long as the qualityand reliability of SaaSsolutions continues toimprove, the appeal ofSaaS isn’t going to go away.[ 3 ]